2012 (7) TMI 364 - AT - Income Tax

Addition of the entire credits in bank account in the income as unexplained deposits - assessee contested that only the peak credit in the bank account could have been added in the income of unexplained deposit - Held that - Principle of peak credit is not applicable in the cases where the deposits remained unexplained u/s. 68 and would not apply in the case of different depositors where there has been no transaction of deposits and its repayment between the particular depositor and the assessee - as different drafts were deposited in the bank account of the assessee in the name of different persons, therefore, peak theory cannot be applied in the case of assessee. Further, from the bank statement, it is clear that after deposit of bank drafts in the account in the name of different persons, cash was withdrawn in each and every case, but no evidence was furnished whether the amounts were paid to the same depositors of the drafts or to some other parties - in favour of revenue. Levy of penalty u/s. 271(1)(c) - rejection of appeal as to be time barred - Held that - It is well settled law that penalty cannot be levied on the amounts /additions, which have already been deleted on quantum appeals. No basis would be left for levy of penalty if addition on which penalty was levied has already been deleted by the appellate authorities - Since the order of the Tribunal was delivered after the levy of penalty, therefore, such circumstances and peculiar facts should have been considered by the ld. CIT(A) in the penalty appeal instead of dismissing the appeal of the assessee holding it to be time barred - the assessee was prevented by sufficient cause from not filing the appeal before the CIT(A) within the period of limitation, thus in such circumstances, the delay should have been condoned - the appeal of the assessee is restored to the file of CIT(A) with the direction to redecide the appeal on merits - in favour of assessee by way of remand.

Issues Involved:

1. Addition of unexplained deposits in the bank account.
2. Application of the peak credit theory.
3. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
4. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Addition of Unexplained Deposits in the Bank Account:

The primary issue was the addition of Rs. 35,03,011/- as unexplained deposits in the assessee's bank account. The Assessing Officer (AO) made this addition under Section 69 of the Income Tax Act due to the non-production of books of account despite statutory notices. The addition was confirmed by the CIT(A) and the Tribunal on the grounds of lack of evidence to explain the deposits. The Tribunal's earlier order dated 25.05.2007 confirmed the addition but remanded the matter to the CIT(A) to examine the alternate claim of peak addition.

2. Application of the Peak Credit Theory:

The assessee argued that only the peak credit in the bank account should be taxed as unexplained deposits, citing that the rest of the deposits were covered by previous withdrawals. The CIT(A) rejected this claim, referencing the jurisdictional Allahabad High Court decision in Bhaiyalal Shyam Behari, which held that the peak credit theory is not applicable when the deposits are claimed to be genuine. The Tribunal upheld the CIT(A)'s decision, stating that peak credit could not be applied as the deposits were unexplained and the assessee failed to provide convincing evidence that the deposits were not unaccounted income.

3. Levy of Penalty under Section 271(1)(c):

The assessee's appeal against the penalty levied under Section 271(1)(c) was dismissed by the CIT(A) due to a delay of nearly two years in filing the appeal. The CIT(A) held that the delay was not justified and was a result of gross negligence. The Tribunal noted that the penalty was levied on additions, one of which (Rs. 26,33,328/-) had already been deleted by the Tribunal. The Tribunal found that the CIT(A) failed to consider the peculiar circumstances and the affidavit filed by the director of the assessee company explaining the delay. Consequently, the Tribunal condoned the delay and remanded the matter back to the CIT(A) for a decision on merits.

4. Condonation of Delay in Filing the Appeal:

The Tribunal found that the CIT(A) incorrectly noted that the affidavit was filed by the present counsel instead of the director of the assessee company. The affidavit explained that the delay was due to the negligence of the previous counsel. The Tribunal held that the assessee should not suffer due to the counsel's negligence and condoned the delay. The matter was remanded to the CIT(A) with directions to dispose of the appeal on merits within two months.

Conclusion:

The Tribunal dismissed the appeal regarding the addition of unexplained deposits (ITA No. 456/Agra/2010) and allowed the appeal concerning the penalty (ITA No. 457/Agra/2010), directing the CIT(A) to redecide the penalty appeal on merits.

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