2020 (2) TMI 1280 - AT - Income Tax

Reopening of assessment u/s 148 - explained cash deposits - HELD THAT - Source for cash deposits were not explained with the cogent evidences. The assessee has tried to explain the sources of cash deposits before us through cash/bank book filed before us by way of withdrawals from banks, rent , partner remuneration from firm etc. which need verifictaion. Also at the same time observed that no specific deficiencies were pointed out by authorities below in the cash/bank books while generalized adverse comments were made by authorities below. To be fair and reasonable to both the parties and to render justice, in our considered view, there is a need for verification of cash/bank book entries vis- -vis cash deposits and co-relation with income declared by assessee before Revenue in the return of income filed and consequently due taxes paid to revenue on such income claimed to be sources of deposits. Thus for this limited verification ,we are restoring the matter back to the file of the AO for both the years as similar issues are involved. The AO is directed to go through records produced by assesses and to point out specific defects /escarpment of income leading to culmination of income which had escaped assessment and which needed to be brought to tax in the hands of the assessee instead of making generalized comments - Appeals filed by assessee are allowed for statistical purposes.

Issues Involved:
1. Examination of bank statements and inability to produce details for cash deposits.
2. Adoption of the 'peak credit' method to determine income from unexplained cash deposits.
3. Examination of sources for cash deposits and the adequacy of supporting evidence.
4. Validity of the assessment orders and appellate decisions concerning unexplained cash credits.
5. Consideration of additional evidence and rectification petitions filed by the assessee.

Issue-Wise Detailed Analysis:

1. Examination of Bank Statements and Inability to Produce Details for Cash Deposits:
The assessee was asked to produce sources for cash deposits, confirmation for loans, details of interest paid, and copies of bank statements during the assessment proceedings. The AO obtained the bank statements directly from the bank and examined them. The assessee informed the AO that he could not produce the details for cash deposits as his accountant had suddenly left the service. Consequently, the AO adopted the 'peak credit' method to determine the income from unexplained cash deposits, resulting in an addition of ?3,05,500/- to the assessee's income for AY 2012-13.

2. Adoption of the 'Peak Credit' Method:
The AO, after discussions with the assessee, adopted the 'peak credit' method to find out the income on account of cash deposits. The peak credit was worked out to ?3,05,500/- and added to the total income of the assessee. The CIT(A) confirmed the AO's action, stating that the source of cash deposits could not be substantiated with evidence, and considering the entire cash deposit as unexplained without giving credit for withdrawals from the bank accounts would be unjust. Therefore, the CIT(A) found the peak cash credit method to be the most appropriate and just.

3. Examination of Sources for Cash Deposits and Adequacy of Supporting Evidence:
The CIT(A) noted that the AO had not examined the source of the cash deposits. The assessee could not furnish complete books of accounts, evidences, and various ledger accounts before the appellate authority. The CIT(A) held that in the absence of supporting and corroborative evidence, considering the peak cash credit as unexplained cash in the hands of the assessee was appropriate. The assessee's reconstructed P&L account, balance sheet, and cash book were found incomplete for want of details of respective ledgers.

4. Validity of Assessment Orders and Appellate Decisions:
The assessee contended that the CIT(A) had erred in law and facts by not considering the additional evidence submitted during the appeal proceedings. The assessee argued that the cash book and bank book submitted during the remand report scrutiny proceedings were verified by the AO, who was satisfied that all cash deposits were reconciled with the books of accounts. The CIT(A)'s statement that the source of cash deposits could not be substantiated with evidence was challenged by the assessee, who claimed that the cash book clearly showed the sources of the cash deposits.

5. Consideration of Additional Evidence and Rectification Petitions:
The assessee filed rectification petitions under Section 154 of the Income-tax Act, 1961, stating that the appeal was dismissed without considering the additional evidence of the cash book. The CIT(A) dismissed the rectification petitions initially as they were filed manually. However, the assessee later e-filed the rectification petitions, which were adjudicated on merits. The CIT(A) called for a remand report from the AO, who admitted that the assessee was prevented from producing relevant records during the assessment proceedings due to floods in Chennai. The AO verified the cash book and bank book and found the assessee's version regarding the damage of books to be correct.

Conclusion:
The Tribunal observed that the assessee, a senior citizen and freedom fighter running an IOC Agency, could not produce books of accounts during the assessment proceedings due to floods in Chennai. The Tribunal noted that the AO accepted the assessee's contention about the damage to records in the remand report. The Tribunal found that the sources of cash deposits needed verification and directed the AO to verify the cash/bank book entries vis-à-vis cash deposits and co-relation with income declared by the assessee. The matter was restored to the AO for limited verification, and the appeals filed by the assessee were allowed for statistical purposes.

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