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The peak credit theory is used for fraudulent and fictitious entries rather than actual ones. Where the assessee claims that all the deposits are infact loans, the benefit of peak will not be available (ratio of judgement in Bhaiyalal Shyam Behari v. CIT [2005] 276 ITR 38 (All.)]). In the present appeal, the appellant received cash loans and advances from third parties and further gave cash loans and advances to different parties. Exact details are mentioned on the documents seized. In the present case, the transactions as claimed are loan received and loan given and thus the peak theory is not applicable on such transactions. The use of peak credit theory is not possible when both depositors and beneficiaries are different, other than the assessee (ratio of judgement in Bhaiyalal Shyam Behari v. CIT [2005] 276 ITR 38 (All.)]). Similar view was taken by the Hon'ble Punjab & Haryana High Court in Sudhir Kumar Sharma (HUF) v. CIT [2014] 46 taxmann.com 340/224 Taxman 178, where cash was deposited in the bank account and thereafter cheques were issued to different parties, the assessee was unable to explain the source of cash deposited in his bank account, i.e., by issuing the cheques to different parties, it could not be said that same was available for redeposit in his bank account.

Chandra Mohan Badaya vs. DCIT This peak theory is can be applied in cases when the unexplained credit and debit entries are standing in the same account of a person. However the peak credit theory may also be extended to the cases where the credits appear not in the same account but in the accounts of different persons when such persons are found to be shell entities of the assesse himself and when all the credits appearing in the different accounts are found to be assessee's own moneys-i.e. in substance the same principle applies that "in substance" entries are standing in the account of same person. These are only the inferences which can be displaced any other findings. Peak credit theory is not arising from any express provision in the Act and is to be applied carefully.

(ii) That the Ld. CIT appeal disallowed the benefit of peak credit theory as claimed by assesse alleging that during course of search and survey action no document, whatever was found suggesting nexus between availability of cash fund and its subsequent utilisation. In this regard it is submitted that the purpose of peak credit theory has been completely ignored by the Ld. CIT Appeal which is to avoid double taxation of the same income, inasmuch as the same goes beyond the charging section of the Act itself. Therefore, before arriving at the taxable income, necessary adjustments have to be made so as to arrive at the correct taxable income and to avoid considering same income twice for taxation. Further, the application of peak credit theory has been upheld in various judicial pronouncements. Accordingly the assesse has prepared the cash flow statement of the credit and debit entries found in search records and calculate maximum peak amount in a particular year offered for taxation. It is well established law in this regard that where the debit and credit both are unexplained the credit and debit entries have to be set off against each other to the extent possible and only the peak of credit(negative or Chandra Mohan Badaya vs. DCIT positive) can be considered as undisclosed. Peak credit is applicable where complete records of unaccounted transaction was not found and it is not possible to work out the exact quantum of undisclosed income. Thus, if the Ld. AO alleges that the benefit of peak credit theory cannot be allowed to assesse, then he had the burden to prove that the inflow of cash through various credit entries was applied elsewhere and was not utilized for the purpose of re-introduction. However, the Ld. AO without discharging the onus lying upon him, has cryptically observed that the peak credit theory cannot be applied to the case of assesse by drawing a hypothetical and imaginative distinction between the debit and credit entries of cash advances and receipt back, which action of Ld. AO is completely baseless, against law and thus deserves to be struck down. In the similar facts the peak credit theory has been allowed in various judicial pronouncements as under:
• Hon ITAT Jaipur allowed peak credit theory in casle of Om Prakash Agarwal Vs ACIT in ITA 721 to 726/JP/2014 (PB 652-666)observed that " It is not in dispute that the assessee is engaged in the business of money lending. It is also not in dispute that the entries/transactions in Ex.1 -

3 of Annexure AS-1 of the seized documents found during the course of search pertains to money lending transactions of the appellant and which were not disclosed earlier in the books of accounts and offered to tax. These entries/transactions relates to money advanced to various persons by the assessee and the amount returned back by the said borrowers or amount borrowed by the assessee for further lending to its borrowers. These seized documents 17 ITA 721 to 726/JP/2014 Om PrakashAgarwalVs ACIT contain the name of various debtors and creditors to whom the money has been advanced and taken on credit by the assessee. The assessee has prepared a cash flow statement considering the entries relating to the debtors and creditors and offered the maximum peak amount as worked out for respective years in its return of income filed subsequent to issuance of notice u/s 153A of the Act. The AO has considered the entire amount of outstanding debtors at the year-end as assessee's undisclosed investment in the form of debtors. The AO has not given credit for entries pertaining to the creditors and also disregarded the peak amount offered to tax by the assessee for the respective assessment years. The reason for not giving appropriate credit for the entries relating to the creditors as stated by the AO was that the assessee has not proved the identity of the creditors. The AO therefore accepted the debtors details as mentioned Chandra Mohan Badaya vs. DCIT in the seized documents but at the same time, has not accepted the creditors details also found mentioned in the same set of seized documents. The Hon'ble Gujarat High Court in the case of Glass Lines Equipment Co. Ltd. vs. CIT (253 ITR 454) has held that "it is a well settled canon of interpretation of documents that a document has to be read as a whole and it is not permissible to accept a part and ignore the rest of the document." In 18 ITA 721 to 726/JP/2014 Om PrakashAgarwalVs ACIT light of the same, in the instant case, we are of the view that the AO was not correct in accepting only the debit entries in respect of the debtors and ignoring the credit entries in respect of the creditors found recorded in the same set of seized documents especially when the particulars of both the debtors as well as creditors are clearly visible along with date and amount in the said seized documents. In respect of applicability of peak theory, it is noted that there is nothing on record which can help determine the real income which has accrued to the assessee in respect of his money lending business in terms of agreements, contracts etc. with the borrowers and lenders which can throw light on the rate of interest charged /paid by the assessee, duration of loans /advances, repayment, etc. In such circumstances, application of the peak credit theory is the most reasonable and appropriate basis for determining the real income in the hands of the assessee. From perusal of the various entries found recorded in the seized documents and the cash flow statements prepared by the assessee, it is observed that in terms of amount advanced to various debtors, repayment thereof to the assessee, amount received from the creditors and its repayment by the assessee, the assessee has tried to establish the necessary linkage in terms of outflow and inflow of funds. It is also not the case of the Revenue that inflow of funds through 19 ITA 721 to 726/JP/2014 Om PrakashAgarwalVs ACIT various credit entries was applied elsewhere by the assessee other than his money lending business. Also, where necessary linkage in terms of inflow and outflow of funds are established, it is immaterial whether these transactions are happening in physical form or routed through the banking channel. Accordingly, we do not see any infirmity in applying the peak credit theory in the facts of the present case. In light of this discussion, we set aside the matter to the file of the AO to apply the peak credit theory after taking into consideration both the debtors and creditors entries found recorded in the seized documents."