2005 (1) TMI 424 - HC - Income Tax

Cash credit - plea of peak credit - Applicant submitted that as the amount of cash credit has been treated to tax by invoking the provisions of section 68 of the Act and the said amount have been treated as income from the unexplained source, the applicant was entitled to take up a plea of addition of the aforesaid peak credit as the entire deposits have been treated to be income of the applicant Contention of applicant-assessee is wholly misconceived - As in the present case the amount of cash credits were standing in the names of different persons which all along the applicant had been claiming to be genuine deposit, withdrawal/payment of the amount to different set of persons during the previous years would not at all entitle the applicant to claim benefit of peak credit

Summary

Issues:
Interpretation of section 68 of the Income-tax Act, 1961 regarding unexplained deposits and the application of peak credit principle.

Analysis:
The High Court of Allahabad was presented with a question regarding the treatment of unexplained deposits and whether the peak amount should be added in such cases. The reference pertained to the assessment year 1979-80. The facts revealed that cash credits in the names of various individuals were added to the applicant's income under section 68 of the Act. The applicant contended that only the peak credit should be added if the deposits were treated as unexplained. However, the Tribunal rejected this plea, emphasizing the need for separate additions for unexplained deposits in different accounts. The Tribunal held that the burden of proof lies with the assessee to establish the source of the deposit in each account. If the genuineness of a deposit is not proven, a separate addition is necessary. The Tribunal dismissed the applicant's argument that withdrawals from one account could cover deposits in another, stating that separate additions are required for unexplained cash credits in different accounts.

The applicant argued that since the cash credits were treated as income from unexplained sources under section 68, only the peak credit should be added. However, the Court disagreed, stating that the applicant must first own all cash credit entries in the books of account before claiming the benefit of peak credit. As the cash credits were in the names of different persons and claimed to be genuine deposits by the applicant, withdrawals or payments to different individuals in previous years do not entitle the applicant to the peak credit benefit. The Court found no legal flaw in the Tribunal's decision and answered the question in favor of the Revenue and against the assessee. No costs were awarded in this matter.