2019 (5) TMI 1129 - HC - Income Tax

Addition on the basis of Peak Credit - unexplained credit entries in the bank account - HELD THAT - Only if the Assessee has failed to explain the entries in bank account, then the additions made by the Authorities under the Act on the basis of Peak Credit can be adopted to remove the cascading effect of the unexplained credit entries in the bank account. The assessee had both cash deposits and cash withdrawals in his bank account with the same bank. Therefore, the method of 'Peak Credit' was rightly adopted for addition of the alleged undisclosed income of the Assessee and this is a well settled and common principle so adopted. The finding of facts of the Authorities below cannot be said to be perverse or illegal in any manner. - Decided against revenue

Summary

Issues:
1. Whether the Appellate Tribunal correctly applied the peak credit method to determine the income of the assessee?
2. Whether the Tribunal correctly applied the peak credit method to ascertain the source of unexplained deposits?
3. Whether the Tribunal erred in applying the peak credit method considering the nature of deposits and payments?

Analysis:

Issue 1:
The Revenue filed Tax Case Appeals challenging the order of the Income Tax Appellate Tribunal regarding the additions made in the hands of the Assessee based on Peak Credit for the Assessment Year 2010-11. The Appellate Authority had used the Peak Credit method as the Assessee could not explain certain credit entries in the bank account, providing partial relief.

Issue 2:
The Tribunal upheld the order of the Commissioner of Income Tax (Appeal) regarding the Peak Credit method. It was noted that the Assessee had cash deposits and withdrawals in the bank account, with the Tribunal emphasizing that cash deposits alone cannot be the subject of an addition without considering cash withdrawals. The Tribunal found that the Peak Credit of ?18,12,888/- was reasonable for the addition, and further additions were deemed unjustified and deleted.

Issue 3:
The High Court observed that the method of Peak Credit was rightly adopted to address unexplained credit entries in the bank account, preventing a cascading effect. The Court stated that if the Assessee fails to explain the entries, additions based on Peak Credit can be made. The judgment highlighted that the Assessee had both cash deposits and withdrawals, justifying the use of the Peak Credit method. The Court dismissed the Revenue's Appeals, finding no substantial question of law and deeming the findings of the Authorities below as not perverse or illegal.

In conclusion, the High Court upheld the use of the Peak Credit method in determining the Assessee's income and source of unexplained deposits. The judgment emphasized the importance of considering both cash deposits and withdrawals in such assessments, dismissing the Revenue's Appeals as lacking merit.