2024 (6) TMI 689 - AT - Income Tax

Cash deposited and other credits in the saving bank account - difference between the bank credit and the purchase for which the assessee has given no explanation - HELD THAT - It is seen from the record that the cash were not deposited on a single day, rather it has been deposited on various occasions throughout the year and some of the amount deposited in the saving bank account have been transferred to current account which is evident. It is the case of the Assessee that the cheques have been issued for the purpose of purchasing PVC and iron scrap and such PVC and iron scrap purchased have been sold in the Kabadi Market in cash, thus, the source of balance cash deposit in the bank accounts are the cash sales of PVC and iron scrap purchased out of the funds generated by way of total cash deposit in both the bank accounts. Apart from the same, the entire addition made u/s 68 are the cash deposits made in the bank accounts of the Assessee. There is nothing on record to infer that the cash deposits are not the business income of the Assessee. Assessee has not maintained any books of accounts, since the Assessee filed his return u/s 44AD, the A.O. found that the cash deposited in the Assessee s bank account are liable to be taxed u/s 68 of the Act. As observed above, the Assessee had no source of income other than the business and capital gain, therefore, we can only infer that the cash deposited by the Assessee is out of business receipts. As difficult to estimate the rate of net profit in the business of the Assessee without any data and details. The Assessee should be taxed on the real income earned by him as held in the case of Godhra Electricity Co. Ltd 1974 (9) TMI 116 - SUPREME COURT and CIT Vs. Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT . Even as per the peak theory, instead of taxing the entire tax deposit in the bank account, only peak cash deposit is required to be taxed as held in the case of Purushottam Jhawar 2013 (10) TMI 838 - ANDHRA PRADESH HIGH COURT . In the present case, the peak of cash deposit in the saving bank account and the current account both taken together comes to Rs. 9,70,000/-. The Assessee has provided the working - Thus by applying the peak theory, the addition on the unaccounted money is restricted to Rs. 9,70,000/-. Thus the Grounds No. 3 5 of the Assessee are partly allowed.

Summary

Issues Involved:
The issues involved in this legal judgment are related to the assessment order passed by the Income Tax Department/National Faceless Appeal Centre for the Assessment Year 2015-16. The key issues include the legality of the assessment order passed under Section 143(3) of the Income Tax Act, violation of principles of natural justice, addition of unexplained cash deposits in bank accounts and car purchase, incorrect opinion formation by the CIT(A), initiation of penalty proceedings u/s 271(1)(c), and legality of interest charged u/s 234A and 234B.

Assessment Order Legality:
The Assessee filed an appeal against the order of the Income Tax Department/National Faceless Appeal Centre for the Assessment Year 2015-16, challenging the legality of the assessment order passed under Section 143(3) of the Income Tax Act. The Assessee contended that the assessment order was illegal and bad in law. The Grounds of Appeal raised various issues regarding the assessment order, including violation of natural justice and lack of proper consideration of explanations and evidence.

Unexplained Cash Deposits:
The Assessee's appeal also contested the addition of Rs. 1,21,27,329/- u/s 68 as unexplained cash deposits in bank accounts and car purchased in cash. The Assessee argued that the income should have been estimated based on the turnover and cash deposits related to business activities, rather than taxing the entire amount under Section 68 of the Act. The Assessee claimed that the cash deposits were from cash sales of PVC and iron scrap, and should be taxed based on real earned income or peak theory.

Judgment and Decision:
The Appellate Tribunal considered the arguments presented by both parties and analyzed the material available on record. The Tribunal observed that the Assessee had deposited significant amounts in bank accounts without proper explanation, leading to the addition under Section 68 of the Act. However, the Tribunal applied the peak theory to restrict the addition on unaccounted money to Rs. 9,70,000/-, considering the real income earned by the Assessee. The Tribunal partially allowed the Assessee's appeal on the grounds related to unexplained cash deposits, while dismissing other grounds as not meritorious or general in nature.

Conclusion:
In conclusion, the Appellate Tribunal partially allowed the Assessee's appeal concerning the addition of unexplained cash deposits in bank accounts, by applying the peak theory to determine the taxable amount. The Tribunal's decision highlighted the importance of considering real earned income and proper estimation methods in tax assessments. The judgment was pronounced in open court on 14th June, 2024.