2016 (10) TMI 198 - AT - Income Tax

Unexplained cash credit - peak credit theory - CIT(A), after taking into consideration the deposits and withdrawals restricted the peak addition at ₹ 3,14,434/- Held that - The ld. DR before us could not adduce anything whether with respect to the peak credit assessed by the ld. CIT(A) is wrong. We find that the assessee has offered peak credit composition on the basis of transaction recorded in the bank account and that the CIT(A) and the Revenue could not point out any defect in the same. In view of the above facts and circumstances of the case, we are of the view that the CIT(A) has accepted the peak credit after AO s remand report and with careful calculation. We find no infirmity in the order of the CIT(A) in stating with the part addition on the basis of the peak credit and part addition based on the net profit of the assessee - Decided against revenue

Issues Involved:
1. Deletion of addition of cash deposits in the undisclosed savings bank account.
2. Calculation of peak credit for the undisclosed savings bank account.
3. Inclusion of commission earned from undisclosed bank account in the total income.

Detailed Analysis:

1. Deletion of Addition of Cash Deposits in the Undisclosed Savings Bank Account:
The primary issue revolves around the addition of ?1,96,38,780/- made by the Assessing Officer (AO) as unexplained cash credit in the savings bank account of the assessee. The AO's addition was based on the observation that the assessee did not initially disclose the existence of this savings account and provided misleading information by only producing statements of current accounts. The AO concluded that the cash deposits represented concealed income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] provided partial relief by restricting the addition to the peak credit amount, considering regular cash deposits and withdrawals in the account.

2. Calculation of Peak Credit for the Undisclosed Savings Bank Account:
The CIT(A) determined that only the peak credit should be considered for addition under Section 68 of the Income Tax Act, 1961. The peak credit method involves considering the highest balance in the account at any point in time. The CIT(A) calculated the peak credit to be ?3,14,434/- (derived from the highest deposit of ?3,36,800/- minus the opening balance of ?22,366/-). This approach was supported by precedents from the Jurisdictional Bench of ITAT and other cases, which established that only the peak credit should be added as income in cases of undisclosed cash credits.

3. Inclusion of Commission Earned from Undisclosed Bank Account in the Total Income:
The CIT(A) also observed that the commission earned from the transactions in the undisclosed savings bank account was not included in the assessee's income tax return. The CIT(A) noted that the assessee had shown a commission of ?7,48,128/- from disclosed current accounts, which represented 5% of the turnover. Applying the same rate to the turnover of ?1,98,77,470/- in the undisclosed savings account, the CIT(A) calculated the commission earned to be ?9,93,874/-. Thus, the CIT(A) added this commission to the peak credit, resulting in a total addition of ?3,14,434/- (peak credit) + ?9,93,874/- (commission), providing relief for the remaining amount.

Conclusion:
The ITAT upheld the order of the CIT(A), confirming the use of the peak credit method and the inclusion of commission earned from the undisclosed savings bank account. The ITAT found no infirmity in the CIT(A)'s calculations and rationale, emphasizing that the CIT(A) had correctly applied the principles of peak credit and commission inclusion. Consequently, the appeal filed by the Revenue was dismissed, and the cross-objection filed by the assessee was allowed.

Order Pronounced:
The order was pronounced in the open court on 19-08-2016, confirming the CIT(A)'s decision and providing relief to the assessee while dismissing the Revenue's appeal.

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