2013 (5) TMI 588 - AT - Income Tax

Undisclosed deposits in the bank account - addition u/s 69 - assessee is a shares dealer and earns income of interest - reopening of assessment - Held that - Assessee, who is maintaining proper books of account was having a savings account which was his personal account but utilized for trading in shares in so far as the shares were held in assessee s personal name and the refunds were to be in the personal name and not in the name of its business. The business income was rendered to tax by the assessee from share trading was to be assessed and the information was received with respect to cash deposit in the personal account. As the above was considered in the immediately preceding assessment year as well for the purpose of taxation on the basis of peak credit and has been accepted by the assessee to not involve further litigation it was the AO s duty to telescope the taxation of the same, in so far as the debits and credits have led to depletion in holding the assets in the form of investment in bank as on 31st March, 2005. AO is directed to accept the peak amount as brought on record by the asessee in the impugned assessment year for taxation after giving telescope effect that a part thereof has already been taxed in the immediately preceding assessment year when the bank balance in the said account as on 31st March, 2005 stood at Rs.1,22,000/- only & to verify the balance as per the bank statement in the impugned assessment year and reduce the amount to be taxed after determining the peak credit in the impugned assessment year, the amount of difference between the opening and closing balance in the said bank, which amount should be less than the peak credit determined and taxed and accepted by the assessee for the A.Y.2004-05 - appeal of the assessee partly allowed.

Summary

Issues:
Taxation of undisclosed bank deposits under section 69 of the Income Tax Act.

Detailed Analysis:
1. The appellant, a shares dealer, filed a return of income amounting to Rs.1,08,450/- which was subjected to reassessment under section 147 of the IT Act. The Assessing Officer (AO) brought a sum of Rs.27,03,412/- to tax under section 69 of the IT Act as deposits in an undisclosed bank account.

2. The First Appellate Authority confirmed the addition, stating that the appellant failed to explain the deposits, except claiming they were savings routed through the bank after tax paid, proceeds of unallotted shares refunded, dividends, and cash deposits. The appellant argued for telescoping the addition in the impugned assessment year based on the peak credit taxed in the previous year. The appellant's counsel cited similar cases where no separate addition was made based solely on bank account entries under section 69.

3. The appellant's counsel argued that the peak credit taxed in the previous assessment year should be considered, as the closing balance available to the assessee was far less than the amount sought to be taxed. The counsel requested the AO to tax only the income of the current year after telescoping the previously taxed amount. The counsel referenced ITAT Kolkata judgments supporting this approach.

4. The Departmental Representative (DR) opposed the appellant's contention, stating that the appellant habitually failed to disclose the bank account used for business transactions. The DR argued that the AO correctly taxed the deposits separately as they were different from the previous year's income. The DR supported the lower authorities' orders.

5. The Tribunal held that the appellant, maintaining proper books of account, used a personal savings account for share trading. The deposits in the account were considered in the previous assessment year based on peak credit and accepted by the appellant. The Tribunal directed the AO to tax the peak amount for the current year after adjusting the previously taxed amount, considering the difference between opening and closing balances in the bank account.

6. The Tribunal partly allowed the appeal, directing the AO to verify the balance in the bank statement for the current year and determine the amount to be taxed as income from the account, ensuring it is less than the peak credit taxed in the previous year. The appellant was granted an opportunity to assist the AO in this determination.

Conclusion:
The Tribunal's decision provides clarity on the taxation of undisclosed bank deposits under section 69 of the IT Act, emphasizing the importance of considering previously taxed amounts and peak credits in determining the taxable income for the current year.