2014 (1) TMI 1769 - AT - Income Tax

Unexplained cash deposits - Held that - A cursory glance of the Bank statements provided by assessee clearly show that withdrawals made by the assessee were substantially in cash. There were very few entries of withdrawals other than through cash. When cash withdrawals and cash deposits were available, in our opinion Assessing Officer ought have considered the withdrawals as a source for explaining the deposits. Assessee had all along stated that the withdrawals and deposits were only on account of his cash purchases and sales of garments. Ld. CIT(Appeals) in his order for an earlier assessment year 2005- 06 had considered the peak credit in the bank account after considering cash withdrawals and cash deposits. In such work out he had excluded the withdrawals which were not made in cash. Thus in our opinion ld. CIT(Appeals) had properly gone through the Bank statements and held that only the peak credit could be assessed to tax. In doing so, ld. CIT(Appeals) also considered the peak credits already considered in the preceding assessment year 2005-06. In fact, Revenue has not been able to point out whether any appeal has been filed before this Tribunal against the order of ld. CIT(Appeals) for assessment year 2005-06. - Decided against revenue

Summary

Issues:
- Appeal filed by Revenue against orders of Commissioner of Income Tax (Appeals) for impugned assessment years.
- Source of cash deposits in assessee's bank accounts.
- Assessment of peak credit in bank accounts for different assessment years.
- Consideration of withdrawals and deposits in bank statements for assessing peak credit.
- Adequacy of evidence provided by assessee to explain source of deposits.

Analysis:
1. The appeals were filed by the Revenue against the orders of the Commissioner of Income Tax (Appeals) for the relevant assessment years. The assessee, engaged in the trading of readymade garments, had declared income for the respective years. The Assessing Officer noted significant cash deposits in the assessee's bank accounts, which the assessee failed to explain adequately. Consequently, additions were made to the income for the respective assessment years based on the unexplained cash deposits.

2. The assessee contended before the CIT (Appeals) that the deposits and withdrawals in the bank accounts were related to the garment business. The CIT (Appeals) sought a remand report and examined the documents provided by the assessee. However, the Assessing Officer reported that the assessee did not submit any evidence to support the source of the deposits. The lack of bills or vouchers for cash sales and purchases further weakened the assessee's case.

3. The CIT (Appeals) reviewed the documents and bank statements and found similar deposits in the assessee's bank account for the previous assessment year. Considering the peak credit concept, the CIT (Appeals) determined the assessable amount for each year based on the peak credits in the bank accounts. The CIT (Appeals) also took into account the peak credits already assessed in the preceding assessment year to arrive at the final taxable amounts for the relevant years, providing relief to the assessee accordingly.

4. In the subsequent appeal before the ITAT Kolkata, the Department strongly challenged the CIT (Appeals) order, claiming that the assessee failed to provide sufficient records to support the peak credit theory. Despite the absence of the assessee during the proceedings, the ITAT examined the bank statements provided by the assessee. The ITAT observed that the withdrawals were predominantly in cash, supporting the assessee's claim that the deposits were related to cash transactions in the garment business.

5. The ITAT noted that the CIT (Appeals) had appropriately analyzed the bank statements, considering the withdrawals and deposits to determine the peak credit subject to taxation. By excluding non-cash withdrawals, the CIT (Appeals) arrived at the correct assessable amounts for the respective years. The ITAT also highlighted that the Revenue did not challenge the CIT (Appeals) order for the preceding assessment year, indicating the lack of merit in the Revenue's current appeals. Consequently, the ITAT dismissed the Revenue's appeals, upholding the relief granted to the assessee by the CIT (Appeals).