2017 (8) TMI 715 - AT - Income Tax

Addition u/s 68 - unexplained Cash deposits and Cash withdrawals - peak credit theory - Held that - We find force in the contention of the ld. A.R that even if the explanation as regards the source of cash deposits does not merit acceptance, still the addition in the hands of the assessee was liable to be restricted by telescoping the cash deposits made in the bank accounts as against the respective cash withdrawals made from the same on the respective dates during the year under consideration. The Ld. A.R had drawn our attention to a chart reflecting the respective Cash deposits and Cash withdrawals made by the assessee during the year under consideration, as per which the peak credit addition in the hands of the assessee would stand restricted to ₹ 3,52,110/-. We are of the considered view that though the Peak credit theory is not a proposition of law, however the fact as regards availability of funds out of the cash withdrawals made by the assessee from his bank account, which might have been utilised for redepositing on a subsequent date, cannot be ruled out in the absence of any evidence proving to the contrary that the said funds had been utilised/exhausted by the assessee by way of an investment or expenditure. We find that the Ld. A.R in order to drive home his aforesaid contention had relied on a host of judicial pronouncements and orders of coordinate benches of the Tribunal. We have deliberated on the facts of the present case and finding substantial force in the contentions raised by the ld. A.R before us, therefore in all fairness and in the interest of justice set aside the matter to the file of the A.O, who is directed to work out the peak credit in terms of our aforesaid observations and restrict the addition to the amount of such peak credit. That for the removal of doubts, it may be clarified that the A.O while working out the peak credit shall allow credit only as regards the availability of such respective cash withdrawals made by the assessee during the year under consideration, which can safely be held to be available with the latter for redepositing on a subsequent date. Appeal of the assessee allowed for statistical purposes.

Issues Involved:
1. Addition of ?31,54,000/- under Section 68 of the Income Tax Act.
2. Addition of ?1,70,000/- as unexplained opening cash balance under Section 68.
3. Consideration of cash withdrawals/cheque issued while computing income under Section 68.
4. Availability of more than ?1,70,000/- cash during the year.
5. General grounds for adding, altering, or amending the grounds of appeal.

Issue-wise Detailed Analysis:

1. Addition of ?31,54,000/- under Section 68 of the Income Tax Act:
The assessee was found to have made a cash deposit of ?31,54,000/- in Federal Bank Ltd., which was not initially disclosed. The assessee claimed that only ?4,01,000/- was deposited, funded by an opening cash balance and withdrawals. However, further investigation revealed an additional SB Account No. 15050100030087 with cash deposits of ?31,19,000/-. The explanation provided by the assessee, that these were proceeds from a retail trade business in gold ornaments, was inconsistent with his earlier statement of not conducting any personal business. The CIT(A) and the ITAT upheld the addition as unexplained cash credit due to the lack of credible evidence supporting the assessee's claims.

2. Addition of ?1,70,000/- as unexplained opening cash balance under Section 68:
The assessee claimed that the ?1,70,000/- deposited in another SB account was from an opening cash balance available for 7-8 years. This explanation was unsubstantiated and later contradicted by the assessee himself, who linked the deposit to sales proceeds from a purported business. The CIT(A) and ITAT rejected this explanation and upheld the addition as unexplained cash credit.

3. Consideration of cash withdrawals/cheque issued while computing income under Section 68:
The assessee argued that cash withdrawals should be considered while computing the unexplained income. The ITAT found merit in this argument, noting that while the peak credit theory is not a legal proposition, it is a practical approach to determine the availability of funds. The ITAT directed the AO to work out the peak credit, allowing credit for cash withdrawals that could be reasonably redeposited.

4. Availability of more than ?1,70,000/- cash during the year:
The assessee contended that more than ?1,70,000/- was available during the year, thus no addition should be made for the opening cash balance. This argument was linked to the peak credit theory, and the ITAT directed the AO to consider the availability of funds from withdrawals while determining the peak credit.

5. General grounds for adding, altering, or amending the grounds of appeal:
The assessee sought the liberty to modify the grounds of appeal to ensure a fair decision. This is a standard procedural request and was noted without specific adjudication.

Conclusion:
The ITAT upheld the additions of ?31,19,000/- and ?1,70,000/- as unexplained cash credits due to inconsistent and unsubstantiated explanations by the assessee. However, it allowed the appeal for statistical purposes, directing the AO to recompute the additions based on the peak credit theory, considering the availability of funds from cash withdrawals. The matter was remanded back to the AO for fresh adjudication, ensuring the assessee is given a fair opportunity to present evidence.

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