2017 (6) TMI 871 - AT - Income Tax

Addition on unexplained cash deposit - source of cash - peak theory applicability - Held that - We find that there are four bank accounts of the assessee viz two are with BOB at Vidhisha , one is BOB Habibganj, and other one is with Axis Bank. It is noticed that the assessee has made withdrawal of cash from one bank account and same is claimed to have been deposited with other bank account in cash. The assessee has filed cash flow statement in respect by merging all four accounts therein which explains the cash deposits. The peak amount as per cash flow statement comes to NIL. However, if we considered the individual bank account and cash deposit therein , then there would be some amount on account of peak, therefore, in such a case where no books of accounts are maintained the peak theory is best method to assess the actual income earned from such transactions. We find it appropriate to send this issue back to the file of the AO to examine the cash flow statement in the light of explanation as offered in respect of each and every entry and peak theory. The will calculate the peaks of each bank accounts separately. Addition as investment in property - Held that - We find that the assessee had withdrawn a sum of ₹ 1,50,000 as reflected as Paper Book Page No. 42 of cash flow statement. Out of this an amount of ₹ 35,000 was paid in cash on ₹ 49000 was paid in cash on towards purchase of property. Thus, the source of cash payment of ₹ 84,000 is explained. Hence, addition of ₹ 84,000 is deleted. This grounds of appeal is allowed.

Issues Involved:
1. Sustaining the addition of ?34,60,100 out of ?39,35,400 made by the AO on account of unexplained cash deposits.
2. Sustaining the addition of ?84,400 made by the AO on account of unexplained investment in immovable property.

Detailed Analysis:

Issue 1: Sustaining the addition of ?34,60,100 out of ?39,35,400 made by the AO on account of unexplained cash deposits

The assessee, a bank employee, filed a return of income disclosing ?1,32,380. During assessment, it was noted that the assessee made cash deposits of ?39,35,400 in various bank accounts. The AO did not accept the sources provided by the assessee, leading to the addition of ?39,35,400 as unexplained cash deposits.

Upon appeal, the CIT(A) found discrepancies in the AO's calculations and adjusted the total cash deposits to ?34,60,100. The assessee's explanations, including cash flow statements and sources from withdrawals, were deemed unsatisfactory due to a lack of supporting documentary evidence. The CIT(A) confirmed the addition of ?34,60,100, emphasizing that the income declared by the assessee's mother did not justify the amounts given to the assessee, and the frequent deposits and withdrawals were not convincingly explained.

The Tribunal reviewed the submissions and cash flow statements, noting that the deposits were primarily from earlier withdrawals. The Tribunal found the peak credit theory applicable and remanded the issue back to the AO to reassess the cash flow statements and individual bank accounts, allowing the assessee to present further evidence.

Issue 2: Sustaining the addition of ?84,400 made by the AO on account of unexplained investment in immovable property

The assessee purchased a property for ?3,09,400, explaining that ?2,25,000 was paid by cheque and ?84,000 in cash, sourced from his mother, bank withdrawals, and cash in hand. The AO was not satisfied with this explanation and added ?84,000 as unexplained investment.

On appeal, the CIT(A) noted the claimed withdrawal of ?3,04,000 from Axis Bank on 02-02-2010 but did not accept the explanation, upholding the AO's addition.

The Tribunal, upon review, found that the assessee had withdrawn ?1,50,000 from Axis Bank on 02-02-2010, which was sufficient to explain the cash payment of ?84,000 towards the property purchase. Consequently, the Tribunal deleted the addition of ?84,000, allowing this ground of appeal.

Conclusion:

The appeal was partly allowed, with the Tribunal remanding the issue of unexplained cash deposits back to the AO for reassessment and deleting the addition related to the unexplained investment in immovable property. The order was pronounced on 17.04.2017.

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