2012 (9) TMI 149 - AT - Income Tax

Block assessment - seizure of unexplained cash - various cash deposits and subsequent withdrawals from Bank account - assessee contending for assessment of income at peak credit and not on entire amount of deposits found in the bank accounts - also seized cash is explained to be source of various cash deposits - Held that - During the course of assessment proceedings, the assessee has changed his stand and stated that he was carrying on the business of trading in gold biscuits and the transactions in its bank account represented such trading. However, assessee has failed to bring on record any material to substantiate his changed stand. Also, possibility of rotation of funds cannot be discounted with. The tax authorities, cannot simply ignore the withdrawals made by the assessee. Accordingly, it would be justifiable to assess the peak credit of deposits as the income of the assessee. Matter set aside to file of AO for determining the peak credit Amount of peak credit become taxable due to the legal fiction contained in section 68, 69 etc. due to the failure of the assessee to properly explain the bank transactions. It is the responsibility of the assessee to show that the said amount was available with him and it was kept idle for more than nine months. Hence, income declared by the assessee for the AY 1997-98 to 2002-03 cannot be considered as a source for the amount of Rs.65.00 lakhs seized by the police officials - Decided partly in favor of assessee.

Issues Involved:
1. Addition of Rs. 2,12,15,000/- to the income of the assessee by the Assessing Officer.
2. Enhancement of income by Rs. 65.00 lakhs by the CIT(A).
3. The validity of assessing the entire bank deposits as income.
4. The applicability of peak credit method for assessing income.
5. The source of Rs. 65.00 lakhs seized by the police.

Detailed Analysis:

1. Addition of Rs. 2,12,15,000/- to the income of the assessee by the Assessing Officer:
The Assessing Officer (AO) noticed that the assessee had deposited an aggregate amount of Rs. 2,62,15,000/- in his bank accounts on various dates, all of which were withdrawn immediately. The AO rejected the assessee's claim that these transactions were business-related due to the lack of supporting details and treated the entire deposits as undisclosed income. Since the assessee had already declared Rs. 50.00 lakhs in his block return, the AO added Rs. 2,12,15,000/- to the income disclosed by the assessee.

2. Enhancement of income by Rs. 65.00 lakhs by the CIT(A):
The CIT(A) confirmed the addition of the bank deposits and issued a notice of enhancement, asserting that the Rs. 65.00 lakhs seized by the police should be assessed separately. The CIT(A) noted the contradictory stands taken by the assessee regarding the deposits and the unexplained time gap between the last bank withdrawal and the cash seizure. Consequently, the CIT(A) directed that the Rs. 65.00 lakhs be assessed as undisclosed income.

3. The validity of assessing the entire bank deposits as income:
The Tribunal examined whether the entire deposits in the bank accounts should be assessed as income or if only the peak credit should be considered. The Tribunal acknowledged the possibility of fund rotation due to successive deposits and withdrawals. However, the assessee failed to substantiate his claims regarding the nature of these transactions, leading the tax authorities to treat the deposits as unexplained income.

4. The applicability of peak credit method for assessing income:
The Tribunal noted that the tax authorities cannot ignore the withdrawals made by the assessee and that assessing the peak credit is a justified method in such repetitive transactions. The Tribunal directed the AO to verify the peak credit workings and assess the correct peak credit as the income of the assessee.

5. The source of Rs. 65.00 lakhs seized by the police:
The Tribunal addressed whether the income declared by the assessee could be considered as the source for the Rs. 65.00 lakhs seized by the police. The Tribunal found the cash flow statement prepared by the assessee to be self-serving and unsupported by any regular books of accounts or documents. The Tribunal concluded that the income declared for the assessment years 1997-98 to 2002-03 could not be considered as the source for the seized amount. However, the Tribunal allowed a set-off of Rs. 7.00 lakhs declared for the assessment year 2003-04 against the seized amount, directing the AO to add only Rs. 58.00 lakhs in the assessment year 2003-04.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal modified the order of the CIT(A) by directing the AO to assess the peak credit as the income of the assessee and to give a set-off of Rs. 7.00 lakhs against the Rs. 65.00 lakhs seized by the police, resulting in an addition of Rs. 58.00 lakhs for the assessment year 2003-04.

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