2016 (3) TMI 74 - AT - Income Tax

Unexplained cash deposit under section 68 - Held that - The assessee is in the business of running a departmental store in the name of the private limited company promoted by him. It is apparent from the facts of the case that assessee has been continuously depositing cash in his bank account and withdrawing the same. In such circumstances when these deposits are not reflected in the books of accounts of the assessee it would be appropriate to make addition on the basis of peak credit method. Therefore, we hereby direct the learned Assessing Officer to make addition in the hands of the assessee invoking section 68 of the Act by adopting peak credit method.

Summary

Issues:
Addition of unexplained cash deposit under section 68 of the Income Tax Act.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 35,12,500 towards unexplained cash deposit under section 68 of the Act. The assessee, Managing Director of a company, had made cash deposits in his bank accounts, leading to scrutiny by the Assessing Officer. The Assessing Officer added Rs. 41,00,000 as deemed income under section 68. The CIT(A) confirmed the addition of Rs. 35,12,500 related to cash deposits. The appellant argued that the addition should be based on peak credit method rather than the entire deposits. The AR contended that the assessee regularly withdrew and redeposited cash, justifying a different approach. The Tribunal agreed with the AR, directing the Assessing Officer to make the addition using the peak credit method.

The Assessing Officer observed cash deposits totaling Rs. 41,00,000 in the assessee's HDFC bank account, leading to the addition under section 68. The CIT(A) confirmed Rs. 35,12,500 of these deposits as unexplained. The AR presented that the assessee frequently withdrew and redeposited cash, suggesting peak credit method application. The Tribunal found merit in this argument due to the continuous cash transactions by the assessee, not reflected in the books of accounts. Consequently, the Tribunal directed the Assessing Officer to make the addition using the peak credit method, partially allowing the assessee's appeal.

The CIT(A) confirmed the addition of Rs. 35,12,500 as unexplained cash deposit under section 68, based on the cash deposits made by the assessee. The AR argued for peak credit method application due to the regular withdrawal and redeposit pattern of the assessee. The Tribunal agreed with the AR, directing the Assessing Officer to adopt the peak credit method for making the addition. This decision was based on the continuous cash transactions by the assessee, leading to a partial allowance of the appeal.

The Tribunal's decision to apply the peak credit method for making the addition under section 68 was based on the assessee's consistent pattern of cash withdrawals and deposits, not reflected in the books of accounts. This approach was deemed appropriate given the nature of the transactions, leading to the partial allowance of the appeal.