2015 (5) TMI 747 - AT - Income Tax

Addition to cash deposits in various bank accounts - peak credit addition - Held that - Considering the findings given in the CIT(A) s order including that of AO s comment in the remand report, it is seen that assessee has been unable to explain the source of cash deposits vis-a-vis any corroborative evidence. Whatever material has been placed on record though establishes that assessee was in some kind of money transfer business, however, the onus is upon the assessee to correlate the cash deposits with some evidence or the same has been recorded in regular books of account. It is also an undisputed fact that three of the assessee s bank accounts was not disclosed, either in the balance sheet or in the books of account. In such a case ones lies heavily upon the assessee to prove the source of the cash deposits in the bank account. Since there was a regular cash deposits and regular withdrawals from same nature of transaction, then positive peak credit has to be worked out for the purpose of addition which has rightly done by the Ld. CIT(A). Accordingly, the Ld. CIT(A) s conclusion that peak credit should be added is affirmed. However, it is noted that while arriving at the peak credit of all the bank accounts, it is seen that firstly, the Ld. CIT(A) has not given credit of opening balance as on 1st of April 2005 and secondly, he has also included the cash deposits made SBI bank account of Lalganj Azamgarh which belongs to his brother. If the said bank account belongs to his brother then no addition on account of unexplained credit can be made in the hands of the assessee. Though the said bank account may be relevant to work out the assessee s commission income but definitely cannot be taken as undisclosed bank account of the assessee as it belongs to assessee s brother who is separate and distinct from the assessee. Thus, we direct the AO to work out the peak credit only from three undisclosed bank account of the assessee, after excluding the opening balance and the entry in bank account belonging to his brother for the purpose of addition on account of unexplained deposits in the bank account.Once the addition on account of peak credit is being made, then no separate addition on account or commission income should be made separately as made by CIT(A) because the unexplained peak credit itself takes care of income element and secondly, if commission income is to be added then it leads to an inference that all the credits and deposits are accepted and only the income qua the transaction is to be taken as an income. Thus addition on account of commission income should be deleted. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the cash deposits in various undisclosed bank accounts.
2. Calculation of peak credit for determining unaccounted income.
3. Inclusion of commission income in addition to peak credit.

Detailed Analysis:

1. Legitimacy of Cash Deposits:
The primary issue revolves around the legitimacy of the cash deposits made by the assessee in various undisclosed bank accounts. The assessee, engaged in the money transfer business under the trade name "Raj Quick Services," claimed that the cash deposits were from customers, mainly laborers in Mumbai, who intended to send money to their families in Uttar Pradesh. The assessing officer (AO) noted discrepancies, including the failure to disclose certain bank accounts and the inability to provide names and addresses of the persons involved in the transactions. Consequently, the AO treated the entire sums deposited in these accounts as undisclosed income under Section 68 of the Income Tax Act.

2. Calculation of Peak Credit:
The CIT(A) agreed that the entire cash deposits could not be treated as unexplained income due to regular cash withdrawals and deposits in the same accounts. Therefore, the CIT(A) directed the calculation of the peak credit, which represents the highest balance at any point in time after considering both debits and credits. The peak credit was determined to be Rs. 29,69,518. However, the CIT(A) also included the credits in the bank account of the assessee's brother in Azamgarh, which the Tribunal later corrected, stating that the brother's account should not be included in the peak credit calculation.

3. Inclusion of Commission Income:
The CIT(A) added a commission income of Rs. 3,87,562, calculated at 3% of the total credits deposited in the bank accounts, to the peak credit. The assessee contended that if the peak credit is considered, then the commission income should not be added separately. The Tribunal upheld this view, stating that the unexplained peak credit itself accounts for the income element, and adding commission income separately would be redundant.

Conclusion:
The Tribunal concluded that the peak credit should be recalculated, excluding the opening balance and the brother's bank account. Once the peak credit is determined, no separate addition for commission income should be made. The final addition will be based solely on the recalculated peak credit. The appeal by the assessee was thus partly allowed, directing the AO to work out the peak credit accordingly.