2020 (5) TMI 552 - AT - Income Tax

Addition u/s 69 - Theory of peaking credit for ascertaining unexplained investment - whether the bank account is being used for the purpose of the business in which sale proceeds have been deposited and purchases were made by using that account? - HELD THAT - Certain ambiguities in the details filed by the assessee vis- -vis considered by the AO. The amounts have been used for the purpose of commodity trading, and the amounts have been withdrawn periodically. Similar amounts have been deposited at roughly ₹ 49,000/- per transaction. It appears that these amounts must have been used by the assessee for trading activities, and therefore, only the peak positive or negative balance occurred in these accounts deserves to be considered as unexplained income of the assessee, because deposits and withdrawals from the same account, though through cross-bearer cheques also According to the assessee, he has availed benefit of cheque discounting and re-circulated this money for commodity trading. Possibility of truth in this allegation cannot be ruled out. It can only be ruled out, had the AO called one of the persons to whom cheques was issued, and inquired who has collected cash from the bank. Had this exercise was done, with regard to one Shri Janardhan who has withdrawn ₹ 2.50 lakhs on 12th June, then the stand of the assessee could be falsified. But no such exercise was done by the AO. Therefore alternative submission of the assessee is accepted for assessing his income at peak of credit/negative balance in this account. Thus, confirm addition which is a negative balance as on 5.9.2009 in place of ₹ 23,87,399/- made by the AO and confirmed by the ld.CIT(A). Appeal of the assessee is partly allowed.

Summary

Issues:
Appeal against addition under section 69 of Income Tax Act, 1961.

Analysis:
1. Facts of the Case: The appellant, an individual engaged in commodity trading, filed an income tax return declaring total income. The Assessing Officer (AO) found substantial cash deposits in the appellant's bank accounts based on AIR information, leading to scrutiny assessment.

2. Issue of Unexplained Deposits: The AO added a significant amount under section 69 of the Income Tax Act, alleging unexplained deposits. The appellant claimed the amounts were used for commodity trading, supported by a cash flow statement and bank statements. The AO believed the cash was never withdrawn by the appellant, leading to the addition.

3. Appellant's Arguments: The appellant's counsel argued that the cash deposits were utilized for trading activities, emphasizing the circulation of money within the accounts. The appellant's submissions included details of cheques issued and received, indicating the funds' utilization for trading purposes.

4. Revenue's Contentions: The Revenue authorities contended that the cash deposits were not backed by legitimate sources and were not returned to the appellant. They argued that the appellant failed to prove the funds' origin and circulation within the accounts.

5. Judicial Analysis: The Tribunal analyzed the appellant's cash flow statement and bank transactions. It noted discrepancies in the details presented by the appellant but acknowledged the possibility of funds being used for trading. The Tribunal highlighted the lack of specific evidence regarding the cheque discounting process and the need for further investigation.

6. Decision and Rationale: The Tribunal accepted the appellant's alternative submission, considering the peak credit/negative balance in the accounts as the basis for assessing unexplained income. It upheld a reduced addition, aligning with the negative balance on a specific date instead of the initial amount added by the AO. The Tribunal emphasized the need for a thorough investigation to verify the appellant's claims.

7. Outcome: The Tribunal partially allowed the appeal, confirming a reduced addition and directing the AO to compute the appellant's income accordingly. The judgment was pronounced in an open court session on a specified date.

This detailed analysis encapsulates the key aspects of the legal judgment, addressing the issues raised in the appeal against the addition under section 69 of the Income Tax Act, 1961.