2020 (6) TMI 208 - AT - Income Tax

Addition of undisclosed income - addition ignoring the peak credit theory concept - HELD THAT - Present case is not pertaining to an assessee doing business accommodation entry profit that cash deposits and withdrawals have been made by the assessee but by the employee Shri U.C.Panda himself on behalf of the assessee and such bank account has been owned by the assessee without any dispute. Therefore benefit of the judgment in the case of D..K.Garg 2017 (8) TMI 450 - DELHI HIGH COURT is not available for the Revenue in the present case. We reach to a logical conclusion that the AO was not correct in holding that the entire amount of cash deposits is undisclosed income or undisclosed profit of the assessee and thus, the ld CIT(A) was not correct in confirming the entire addition made by the AO. We hold that when admittedly and undisputedly, the account was not disclosed to the department then, the amount of cash deposit cannot be ignored by the revenue authorities. In the totality of facts and circumstances of the case, we may point out that the assessee has already disclosed amount of ₹ 15 crores during search and seizure operation, wherein, the impugned bank account was found by the revenue authorities. Since, we are satisfied that the amount of cash deposit and cash withdrawals have been made by the employee Shri U.C.Panda, on behalf of the assessee and there were regular cash withdrawals and deposits have been made in the same bank, therefore, the entire amount of deposits cannot be treated as undisclosed income or undisclosed profit of the assessee. In these peculiar facts of the case, the assessee is entitled to benefit of peak credit theory of ₹ 13,06,500/- being closing balance as on 26.11.2014 - addition made by the AO is restricted to the peak credit amount of ₹ 13,06,500/- - Decided in favour of assessee partly.

Summary

Issues Involved:
Appeal against CIT(A) order for assessment year 2015-16; Addition of ?1,79,06,477 ignoring peak credit theory concept.

Analysis:

Issue 1: Addition of ?1,79,06,477 by CIT(A)
The only issue in this appeal was the confirmation of the addition of ?1,79,06,477 made by the AO, disregarding the peak credit theory concept. The appellant argued that continuous deposits and withdrawals in the same bank account should be taxed as undisclosed income based on the peak credit theory. The appellant contended that the peak credit theory prevents double taxation when funds are regularly deposited and withdrawn. They emphasized the need for valid reasons from the AO if the claim is rejected. The appellant cited relevant case laws to support their position.

Issue 2: Arguments and Counter-arguments
The appellant disclosed ?15 crores as undisclosed income post a search operation and explained that cash was used for legitimate business transactions, with remaining amounts deposited in various locations. The appellant stressed that without incriminating evidence beyond bank statements, the entire deposit should not be considered undisclosed income. The CIT DR argued that the appellant failed to explain the large cash amounts carried and lacked details on purchases and transportation, leading to the claim's rejection.

Issue 3: Tribunal's Decision
After considering submissions and case laws, the Tribunal found continuous cash transactions in the bank account, with the peak credit at ?13,06,500. They disagreed with the CIT DR's stance on undisclosed income, stating that regular deposits and withdrawals do not automatically signify unaccounted income. The Tribunal differentiated the case from precedents involving accommodation entries, ruling in favor of the appellant. The Tribunal allowed the appeal partially, restricting the addition to the peak credit amount of ?13,06,500.

In conclusion, the Tribunal acknowledged the undisclosed cash deposits but recognized legitimate business transactions and the peak credit theory. The decision highlighted the importance of substantiated claims and distinguished cases to determine undisclosed income accurately.