2014 (3) TMI 958 - AT - Income Tax

Addition on deposits in Bank accounts to the income of the appellant - Held that - Assessing Officer rightly held that the amount of ₹ 17,63,318/- was unexplained cash deposit in the bank account of the assessee and the explanation offered by the assessee was not acceptable and tenable to justify and explain these unexplained cash deposits in the SB account of the assessee. At the same time, we take cognizance of this legal proposition that in this situation, the entire amount of cash deposits in the bank account of the assessee cannot be treated as undisclosed income of the assessee because the possibility of rotation of same cash amount as deposits and withdrawals cannot be ruled out and, in this situation, the principle of peak credit addition is applicable. Assessee submitted that the bank accounts in question for both deposits and withdrawals, the same funds are circulated and hence only peak credit should be brought to tax. On this alternative argument and submissions of the assessee, ld. DR though not conceded the arguments of the assessee but ultimately agreed that only peak credit is to be taxed, hence, we hold that only peak credit appearing in the respective bank account of the assessee can be brought to tax as there is rotation of the same funds. Hence, we set aside the issue of computation of peak credit to the file of Assessing Officer for bringing the same to tax. - Decided partly in fvaour of assessee for statical purposes.

Summary

Issues:
1. Addition of unexplained deposits in bank accounts to the income of the appellant.
2. Charging of interest under sections 234A and 234B.

Issue 1: Addition of Unexplained Deposits in Bank Accounts:

The appeal was filed against the order of the Commissioner of Income Tax confirming the addition of Rs. 17,63,318 representing deposits in bank accounts to the appellant's income. The appellant, a property dealer, declared an income without providing details of gross receipts, gross profit, and expenses. The Assessing Officer found discrepancies in the cash flow statement and observed credit entries in bank accounts. The appellant failed to explain the source of these deposits adequately. The Commissioner upheld the addition, noting the lack of disclosure of bank accounts and discrepancies in agreements related to property sales. The Tribunal observed that the appellant did not submit bank account details initially, and the Assessing Officer rightly treated a portion of the deposits as unexplained income. The Tribunal agreed that the explanations provided by the appellant were not acceptable. However, considering the possibility of fund rotation, only the peak credit amount was to be taxed. The issue was remanded to the Assessing Officer for computing the peak credit.

Issue 2: Charging of Interest under Sections 234A and 234B:

The Assessing Officer charged interest under sections 234A and 234B. The appellant's appeal against these charges was consequential to the main issue of unexplained deposits. As the main issue was remanded for computation of peak credit, the Tribunal directed the Assessing Officer to reconsider the levy of interest under sections 234A and 234B accordingly. The Tribunal disposed of the appeal, deeming it allowed for statistical purposes.

In conclusion, the Tribunal partially allowed the appeal by remanding the main issue of unexplained deposits for computing peak credit. The consequential issue of interest charges under sections 234A and 234B was also remanded for reconsideration. The Tribunal emphasized the need for the Assessing Officer to provide the appellant with a fair opportunity to be heard during the reassessment process.