2014 (2) TMI 832 - AT - Income Tax

Addition made u/s 68 of the Act Held that - The decision in Shri Sudhir Kumar Sharma Vs ITO 2014 (2) TMI 418 - ITAT CHANDIGARH followed - The modus-operandi explained during the course of survey was that the assessee was receiving the amount in cash and the same were being returned vide cheques through bank accounts - the assessee failed to produce the books of account nor give any explanation vis- -vis the source of cash deposits in the bank account - In the absence of any explanation or any evidence being produced by the assessee - The onus cast upon the assessee not being discharged, the said cash credits are to be included as income of the assessee in view of the provisions of section 68 of the Act. The assessee failed to file any confirmation in respect of the said cash credits nor any of the persons were produced for examination before the Assessing Officer, though specific direction in this regard was given by the Assessing Officer within the course of recording of statement of the assessee, during assessment proceedings - The assessee even failed to produce the books of account - In the absence of the assessee having discharged his onus of proving the identity, credit worthiness and genuineness of the cash transaction of the cash credits in the bank account, there was no merit in the plea of the assessee - the provisions of section 68 of the Act are applicable. Applicability of peak credit theory Held that - The peak credit theory is not applicable as the assessee had deposited cash in the bank account and thereafter, cheques were issued to different parties - there are deposits in cash but as against the said cash deposited, various cheques were issued and the assessee was unable to explain the source of cash deposited in his bank account there was no legal infirmity in the order of the Tribunal Decided against Assessee.

Summary

Issues Involved:
1. Re-opening of assessment under Section 148 of the Income Tax Act.
2. Addition of income under Section 68 of the Income Tax Act.
3. Applicability of peak credit theory.
4. Assessment of commission income from accommodation entries.

Issue-wise Detailed Analysis:

1. Re-opening of assessment under Section 148 of the Income Tax Act:

In ITA Nos. 17/Chd/2013 and 19/Chd/2013, the assessee raised the issue of re-opening the assessment under Section 148. However, this ground was not pressed by the assessee during the proceedings. Consequently, the Tribunal dismissed this issue as not pressed.

2. Addition of income under Section 68 of the Income Tax Act:

The primary issue in the appeals was the addition of unexplained cash deposits in the bank accounts of the assessees under Section 68. The Department had issued notices under Section 148 after discovering unexplained cash deposits. The assessees failed to produce complete books of account or any evidence to substantiate the source of these deposits. The Assessing Officer (AO) added the cash deposits as income from unexplained sources, amounting to Rs. 7,02,85,510/- in one case. The CIT(Appeals) upheld the AO's decision, noting that the assessees did not maintain proper records to prove the genuineness of the transactions or the identity and creditworthiness of the clients.

The Tribunal found that the assessees had not discharged their onus to prove the source and nature of the cash deposits. The Tribunal referred to a similar case involving the same assessees and upheld the addition under Section 68, dismissing the assessees' grounds of appeal.

3. Applicability of peak credit theory:

The assessees argued for the application of the peak credit theory, which would limit the addition to the highest balance in their bank accounts during the year. However, the Tribunal rejected this argument, noting that the peak credit theory is not applicable when the deposits are not followed by corresponding withdrawals. The Tribunal cited the case of Bhaiya Lal Shyam Behari v. Commissioner of Income-tax, where the Allahabad High Court held that the peak credit theory requires a factual foundation, which was not established by the assessees.

4. Assessment of commission income from accommodation entries:

The assessees claimed that they were engaged in providing accommodation entries and that only the commission income from these activities should be taxed. However, this argument was not raised during the assessment proceedings or before the CIT(Appeals). The Tribunal noted that this issue was factual and could not be introduced at the appellate stage. The Tribunal found no merit in this argument and upheld the addition of the entire cash deposits as unexplained income.

Conclusion:

The Tribunal dismissed all the appeals filed by the assessees. The re-opening of assessments under Section 148 was upheld as the issue was not pressed. The addition of unexplained cash deposits under Section 68 was confirmed, and the peak credit theory was deemed inapplicable. The argument for taxing only the commission income from accommodation entries was rejected as it was not raised at earlier stages. The Tribunal's decision was consistent with previous rulings involving the same assessees.