2015 (7) TMI 937 - AT - Income Tax

Revision u/s 263 by CIT(A) - sources for the deposits found in the SB Account with Axis Bank have not been examined and enquired into, as in the absence of details for sources for deposits in the SB Account, the Assessing Officer ought to have added back the total deposits found in the bank account u/s. 69 instead of making peak addition u/s. 68 - Held that - The cash summary prepared and furnished by the assessee also does not indicate the source of cash receipts/inflow shown therein on various dates. The information and material furnished by the assessee before the Assessing Officer therefore, was not sufficient to apply peak credit theory for the purpose of making addition on account of cash deposits found to be made in the bank account of the assessee with Axis Bank, and as rightly concluded by the learned Commissioner, the order passed by the Assessing Officer under S.143(3) making addition by applying wrongly the peak redit theory without enquiring in to all the relevant aspects was erroneous as well as prejudicial to the interests of the Revenue, calling for revision under S.263. The direction given by the learned Commissioner to the Assessing Officer in his impugned order is very specific to reassess the income for the year under consideration after carrying out necessary enquiries in his order. It is thus not a case where the learned Commissioner can be said to have kept the scope of the fresh assessment wide open, as sought to be contended by the learned counsel for the assessee.The impugned order of the learned Commissioner is accordingly upheld - Decided against assessee.

Summary

Issues:
Assessment under S.263 - Application of peak credit theory for addition of cash deposits - Verification of sources for cash deposits in bank account - Jurisdiction of the Commissioner under S.263.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income-tax III, Hyderabad, passed under S.263 of the Income Tax Act, 1961. The assessee, an individual deriving income from salary, had cash deposits in a savings bank account without proper documentation of the sources. The Assessing Officer applied peak credit theory and made an addition to the income.

2. The Commissioner found errors in the Assessing Officer's order, stating that sources of cash deposits were not adequately examined. The Commissioner issued a notice under S.263, challenging the assessment. The assessee argued that the cash flow statement was verified by the Assessing Officer, but the Commissioner disagreed, remitting the issue back to the Assessing Officer for further examination.

3. The assessee contended that the peak credit theory was correctly applied, citing various cases supporting its use. However, the Commissioner held that the Assessing Officer failed to inquire into the sources of cash deposits, leading to an erroneous assessment. The Commissioner directed a reassessment, which the assessee challenged before the Tribunal.

4. The Tribunal observed that the cash deposits were not adequately explained, and the peak credit theory application was flawed. The Tribunal upheld the Commissioner's order under S.263, stating that the assessment was erroneous and prejudicial to the Revenue's interests. The Tribunal rejected the assessee's argument regarding the scope of reassessment, affirming the Commissioner's decision.

5. Ultimately, the Tribunal dismissed the appeal, upholding the Commissioner's order. The decision highlighted the importance of proper verification of sources for cash deposits and the correct application of assessment principles. The Tribunal emphasized the Commissioner's jurisdiction under S.263 to rectify erroneous assessments for the benefit of Revenue.

This comprehensive analysis of the judgment covers the issues involved, the arguments presented by both parties, and the Tribunal's decision, providing a detailed overview of the legal aspects and reasoning behind the judgment.