2016 (4) TMI 806 - AT - Income Tax

Addition on unexplained peak cash credit - Held that - The peak credit submitted by the assessee before the AO had not been controverted by the lower authorities as such there was debit balance which means the assessee firm had advanced the money from the regular books of account. Therefore, we delete the addition confirmed by the ld. CIT (A) as fund advances from the regular cash book but the transactions of loan were recorded in diary on which assessee earned the interest & had not been shown in regular books of account. Thus we confirmed the addition on account of interest at ₹ 20,000/-. For A.Y. 1999-2000, the ld. AO had not given credit of investment in purchase of ₹ 20,90,604/- against unexplained peak cash credit of ₹ 19,60,000/- which is tantamount to double addition. Therefore, addition made on account of unexplained cash peak credit of ₹ 19,60,000/- is also deleted in A.Y. 1999- 2000. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Acceptance of loan versus giving a loan.
2. Addition of peak credit under Section 68 of the Income Tax Act, 1961.
3. Addition of interest paid on unexplained cash credits.
4. Set off of trading addition and unexplained peak cash credit against investment in purchases.

Issue-wise Detailed Analysis:

1. Acceptance of Loan Versus Giving a Loan:
The assessee contended that the Assessing Officer (AO) erred in concluding that the assessee accepted loans during the relevant years. Instead, the assessee argued that they had given loans, as evidenced by the peak working submitted during assessment proceedings. The CIT (A) sustained the AO's findings. The Tribunal noted that the assessee had sufficient cash balances in its books and explained the source of the advances, which were not recorded in the regular books due to an error. The Tribunal found merit in the assessee's argument and concluded that the peak credit calculation should consider the cash available in the regular books, thereby rejecting the AO's and CIT (A)'s findings.

2. Addition of Peak Credit Under Section 68 of the Income Tax Act, 1961:
For the A.Y. 1998-99, the AO added Rs. 4,50,000 as peak credit under Section 68, which was sustained by the CIT (A). The Tribunal noted that the peak credit was calculated based on entries in the Geeta Dayanandini Diary, which indicated loans given, not taken. The Tribunal accepted the assessee's explanation that the transactions were funded from the regular cash balance, thus deleting the addition of Rs. 4,50,000 for A.Y. 1998-99. For A.Y. 1999-2000, the AO added Rs. 19,60,000 as unexplained peak cash credit, which was also sustained by the CIT (A). The Tribunal found that the AO did not give credit for the investment in purchases against the peak cash credit, leading to double addition. Consequently, the Tribunal deleted the addition of Rs. 19,60,000 for A.Y. 1999-2000.

3. Addition of Interest Paid on Unexplained Cash Credits:
For A.Y. 1998-99, the AO added Rs. 20,000 as interest on the peak amount of Rs. 4,50,000, which was sustained by the CIT (A). The Tribunal confirmed the addition of Rs. 20,000 on account of interest since the transactions of loan recorded in the diary were not shown in the regular books of account. For A.Y. 1999-2000, the AO added Rs. 3,52,800 as interest on the peak credit of Rs. 19,60,000. The CIT (A) allowed the set-off of this interest against purchases, thereby deleting the addition. The Tribunal upheld this deletion.

4. Set Off of Trading Addition and Unexplained Peak Cash Credit Against Investment in Purchases:
For A.Y. 1999-2000, the assessee argued that the AO did not allow the set-off of trading addition in Chana Dal and Guwar against the investment in purchases. The AO observed that the assessee had filed a return showing a negative income after setting off surrendered income. The CIT (A) confirmed the trading additions but directed the AO to work out the amount of credit based on the peak theory. The Tribunal found that the AO's failure to give credit for the investment in purchases against the peak cash credit resulted in double addition. Therefore, the Tribunal deleted the addition of Rs. 19,60,000 for A.Y. 1999-2000.

Conclusion:
The Tribunal partly allowed the appeals, deleting the additions of Rs. 4,50,000 for A.Y. 1998-99 and Rs. 19,60,000 for A.Y. 1999-2000, while confirming the addition of Rs. 20,000 as interest for A.Y. 1998-99. The Tribunal's decision was based on the assessee's explanation that the transactions were funded from regular cash balances and the need to avoid double addition. The order was pronounced in the open court on 18/02/2016.