ITAT Pune Directs Unified Peak Credit Method for Viraj Group's Unaccounted Cash Book Entries, Deletes Gross On-Money Additions

The Pune Bench set aside separate additions on gross on-money receipts and Section 69A peaks, directing the Assessing Officer to recompute income using a single chronological peak credit ledger across five assessment years.

The Income Tax Appellate Tribunal, Pune Bench B, has directed the Assessing Officer to abandon the piecemeal approach of taxing gross on-money receipts and separate Section 69A peak credits in the case of Nashik-based real estate company Viraj Estates Private Limited. In a common order covering assessment years 2014-15, 2017-18, 2020-21, 2022-23 and 2023-24, the Bench held that all entries in the seized handwritten cash book and digital cash book must be merged into a single chronological ledger, with only the incremental peak balance for each year brought to tax. The Revenue's cross-appeals seeking restoration of the full gross on-money additions were dismissed. The assessee's appeals were partly allowed for statistical purposes.

The Viraj Group Search and What Was Seized

A search and seizure action under Section 132 of the Income Tax Act, 1961 was conducted in Viraj Group cases on 20 April 2023. The search covered three office premises in Nashik — the 4th Floor of Abhyankar Tower on MG Road (Party No. YO-01), the 3rd Floor of the same building (Party No. YO-1(1)), and premises at Anandvalli, Gangapur Road (Party No. YO-2). Residences of key directors and members of the Viraj family, including Shri Rajendra Rasiklal Shah, Shri Vilas Rasiklal Shah, Shri Karan Rajendra Shah and Shri Viraj Vilas Shah, were also covered.

From Party No. YO-2, the search team seized handwritten cash books for financial years 2012-13 to 2022-23 and digital data in Tally software files named “V89” and “CON” stored on an external hard drive. The handwritten cash book was maintained in Gujarati vernacular by Shri Rohit Manilal Shah, a director of the assessee company, at the directions of members of the Viraj family. This was admitted by Shri Rohit Manilal Shah in his sworn statement recorded under Section 132(4) on 23 April 2023.

During post-search proceedings, the entries from the handwritten cash books, Tally data and loose chits were digitised into a Digital Cash Book (DCB) covering 1 April 2013 to 31 March 2023. The DCB was submitted by the assessee during assessment proceedings for AY 2022-23.

The Assessee's Challenge to Jurisdiction and Seized Material

Viraj Estates contested the proceedings on multiple fronts. It argued that the premises at 3rd Floor, Abhyankar Towers (YO-1(1)) and at Anandvalli (YO-2) were third-party premises — neither owned nor rented by the Viraj Group. It relied on the statement of Shri Rohit Manilal Shah, who stated that YO-2 was owned by one Vilas Joshi and was not on rent to the Viraj Group.

The assessee also challenged the issuance of notice under Section 148 as not complying with Section 151A, questioned the validity of approval under Section 151 as mechanical and without independent application of mind, and raised the absence of a Document Identification Number on the transfer order under Section 127(2) dated 21 July 2023 in violation of CBDT Circular No. 19/2019. It further argued that cash entries in a seized cash book do not constitute an “asset” for the purpose of the extended limitation period under Section 149(1)(b).

On the merits, the assessee contended that the handwritten cash book recorded transactions of multiple Viraj Group entities and individuals, and that a single unified peak credit should be applied to the entire DCB/HCB rather than separate additions being made for different categories of entries.

How the Assessing Officer Computed the Additions for AY 2014-15

The Assessing Officer identified 5,568 receipt and payment entries in the DCB for the previous year relevant to AY 2014-15. He made the following additions:

First, he added Rs. 19,25,26,021 as undisclosed business income on account of on-money receipts from 100 entries relating to plots and land whose survey numbers were accepted by the assessee in post-search submissions dated 21 July 2023.

Second, he added Rs. 7,21,81,100 as undisclosed business income on account of 38 entries relating to on-money receipts where no survey number details were provided by the assessee.

Third, for entries with narration “VR1”, survey number payments, accommodation entries, stamp and miscellaneous entries, the Assessing Officer accepted the assessee's argument that these were contra entries representing internal cash movement within the group. He applied peak credit theory to these entries and computed a peak of Rs. 7,41,39,862, which he added under Section 69A read with Section 115BBE.

Fourth, for entries with narration “V A/c”, the Assessing Officer treated the amounts as unexplained money since the assessee failed to furnish PAN and addresses of the parties involved. He added this amount under Section 69A read with Section 115BBE. The total income was determined at Rs. 74,12,67,186 against the returned income of Rs. 9,22,52,410.

