2011 (4) TMI 1434 - AT - Income Tax

Summary

Issues involved:
The issues involved in this case are the treatment of peak balance of a bank account as the assessee's income, addition of unexplained bank deposit, and the proper application of sections 68/69/69A/69B of the Income-tax Act, 1961.

Treatment of Peak Balance as Assessee's Income:
The appeal by the Revenue was against the order of the Commissioner of Income-tax (Appeals)-III, Surat, directing the Assessing Officer to treat the peak balance of the bank account as the assessee's income instead of adding a specific amount for the assessment year 2006-07. The Assessing Officer had made an addition of a substantial amount on account of unexplained bank deposit, as the assessee failed to provide necessary information about the bank account. The Revenue contended that the entire deposits in the bank account should be considered as unexplained cash credit due to lack of cooperation from the assessee. However, the Ld. CIT(A) directed the AO to tax only the peak balance of the account as the assessee's income, considering the substantial rotation of money and withdrawals matching the deposits. The Tribunal upheld the decision of the Ld. CIT(A) based on the reasoning that the peak balance represented the assessee's undisclosed income, and declined to interfere with the order.

Proper Application of Sections 68/69/69A/69B:
The Ld. CIT(A) highlighted that the Assessing Officer should have been clear about the specific section under which the addition was being made, instead of citing multiple sections. It was noted that there was substantial rotation of money in the bank account, with deposits being withdrawn on the same day. The AO had added the total of all deposits as the assessee's undisclosed income, whereas the peak theory should have been applied to determine the income emerging from such transactions. The Ld. CIT(A) directed the AO to consider only the peak balance of the account as the assessee's income, which was calculated to be a specific amount on a particular date. The Tribunal agreed with the reasoning provided by the Ld. CIT(A) and dismissed the appeal of the Revenue.