2018 (9) TMI 339 - AT - Income Tax

Addition on the basis of peak credit theory - Held that - All the details of cash deposits to the tune of ₹ 30,13,800/- is available and co-relates with the ledger account and fully explainable because the same have been routed through cash book maintained by the assessee. AO has taking into consideration the debit as well as credit entries for applying peak credit theory which is not sustainable, therefore, the observation of the Ld. CIT(A) to the extent that, in the absence of documentary evidences and clarification in respect of various cash deposits amounting to ₹ 30,13,800/- in the Bank Account of the assessee culminated into rightly assessed income of the assessee after taking into account is peak credit, is contrary to the facts and documents on record and hence can not be sustained. Even otherwise, the gross turn over o the Asseeee has also been accepted by the department in subsequent assessment year without deduction. DR has not refuted the claim of the assessee by placing on record any contrary material and/or pointing out any defect in the ledger account and the bank statement of the assessee. Thus addition to be deleted - Decided in favour of assessee

Summary

Issues:
Appeal against order passed by Ld. CIT(A) under Income Tax Act, 1961 - Addition of ?16,70,206 based on peak credit theory - Challenge to the assessment order - Discrepancy in cash deposits in bank account - Assessee's appeal allowed.

Analysis:
The appeal was filed by the Assessee against the order of the Ld. CIT(A) under the Income Tax Act, 1961, challenging the addition of ?16,70,206 made by the Assessing Officer based on the peak credit theory. The Assessee, a Doctor running a Diagnostics Center, declared a gross turnover of ?13,43,594 in the income and expenditure accounts. The Assessing Officer observed cash deposits amounting to ?30,13,800 in the bank account from April 1, 2005, to March 31, 2006. The Assessee failed to provide satisfactory clarification, leading to the addition of ?16,70,206 to the income based on undisclosed sales using the peak credit theory. The Ld. CIT(A) affirmed this addition, partly allowing relief to the Assessee.

The Assessee challenged the addition before the Appellate Tribunal, arguing that the Assessing Officer's application of the peak credit theory was not sustainable. The Tribunal noted discrepancies in the assessment, as a portion of the deposited amount pertained to a subsequent year. The Assessee's cash deposits were fully explainable and reconcilable with the ledger account, as they were routed through the cash book. The Tribunal found the Ld. CIT(A)'s decision contrary to the facts and documents on record, leading to the deletion of the ?16,70,206 addition.

During the proceedings, the Ld. DR did not present any contrary material or defects in the Assessee's ledger account and bank statement to refute the claim. Consequently, the Tribunal allowed the Assessee's appeal, setting aside the addition of ?16,70,206. The Tribunal emphasized that the addition was not sustainable, given the reconcilable nature of the cash deposits and the absence of evidence supporting the Assessing Officer's peak credit theory. The order in favor of the Assessee was pronounced on April 11, 2018.