The CIT(A) Order: Partial Relief on On-Money, Peaks Sustained

Before the CIT(A), Pune-12, the assessee raised both legal and merits-based grounds. The CIT(A) dismissed the jurisdictional and legal challenges. He also rejected the argument that documents from third-party premises could not form the basis for additions, and declined to apply a single unified peak credit across all entries.

On the merits, however, the CIT(A) agreed that only the profit element embedded in on-money receipts should be taxed, not the gross receipts. He directed the Assessing Officer to apply 17% as a reasonable profit percentage on gross on-money receipts from sale of plots and land, and 15% for on-money from sale of flats and shops in other years. For AY 2014-15, this restricted the on-money addition to 17% of Rs. 26,47,07,121 (being Rs. 19,25,26,021 plus Rs. 7,21,81,100).

The CIT(A) sustained the peak credit addition of Rs. 7,41,39,862 under Section 69A. For the “V A/c” entries, he directed the Assessing Officer to restrict the addition to Rs. 24,24,01,500 on a peak theory basis. He also rejected the assessee's additional ground seeking telescoping of on-money profit additions against peak credit additions, holding that both were independent sources of income and not application of income.

Arguments Before the Tribunal

Before the Tribunal, the Revenue argued that the CIT(A) erred in restricting the on-money addition to 17%, since the on-money receipts were over and above the registered sale consideration and the assessee had already claimed all expenses in its profit and loss account. Allowing an estimated 83% deduction from unaccounted receipts would amount to double deduction, the Revenue contended.

The assessee pressed for a single unified peak credit covering all entries in the DCB/HCB, including on-money entries, “V A/c” entries and all other categories. It argued that the handwritten cash book was a continuous record of rotating funds within the Viraj Group, and that artificial segregation of entries into separate pools inflated the total addition. It also submitted that the closing peak balance of AY 2013-14 should be carried forward as the opening balance for AY 2014-15 to prevent double taxation of the same funds.

The assessee further argued that all additions should be assessed under the head “Profits and Gains from Business or Profession” rather than under Section 69A read with Section 115BBE, since the seized material related to the assessee's own unaccounted business transactions.

The Tribunal's Reasoning on Peak Credit

The Bench found no justification for the artificial segregation of entries from the single seized cash book into separate pools for on-money, “V A/c” entries and other categories. It held that the only scientifically sound method in such a situation is the unified peak credit theory.

The Tribunal directed the Assessing Officer to prepare a single unified and chronologically sequenced cash ledger incorporating all entries found in the seized DCB/HCB for each year under consideration. This ledger must include all entries previously used for peak computation together with “V A/c” entries, “V Exp” entries, unidentified entries and all alleged on-money receipt and payment entries relating to plots, lands, flats and shops. No entry is to be excluded or maintained in a separate pool.

The Bench further directed that the unified peak must crystallise entirely in the hands of Viraj Estates Private Limited, described by the Revenue as the flagship company of the group. No separate addition on the basis of DCB/HCB entries is to be made in the hands of any other entity or individual of the Viraj Group.

Since the seized handwritten cash book is a continuous record containing entries prior to the assessment years in question, the Assessing Officer is directed to compute the peak balance as on the last date of AY 2013-14. That closing peak is to be brought forward as the opening peak balance for AY 2014-15. For each subsequent year, the Assessing Officer shall calculate the running daily cash balance and identify the highest unexplained balance reached during that financial year as the peak credit. Only the incremental peak for each year is to be brought to tax, to prevent double taxation of rotating funds.

As a consequence, all separate additions made under Section 69A in respect of “V A/c” entries, and all additions made on a gross basis estimated at 17% for plots and land and 15% for flats and shops, are directed to be deleted. The Assessing Officer is to give the assessee a due opportunity of hearing while computing the peak for each year.

Outcome

The Tribunal pronounced its order in open court on 27 May 2026. All five appeals filed by the assessee (ITA Nos. 3001, 3002, 3015, 3027 and 3028/PUN/2025) were partly allowed for statistical purposes. All five cross-appeals filed by the Revenue (ITA Nos. 3289, 3290, 3291, 3292 and 3293/PUN/2025) were dismissed. The matter was heard on 10 March 2026 before Shri R. K. Panda, Vice President, and Shri Vinay Bhamore, Judicial Member. The assessee was represented by CA V. R. Suresh, CA Sneha Karan Shah and CA Mahavir Anil Nahata. The Revenue was represented by Shri Amit Bobde, CIT.