2014 (6) TMI 804 - AT - Income Tax

Unexplained income u/s 69 of the Act - Peak credit balance Held that - The AO has accepted the contentions of the assessee that the past withdrawals might have been used for making future deposits - the AO has computed peak credit of the bank account and determined that the balance available in the bank account as on 09.11.2004 i.e. Rs.12, 73, 150/- is the peak amount and assessed the same - the assessee has been declaring income from job works over the years and it is stated that the assessee has not maintained regular books of account for this business - The possibility of making savings out of job works business cannot be altogether ruled out - the AO has assessed the peak credit amount shows that he has also accepted the theory of human probabilities i.e. the AO has accepted the fact that the past withdrawals were utilised to make future deposits which is a normal human behavior. The claim of the assessee that he has used the withdrawals made in the FY 2003-04 also for making deposits in the FY 2004-05 should be accepted - the claim that he was having savings out of his past income could not also be ruled out - the claim that the gold stock was converted into cash and then reconverted into gold stock is hard to believe - assessee may be given credit for the claim of past savings and for withdrawals made from the bank account in the FY 2003-04 - if the amount available with the assessee as on 1.4.2004 out of past savings and also from out of bank withdrawals made in FY 2003-04 is estimated at Rs.6.00 lakhs - the AO is allowed credit of Rs.6.00 lakhs and assess the balance amount u/s 69 of the Act thus the order of the CIT(A) is modified Decided partly in favour of Assessee.

Summary

Issues:
Assessment of peak credit balance in the S.B account as unexplained income u/s 69 of the Act.

Detailed Analysis:

1. Assessment of Unexplained Income:
The appeal challenged the order confirming the assessment of Rs.12,73,150 as unexplained income under section 69 of the Income Tax Act. The assessee's explanations regarding the source of deposits, including past savings, gold stock, and Kuri receipts, were not accepted by the assessing officer. The AO computed the peak credit balance in the bank account and assessed the amount as unaccounted investment.

2. Challenge Before CIT(A):
The assessee appealed to the CIT(A) against the addition. However, the CIT(A) upheld the assessing officer's decision, stating that the assessee failed to substantiate the sources of deposits with proper evidence or books of account. The CIT(A) found the assessing officer's findings meticulous and rejected the assessee's contentions.

3. Arguments Before ITAT:
During the ITAT proceedings, the assessee reiterated that withdrawals from the bank account in the preceding year were used for subsequent deposits. The counsel highlighted the Kuri receipts, past income declarations, and gold stock under the VDIS scheme as legitimate sources of funds for the deposits. The counsel argued that the assessing officer erred in disregarding withdrawals from the previous year.

4. ITAT Decision:
After considering the contentions of both parties, ITAT observed that the assessing officer accepted the practice of using past withdrawals for future deposits. ITAT reviewed the bank account details from the preceding year and found merit in the assessee's claim regarding Kuri receipts and past savings. ITAT applied the principle of human probabilities to determine the issue. Consequently, ITAT allowed credit for past savings and withdrawals from the bank account in the previous financial year, estimating the legitimate amount at Rs.6.00 lakhs. The remaining balance of Rs.6,73,150 was upheld as unexplained income under section 69 of the Act.

5. Conclusion:
The ITAT partially allowed the appeal, modifying the CIT(A)'s order and directing the assessing officer to consider Rs.6.00 lakhs as legitimate funds, while the balance was treated as unexplained income. The decision was pronounced on 06-06-2014.

This detailed analysis outlines the assessment, challenges, arguments, and the final decision of the ITAT regarding the assessment of unexplained income based on the peak credit balance in the bank account.