2013 (5) TMI 282 - AT - Income Tax

Undisclosed bank account - adoption of peak theory for the purpose of making an addition to the returned income by CIT(A) - Held that - Assessee has been filing returns of the commission income in various years and has been enclosing various statements of accounts to the returns filed in earlier years. Just because the assessee has claimed benefit of provisions of Sec.44AD in some years as no Accounts case , it does not mean that the assessee s transactions are outside the purview of statements already filed. Since the assessee s transactions in the same bank were reflected in earlier years, AO s finding that the transactions in Warna Sahakari Bank Ltd. is unaccounted cannot be accepted. The assessee explained some of the cash deposits were recoveries of outstanding amounts and some transactions were from the co-purchaser as well as advance from the sale agreement holder even though the said explanation neither AO nor CIT(A) applied their mind in examining truthfulness of the transactions. As seen from the show cause notices issued by the CIT(A) even the Peak credit working varied from the show cause notice to the final amount determined. How this amount has been arrived at could not be verified. Thus there seems to be an error committed by the CIT(A) in arriving that figure. Enhancement of purchase and sale of land - Held that - Not in agreement with the enhancement so made by the CIT(A) as the sale did not takes place in this year and the assessee has not acted as a broker, two of the findings given by the CIT(A) thus are erroneous. However it cannot be ignored the transactions which happened during the year for purchase of property and various receipts. There are substantial cash withdrawals/ transfers also from the assessee account and Ms Swetha account, more than the cost of land stated. Since AO started the inquiry process on the basis of credits in the Bank account and CIT(A) also partly confirmed the same, even though arrived at the incorrect amount, in the interest of justice the orders of the CIT(A) and also of the AO set-aside and restore the issue to the file of the AO to examine the credits and debits in the Bank Account along with the nature of amounts transacted in the said account. In favour of assessee for statistical purposes.

Summary

Issues involved:
1. Undisclosed bank account and unexplained cash credit under section 68.
2. Enhancement of income on account of sale of land and application of peak theory.

Issue 1: Undisclosed bank account and unexplained cash credit under section 68

The appellant, a commission agent of onion & potato division of APMC market, filed a return of income for AY 2008-09. The Assessing Officer noted cash deposits in Bank Account No. 443 with Warana Sahakari Bank Ltd., treating it as undisclosed and made an addition of Rs.57,69,000 as unexplained cash credit under section 68. In appeal, the CIT(A) reduced the peak credit to Rs.16,56,000 and treated the addition under section 68 as that of section 69. The CIT(A) also examined real estate transactions, treating the appellant as a broker and enhancing income by Rs.121,21,600. The appellant contended that the peak credit calculation was erroneous and provided explanations for deposits, including recoveries, co-purchaser transactions, and advance from a sale agreement holder. The Tribunal found discrepancies in the CIT(A)'s peak credit determination and directed the AO to re-examine the bank account transactions and land purchase transactions, considering explanations provided by the appellant.

Issue 2: Enhancement of income on account of sale of land and application of peak theory

The CIT(A) enhanced the appellant's income by Rs.121,21,600, considering it as brokerage income from the sale of land. The appellant argued that the land was purchased jointly with another individual, and though there was an agreement for sale, the transaction did not materialize in the relevant assessment year. The Tribunal found errors in the CIT(A)'s decision, noting that the AO did not make any addition on land transactions. The appellant provided evidence of the land purchase and explained transactions with the co-owner. The Tribunal concluded that the CIT(A)'s enhancement based on brokerage income was unfounded, as the sale occurred in a subsequent assessment year. The Tribunal directed the AO to re-examine the land purchase transactions and bank account credits, emphasizing the need for a thorough investigation into the nature of transactions and funds involved.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s enhancements and directing the AO to re-evaluate the bank account transactions and land purchase transactions to determine any unexplained credits accurately. The Tribunal emphasized the importance of a detailed examination to ensure a fair and just assessment of the appellant's income.