2013 (11) TMI 469 - AT - Income Tax

Unexplained cash deposit in Bank account Invocation of section 68(or section 69) of the Income Tax Act - The assessee, Shri Sushil M. Raney, who is assessed in the capacity of the legal representative of his late father, explains the impugned cash deposits to be cash donations/contributions collected from various donors outside Mumbai in small amounts with the help of the others, to be used for charitable purposes, in which his father was engaged, viz., helping poor people for marriage purposes, ill health, etc., being also associated with Vivekanand College, Chembur, Mumbai for over 40 years, being one of its founder trustees Held that - There is nothing on record to substantiate the claim of assessee-son. In fact, even so, inasmuch as the explanation furnished ascribes the source of the entire funds to donations, it would only mean that his father was engaged in charitable works by way of financial assistance to the poor and needy, without contributing anything of his own. Rather, if and to the extent the contributions are from the account-holder himself, there is an implicit admission of the source of funds being unaccounted or unexplained. In the present case, the assessee s explanation is vague and unsubstantiated - The peak credit theory is based on recycling of funds, implying systematic activity, while neither the nature of the deposits nor their utilization, stands explained, so that the plea is not maintainable at the threshold. Scrutiny (of the bank account statement) reveals it to be inconsistent with not only the explanation of the amounts being possibly used for charitable purposes, but also with the fact of the same being, apart from withdrawn in cash, also by cheques for ostensibly personal purposes, on a regular basis and in no insignificant sums - Further, the pattern of withdrawal reveals the account to be employed for transfer of funds in the main, i.e., deposit of cash at one place and its withdrawal at other; the funds being withdrawal almost in toto, and soon after their deposit. The assessee has been wholly unable to discharge the onus of a satisfactory explanation qua cash deposits, including the quantum of funds involved Appeal disallowed Decided against the Assessee.

Summary

Issues Involved:
1. Taxability of unexplained cash deposits in the assessee's bank account.
2. Application of the peak credit theory for determining taxable income.

Detailed Analysis:

1. Taxability of Unexplained Cash Deposits:
The primary issue in the appeal is the taxability of unexplained cash deposits amounting to Rs. 29,16,408/- in the assessee's bank account during the financial year 2007-08. The Revenue treated the entire amount as unexplained and deemed it as the assessee's income under Sections 68 or 69A of the Income Tax Act, 1961. The assessee contended that the deposits were contributions collected for charitable purposes and sought adjustment for recycling of funds, reducing the taxable amount to Rs. 5,32,017/-. However, the explanation provided by the assessee was considered unsubstantiated and based on conjectures. The Revenue found no corroborative evidence to support the claim that the deposits were for charitable purposes. The entire amount of cash deposits was thus treated as unexplained and taxable.

2. Application of the Peak Credit Theory:
The assessee argued for the application of the peak credit theory, which would consider only the highest amount of unexplained deposits at any point in time as taxable, rather than the total deposits. The assessee's calculation of the peak credit was Rs. 5,32,017/-. The Revenue, however, rejected this contention, stating that the onus was on the assessee to prove the source of the deposits, which was not discharged. The Tribunal examined the facts and found that the nature and pattern of the deposits and withdrawals did not support the claim of recycling of funds. The deposits were mostly in large amounts and the withdrawals were almost immediate, indicating that the funds were not being recycled but rather used for personal purposes. Payments towards credit cards, locker rent, and other personal expenses further contradicted the claim that the funds were for charitable purposes. The Tribunal concluded that the peak credit theory was not applicable in this case due to the lack of evidence supporting the recycling of funds and the personal use of the withdrawn amounts.

Conclusion:
The Tribunal upheld the Revenue's decision to treat the entire amount of Rs. 29,16,408/- as unexplained and taxable. The assessee's appeal was dismissed due to the failure to provide a satisfactory explanation for the source of the deposits and the inconsistency in the claim of recycling of funds. The Tribunal emphasized that the matter was one of fact and not of law, and the assessee had not met the burden of proof to substantiate the claim of charitable contributions and recycling of funds. The decision was pronounced on April 17, 2013.