2013 (9) TMI 1100 - AT - Income Tax

Addition on the basis of peak credit - Held that - The appellant submitted before the A.O. that cash withdrawal from the bank was re-deposited in the bank account. The A.O. did not find any discrepancy between cash withdrawal from the bank and cash available in the cash book on a particular date. The appellant had not claimed any expenditure on account of interest payment. The appellant had filed the confirmation of the persons from whom loans were given. The appellant neither paid interest nor earned any income on account of interest on advance. This aspect has not been doubted by the A.O. There is no limit in cash withdrawing and redepositing in the bank account. The assessee has offered a plausible and satisfactory explanation before the A.O. for each financial transaction. He had not brought on record any evidence which proves that cash withdrawal had been invested somewhere else and cash balance in the cash book is artificial. Thus, we confirm the order of the CIT(A).- Decided against revenue

Summary

Issues:
- Appeal against restricting addition based on peak credit from bank account

Analysis:
1. Issue of Unexplained Cash Deposits:
- The Assessing Officer (A.O.) observed cash deposits of Rs. 10,00,000 in the bank account and sought explanations from the assessee regarding the source of these deposits. The assessee claimed the cash was withdrawn from the bank and redeposited later, also mentioning a loan taken for cash balance. However, the A.O. found discrepancies in the cash book, leading to the conclusion that the cash balances were artificial.
- The A.O. relied on legal precedents to make an addition of Rs. 39,70,500 as unexplained cash deposited in the bank account.

2. Appeal to CIT(A) and Decision:
- The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who reduced the addition to Rs. 7,95,160. The CIT(A) considered the appellant's explanations, the necessity of cash in the business, and the lack of negative cash balance in the cash book.
- The CIT(A) analyzed the withdrawal patterns, the sufficiency of cash balances, and the need for satisfactory explanations. The CIT(A) concluded that the A.O.'s addition was not justified and restricted the addition based on the peak cash balance of Rs. 7,95,165.

3. Appellate Tribunal Decision:
- The Revenue appealed to the Appellate Tribunal, arguing that the cash withdrawals were used for other purposes without a direct link to cash deposits. However, as no representation was made from the assessee's side, the Tribunal relied on the available facts.
- The Tribunal noted that the appellant provided cash book and bank account details, explained cash withdrawals and deposits, and did not show discrepancies. The Tribunal found the explanations satisfactory, confirming the CIT(A)'s decision to restrict the addition to Rs. 7,95,160.

4. Final Decision:
- The Appellate Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision. The Tribunal emphasized the absence of evidence of cash diversion or artificial cash balances, supporting the assessee's explanations and the restriction of the addition based on the peak cash balance during the year.

This detailed analysis highlights the progression of the case from the A.O.'s addition to the final decision by the Appellate Tribunal, focusing on the adequacy of explanations provided by the assessee and the reasoning behind the reduction in the addition amount.