2014 (6) TMI 401 - AT - Income Tax

Addition made u/s 68 of the Act Amount deposit in bank account Peak credit balance not worked out - Held that - The AO has not brought on record any material to show that the cash withdrawals made on earlier dates were not used for any other purpose, it would be reasonable to accept that the withdrawals were used for making subsequent deposits after carrying out the exercise of placing withdrawals and deposits in chronological order and after infusing the negative cash balance as a source (to be assessed as income), one has to ascertain the peak balance of the year and the peak balance so arrived has to be considered as the income of the assessee - assessee has not worked out the Peak credit balance as per the method prescribed - the working made by the assessee also requires verification at the end of the AO thus, the matter is required to be remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
Assessment of deposits under section 68 of the Act based on bank account transactions.

Analysis:
The appeal was against the order confirming the assessment of Rs.55,37,660/- as the aggregate amount of deposits in the assessee's bank accounts under section 68 of the Act for the assessment year 2009-10. The AO observed significant cash deposits, withdrawals, and expenses in the bank accounts, seeking explanations from the assessee regarding the sources of these transactions. The assessee claimed that the deposits were sourced from earlier withdrawals, presenting a cash book and daily cash summary. However, the AO rejected the explanation, leading to the assessment of the deposits as income. The CIT(A) upheld the AO's decision.

During the appeal hearing, it was noted that the opening balance of Rs.4,73,438/- could not be assessed for the current year as it pertained to the preceding year. The assessee also highlighted withdrawals not redeposited, amounting to Rs.11,58,389/-, indicating a discrepancy in the explanation provided. The tribunal confirmed the addition of Rs.11,58,389/- as the assessee failed to justify the source of these deposits, directing the AO to review the calculations provided.

Regarding the remaining additions, the assessee argued that only the peak credit balance should be treated as income, accounting for withdrawals, expenses, and other factors. However, the peak credit balance computation and other workings were not examined by the AO. The tribunal directed the AO to reassess the peak credit balance, considering negative cash balances as income and withdrawals not redeposited separately.

In conclusion, the tribunal partially allowed the appeal for statistical purposes, instructing the AO to reevaluate the peak credit balance and related transactions, including negative cash balances and unredeposited withdrawals, based on the explanations and workings provided by the assessee.