2018 (8) TMI 2117 - AT - Income Tax

Unexplained bank deposits - deposits through undisclosed sources - sufficient time lag between the dates of withdrawal of cash from the bank account and the dates of deposits - apply the peak credit theory or not? - what if the deposit of money in the bank account is preceded by withdrawal of money from the very same bank account? - HELD THAT - It is seen that the cash deposits in the bank account are preceded by withdrawal from the very same bank account. The cash flow statement filed by the Assessee explaining availability of cash on the various dates of deposit of cash in the bank account has not been disbelieved by the Revenue authorities. As in the case of S.R. Ventakaratnam Vs CIT, Karnataka-I Others 1980 (8) TMI 73 - KARNATAKA HIGH COURT has held that once the Assessee discloses the source as having come from the withdrawals made on a given date from a given bank, it was not open to the revenue to examine as to what the Assessee did with that money and cannot chose to disbelieve the plea of the Assessee merely on the surmise that it would not be probable for the Assessee to keep the money unutilized. If the revenue wants to disbelieve the plea of the Assessee then it must show that the previous withdrawal of cash would not have been available with the Assessee on the date of deposit of cash in the bank account. The AO and CIT(A) have proceeded purely on assumption and surmises that cash would not be lying idle with the Assessee for such a long time - Decided in favour of assessee.

Summary

Issues Involved:

1. Source of cash deposits in the Assessee's bank account.
2. Correlation between cash withdrawals and deposits.
3. Applicability of the peak credit theory.

Issue-wise Detailed Analysis:

1. Source of Cash Deposits in the Assessee's Bank Account:

The Assessee, an individual deriving income from house property and capital gains, filed a return of income for AY 2014-15 declaring a total income of Rs.3,00,18,930/-. During the assessment proceedings, the Assessing Officer (AO) noticed cash deposits totaling Rs.24,59,000 in the Assessee's Canara Bank account, along with withdrawals amounting to Rs.23,00,000. The AO questioned the source of these cash deposits. The Assessee explained that the deposits were made from the cash withdrawals from the same bank account, primarily for meeting expenses related to her daughters' marriages. However, the AO did not fully accept this explanation, particularly for deposits amounting to Rs.17,31,500, citing a lack of correlation between the withdrawals and deposits.

2. Correlation Between Cash Withdrawals and Deposits:

The AO observed that the cash withdrawals and deposits occurred between October 2013 and January 2014, while the marriages took place in March 2013 and December 2014. The AO concluded that there was no direct correlation between the withdrawals and deposits and the marriage expenses. The Assessee provided a cash flow statement showing the availability of cash on various dates when deposits were made, but the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] found the explanation unsatisfactory. They argued that continuous withdrawals and subsequent deposits indicated that the cash withdrawn had been consumed, and the deposited cash came from unexplained sources.

3. Applicability of the Peak Credit Theory:

The Assessee attempted to apply the peak credit theory to explain the cash deposits. However, the CIT(A) rejected this approach, stating that the theory could not be applied blindly without considering the specific facts of the case. The CIT(A) upheld the AO's addition of Rs.17,31,500, concluding that the deposits were from undisclosed sources.

Tribunal's Findings:

The Tribunal carefully considered the submissions of both parties. It noted that the cash deposits were preceded by withdrawals from the same bank account and that the cash flow statement provided by the Assessee was not disbelieved by the Revenue authorities. The Tribunal emphasized that the legal position, as established by the Hon'ble Karnataka High Court in the case of S.R. Ventakaratnam Vs CIT, Karnataka-I & Others 127 ITR 807, is that if the deposit of money in the bank account is preceded by a withdrawal from the same account, the source of funds is prima facie demonstrated or explained by the Assessee. The Revenue cannot disbelieve the Assessee's explanation merely on the surmise that it is improbable for the Assessee to keep the money unutilized. The Tribunal held that the Revenue must show that the previous withdrawal would not have been available on the date of deposit. As the AO and CIT(A) proceeded on assumptions and surmises, the Tribunal concluded that the Assessee satisfactorily explained the source of funds for the cash deposits and deleted the addition made by the AO.

Conclusion:

The appeal by the Assessee was allowed, and the addition of Rs.17,31,500 made by the AO was deleted. The judgment was pronounced in the open court on August 24, 2018.