2016 (8) TMI 957 - HC - Income Tax

Addition of unexplained cash credit u/s. 68 - Held that - The materials on record would suggest that admittedly, the assessee had maintained two bank accounts, not disclosed to the Revenue authorities. In such bank accounts, multiple cash deposits were made by the assessee from different places. The assessee initially explained that such deposits were made by his friends and he, in turn, would withdraw the amounts at Ankleshwar and handover the cash to the friends for a small commission. He, however, refused to supply details of such friends. Before the Tribunal, however, the assessee adopted the entirely novel theory of being engaged in the business of chemical and the deposits being part of his business transaction. First and foremost, this theory of the assessee s of the amounts belonging to his friends would be incongruent. If these amounts were established to be belonging to the friends of the assessee, for whom, he merely deposits the sums and withdraw at their requests for a small commission, the question of applicability of peak credit would not arise. When the assessee failed in his first attempt, he came up with the novel theory of the amounts being for the purpose of his chemical business. This theory probably was pressed in service to enable the assessee to seek the benefit of principle of peak credit. Before the Revenue authorities, this contention was not even raised. No material was produced regarding the same. Considering such circumstances, we do not find any error in the view of the Tribunal. The decision in case of Income Tax Officer, Ward 9(2), Surat vs. Shri Indrajeet Zandusing Tomar 2015 (2) TMI 1174 - ITAT AHMEDABAD was rendered by the Tribunal when it was found that the deposits and withdrawals were made in course of his business which the assessee run as a proprietary concern by the name Rakesh Fashion . - Decided against assessee

Summary

Issues:
1. Addition of unexplained cash credit under Section 68 of the Income Tax Act.
2. Addition of unaccounted income from undisclosed sources.
3. Consideration of case laws and submissions.
4. Treatment of entire deposits in bank accounts as income.
5. Acceptance of alternate plea to tax peak credit of bank accounts.

Issue 1: Addition of unexplained cash credit under Section 68 of the Income Tax Act:
The assessee challenged the additions of ?13.22 lacs and ?12.55 lacs made by the Assessing Officer and confirmed by the CIT[Appeals] and the Tribunal under Section 68 of the Income Tax Act. The assessee failed to explain the source of cash deposits in undisclosed bank accounts, claiming that friends deposited cash and he withdrew it for them, receiving a commission. However, he refused to disclose their identities. The Assessing Officer considered these transactions unaccounted income from undisclosed sources, leading to the additions. The Tribunal upheld these additions, emphasizing the lack of genuine evidence and credibility in the assessee's explanations.

Issue 2: Addition of unaccounted income from undisclosed sources:
The Tribunal confirmed the additions, stating that the deposits made in the assessee's bank accounts were unexplained and not related to his chemical business as claimed later. The Tribunal rejected the peak credit principle invoked by the assessee, noting the absence of supporting evidence and the inconsistency in the assessee's explanations. The Tribunal emphasized the necessity of genuine and creditworthy explanations supported by evidence, which were lacking in this case.

Issue 3: Consideration of case laws and submissions:
The Tribunal considered the arguments presented by both parties regarding the additions made by the Assessing Officer and confirmed by the CIT[Appeals]. The Tribunal analyzed the facts, emphasizing the importance of providing genuine and credible explanations with supporting evidence in such proceedings. The Tribunal found no merit in the assessee's challenges to the additions based on the peak credit principle and rejected the arguments presented by the assessee.

Issue 4: Treatment of entire deposits in bank accounts as income:
The Tribunal affirmed the CIT[Appeals]'s order regarding the additions made by the Assessing Officer. The Tribunal analyzed the nature of the deposits in the undisclosed bank accounts and concluded that they constituted unexplained income from undisclosed sources. The Tribunal dismissed the assessee's contentions regarding the peak credit principle and the alleged business transactions, finding them inconsistent and unsupported by credible evidence.

Issue 5: Acceptance of alternate plea to tax peak credit of bank accounts:
The Tribunal rejected the assessee's plea to apply the peak credit principle to the deposits in the bank accounts. The Tribunal found the assessee's explanations regarding the deposits and withdrawals lacking in credibility and evidence. The Tribunal emphasized the need for genuine and creditworthy explanations supported by verifiable evidence, which the assessee failed to provide. The Tribunal upheld the additions made by the Assessing Officer and confirmed by the CIT[Appeals].

In conclusion, the High Court dismissed the tax appeal, upholding the Tribunal's decision to treat the undisclosed cash deposits in the bank accounts as unexplained income from undisclosed sources and rejecting the application of the peak credit principle based on the lack of credible evidence and inconsistent explanations provided by the assessee.