2015 (12) TMI 1879 - AT - Income Tax

Unexplained investment in undisclosed bank account - CIT-A applying the concept of peak theory and requirement of additional capital - HELD THAT - We find that the assessee opened a bank account in ICICI Bank and deposited cash on various dates and also made withdrawals. The total deposits during the year and the same was treated by the A.O. as unexplained credit while framing the assessment. We also note that the said account was not disclosed by the assessee in his balance sheet whereas all the withdrawals were made under his signatures. CIT(A) applied the theory of net peak balance and sustained the addition of peak balance of Rs.50,435/- and also sustained Rs.25,000/- as additional capital requirement as unexplained investments and treated the same as income of the assessee. No infirmity in the order of CIT(A) as he had rightly applied the theory of peak balance i.e. Rs.50,435/- and took additional capital at Rs.25,000/-. Appeal of Revenue is dismissed.

Summary

Issues:
1. Addition of unexplained investment in undisclosed bank account.
2. Application of peak theory for calculating income from undisclosed business transactions.
3. Acceptance of additional evidence without opportunity for verification.

Analysis:
1. The case involved an appeal by the Revenue against the order of CIT(A)-IV, Surat, regarding the addition of Rs. 11,89,200 as unexplained investment in an undisclosed bank account for the assessment year 2008-09. The A.O. added the amount based on cash deposits into an ICICI Bank account, which the assessee failed to prove was utilized for business purposes. The CIT(A) restricted the addition to Rs. 85,000, considering the peak balance and additional capital requirement for carrying on the undisclosed business.

2. The CIT(A) observed that the account in question belonged to the appellant, despite claims that it was his wife's account. The peak credit in the account was considered as income, amounting to Rs. 50,435. Additionally, applying a 5% profit rate, the income on the turnover of Rs. 11,89,200 was calculated at Rs. 59,460. Taking into account the additional capital requirement of Rs. 25,000, the total income from the business transactions was determined as Rs. 85,000. The CIT(A) upheld this calculation, rejecting the Revenue's argument to restore the A.O.'s order.

3. The Revenue contended that the CIT(A) erred in deleting the addition of cash deposits into the bank account, as the account was not disclosed in the balance sheet. However, the Tribunal found no fault in the CIT(A)'s application of the peak balance theory and additional capital requirement for determining the income from the undisclosed transactions. The appeal of the Revenue was dismissed, upholding the CIT(A)'s decision.

This judgment highlights the importance of substantiating cash transactions, applying the peak theory for income calculation, and the admissibility of additional evidence in tax assessments.