2018 (6) TMI 406 - AT - Income Tax

Unexplained deposits in the bank account - Peak credit theory - Held that - The assessee cannot choose peak credit theory to delete a part of the addition and also plead for applying net rate on the remaining portion of the unexplained deposits in the bank account. Doing so will be mutually contradictory - AO has made a reasonable estimate of income of the assessee in respect of unexplained deposits in the bank account by treating them as receipts from undisclosed or unrecorded business transactions. CIT(Appeals) has rightly confirmed the order of AO. We find no grounds to interfere with the order of CIT(Appeals). Accordingly, the appeal by the assessee is dismissed.

Summary

Issues:
Assessment of unexplained deposits in bank accounts.

Analysis:
The appellant, an individual deriving income as a contractor, was assessed for unexplained cash deposits totaling ?1,16,80,800 in two bank accounts. The Assessing Officer (AO) treated these deposits as receipts from undisclosed business transactions, resulting in an addition of ?15,09,160 to the appellant's total income. The appellant failed to substantiate the source of funds for these deposits, leading to the AO's decision.

The appellant appealed to the CIT(Appeals), reiterating the same explanations provided to the AO. However, the CIT(Appeals) found the appellant's explanations lacking in evidence and substance. The appellant claimed funds were received from nine individuals totaling ?43,50,000, but failed to provide adequate proof of the creditors' identities or their agricultural income sources. The CIT(Appeals) upheld the AO's addition based on the lack of satisfactory explanation by the appellant.

Challenging the CIT(Appeals) decision, the appellant presented a detailed chart showing cash deposits and withdrawals from the bank accounts, totaling ?1,16,80,800 and ?87,50,000 respectively. The appellant argued that withdrawals accounted for deposits, and any difference should be subject to net profit rate application, limiting the addition.

The Tribunal considered the appellant's submissions but noted the absence of a peak credit analysis to determine the highest deposit over time. Without this analysis, the Tribunal concluded that the AO's estimation of unexplained deposits as undisclosed business receipts was reasonable. Rejecting the appellant's selective application of peak credit theory and net profit rate, the Tribunal upheld the CIT(Appeals) decision, dismissing the appellant's appeal.

In conclusion, the Tribunal affirmed the CIT(Appeals) order, emphasizing the reasonable estimation made by the AO regarding the unexplained deposits. The appellant's attempt to selectively apply theories for reducing the addition was deemed contradictory, leading to the dismissal of the appeal.