2016 (3) TMI 1093 - AT - Income Tax

Additions u/s 68 of cash deposits/cheques credited in assesses s two bank accounts as unexplained - Assessee unable to substantiate the money deposited in his bank accounts - benefit of peak credit principle - Held that - The assessee s first contention that he is engaged in chemicals business and impugned deposits are his business transactions seems to be a u-turn to the explanation given before the lower authorities attributing the deposits made/cheques credited in the two bank accounts to assessee s friends whose names even have not seen light of the day. The assessee does not place any supportive evidence as well by way of relevant books and accounts maintained with his so-called friends/customers engaged in chemicals business. We reiterate that it is open for an assessee to tender an explanation along with cogent evidence in support thereof is such kind of proceedings. However, the only limitation is that the same must have element of genuineness and creditworthiness to further buttressed by identity of the parties concerned. No such course of action has been adopted in the instant case. The assessee s next argument of having charged ₹ 500/- to ₹ 1000/- in each case also suffers from the same lacuna of cogent evident. We find no substance in his argument challenging the impugned additions on merits. The assessee s next argument seeks to invoke peak credit principle is irrelevant as it is is his case from the beginning that he had been involved in transferring in and out the very sum of money. We are of the opinion in this backdrop of fact that this third party indulgence in making the impugned credits and deposits falsifies his entire explanation. It goes against the basic tenet of the peak credit principle wherein an assessee proves withdrawal and redeposits of very money by linking the same through evidence of bank statement etc. We find no merit in this peak credit argument in these facts and circumstances. The assessee s case law referred to deal with a situation wherein the relevant facts would prove the above stated essential arguments on peak credit principle as against those involved in the instant case - Decided against assessee Note - On further, appeal the said addition was affirmed by Gujarat High Court as reported in 2016 (7) TMI 70 - GUJARAT HIGH COURT

Summary

Issues:
1. Challenge to additions of unexplained cash credit under section 68.
2. Challenge to additions of unaccounted income from undisclosed sources.

Analysis:

Issue 1: Challenge to additions of unexplained cash credit under section 68
The assessee challenged the Assessing Officer's action of making additions of unexplained cash credit under section 68. The assessee, an individual employed by a company and a partner in another firm, had made significant cash credits in two bank accounts. The Assessing Officer sought details regarding these transactions, but the assessee failed to provide satisfactory explanations. The Assessing Officer invoked section 68 for adding the cash credits as unexplained. The CIT(A) affirmed these findings, rejecting the assessee's argument that the deposits were business transactions. The Tribunal held that the assessee's explanations lacked genuineness and creditworthiness, as he failed to provide evidence or details of the parties involved. The Tribunal dismissed the argument challenging the additions on merits, upholding the Assessing Officer's decision.

Issue 2: Challenge to additions of unaccounted income from undisclosed sources
The Assessing Officer also added unaccounted income from undisclosed sources based on the transactions in the cooperative bank account. The assessee claimed that the cheques were self-drawn, but the Assessing Officer treated the sums as unaccounted income. The CIT(A) affirmed this decision, rejecting the assessee's plea to apply the peak credit principle. The Tribunal found the assessee's peak credit argument misconceived, as he failed to establish a link between the credit and debit transactions or provide evidence of genuine transactions. The Tribunal concluded that the third-party involvement in the transactions undermined the peak credit principle. The Tribunal upheld the CIT(A)'s order, dismissing the assessee's appeal.

In conclusion, the Tribunal dismissed the assessee's appeal challenging the additions of unexplained cash credit and unaccounted income from undisclosed sources. The Tribunal affirmed the CIT(A)'s decision, emphasizing the lack of genuine explanations and evidence provided by the assessee to support the transactions in question.