2014 (2) TMI 1217 - AT - Income Tax

Addition u/s 69A - CIT(A) deleted the addition - Held that - There is no dispute about the fact that in the immediate preceding year AO has made the addition by applying peak credit theory in respect to the cash deposit in the same bank account and there was no change of circumstances during the year under appeal, therefore we feel that Ld. CIT(A) was justified in directing the AO to follow the same theory of peak credit while quantifying the undisclosed income of the assessee. Therefore we are not inclined to interfere with order passed Ld. CIT(A) and the same is hereby upheld. - Decided against revenue

Summary

Issues:
- Appeal against deletion of addition made by AO under section 69 of the Act without substantiating claim with evidence.

Analysis:
The case involved the revenue's appeal against the order of the Ld. CIT(A)-IV Baroda, where the AO had made an addition of Rs. 23,39,951 under section 69 of the Act. The AO observed cash deposits and cheque clearings in the assessee's bank account, which were not reflected in the books. The assessee's explanation cited the peak theory, stating that the cash was withdrawn and redeposited, with a maximum balance of Rs. 5,10,828. The AO found discrepancies in the transactions, including cash withdrawals, bearer cheques, and lack of explanations for deposits and withdrawals. Consequently, the AO added the amount as unaccounted investment under section 69A, initiating penalty proceedings under section 271(1)(c).

The Ld. CIT(A) considered the appellant's submission and allowed the appeal, disagreeing with the AO's rejection of the peak credit theory. The Ld. CIT(A) emphasized that the AO had previously accepted the peak balance method for the same bank account in an earlier year. Citing precedents, the Ld. CIT(A) directed the AO to calculate undisclosed income based on the peak credit method, considering transactions from both years jointly. As there were no material changes in circumstances, the AO was required to follow the previous decision without deviation.

Upon review, the ITAT found no dispute regarding the AO's prior application of the peak credit theory in the immediate preceding year. As there were no changes in circumstances, the ITAT upheld the Ld. CIT(A)'s decision to maintain consistency and directed the AO to follow the peak credit theory for quantifying the undisclosed income. Consequently, the revenue's appeal was dismissed, affirming the Ld. CIT(A)'s order.

In conclusion, the judgment highlighted the importance of consistency in applying legal theories, especially when dealing with similar transactions across different assessment years. The decision underscored the need for the AO to adhere to established practices and precedents unless there are material changes or valid reasons for deviation.