2010 (12) TMI 830 - AT - Income Tax

Addition - Unexplained cash deposits - assessee is an individual serving with M/s Sheth Metal (P) Ltd. as salaried employee - AO on the basis of non-verification of the claim of the assessee held that entire sum of Rs.17,48,500/- found deposited in the bank account is an unexplained investment under section 69A - CIT(A) granted relief to the assessee - held that - neither the deposits are proved by the assessee nor the claim of peak is established by him. - assessee has also failed to show real destination of the money through bank draft so purchased by him out of the cash deposited in the bank account thereby suppressing material facts in understanding the nature of cash inflow and its destination. - Entire transaction of deposits in the bank account remained under crowd of secrecy and, therefore, the explanation furnished by the assessee remained unsatisfactory. Even the benefit of withdrawal through ATM mentioned as above cannot be given importance because they are apparently for household purposes and cannot be said to be available for redeposit in absence of any other evidence of meeting out household expenditure by the assessee. - Decided in favor of revenue.

Summary

Issues Involved:
1. Deletion of additions for unexplained cash deposits.
2. Admissibility of additional evidence without AO's opportunity.
3. Explanation of the source of investment.
4. Application of peak theory in unexplained deposits.

Comprehensive, Issue-wise Detailed Analysis:

1. Deletion of Additions for Unexplained Cash Deposits:
The Revenue appealed against the deletion of Rs. 13,79,921/- out of the Rs. 17,48,500/- added by the AO as unexplained cash deposits. The AO had found total deposits aggregating to Rs. 17,48,500/- in the assessee's bank account. The assessee claimed these were borrowed from various parties and provided confirmations. However, the AO found discrepancies such as unserved summons and unverifiable identities, leading to the addition under section 69A. The CIT(A) reduced the addition by calculating the peak of deposits, which was contested by the Revenue.

2. Admissibility of Additional Evidence Without AO's Opportunity:
The Revenue argued that the CIT(A) erred by entertaining additional evidence regarding unexplained credit payments and cash deposits without giving the AO an opportunity to examine them, thus violating Rule 46A of the Income-tax Rules. The CIT(A) considered confirmations from depositors without proper verification, leading to a partial deletion of the addition.

3. Explanation of the Source of Investment:
The assessee contended that the CIT(A) failed to appreciate the confirmations from 15 depositors, which should have explained the source of the Rs. 17,48,500/- cash deposits. The AO had noted that the transactions with these parties occurred in the previous year and found inconsistencies in the dates of claimed receipts and bank deposits. The AO concluded that the entire sum was unexplained, while the CIT(A) worked out a peak credit, reducing the addition.

4. Application of Peak Theory in Unexplained Deposits:
The CIT(A) applied the peak theory, assuming that the same money was rotated through deposits and withdrawals. The Revenue argued that the peak theory could not be applied as there were no cash withdrawals, only cheque transactions, and the money was used for purchasing drafts. The Tribunal noted that for the peak theory to apply, the assessee must admit that the deposited money was unaccounted and regularly rotated without being used elsewhere. The Tribunal found that the assessee did not withdraw cash and failed to prove the source of repayments to depositors, thus rejecting the peak theory application.

Conclusion:
The Tribunal concluded that the CIT(A) incorrectly applied the peak theory and failed to properly verify the identities and transactions of the depositors. The assessee did not provide sufficient evidence to discharge the primary onus of proving the cash deposits' sources. Consequently, the Tribunal upheld the AO's addition of Rs. 17,48,500/- as unexplained investment under section 69A, allowing the Revenue's appeal and dismissing the assessee's cross-objection. The order of the CIT(A) was set aside, confirming the AO's findings.