2024 (12) TMI 1379 - AT - Income Tax

Addition of peak credits - deposit through cheque and bank transfer in the undisclosed bank accounts - HELD THAT - Lower authorities have given a concurrent finding that the bank account has been duly considered for the purpose of computing peak credit which has been assessed in the hands of the assessee. All the bank statements that has been used to make the circular transactions were before the AO and on that basis, peak credit has been arrived at Rs. 2.99 crores. CIT(A) has considered and duly ascertained the peak credit of bank account of the assessee s father Shri V. Gurunathan, which is duly considered for the purpose of computing peak credit in the hands of the assessee. AO has verified this fact and CIT(A) while giving finding has considered the assessee s father s bank account and circular transactions entered into the assessee s bank accounts, which are part of assessee s paper-book, we find no infirmity in the order of CIT(A) directing the AO to assess only the peak credit and no further addition is to be made - Appeal filed by the Revenue is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this legal judgment include:

Whether the CIT(A) was correct in deleting the addition made by the AO based on the Tribunal's order concerning the assessment of income under Section 143(3) read with Sections 147 and 254 of the Income Tax Act.
Whether the CIT(A) was justified in relying on a previous CIT(A) order from a related case to delete identical additions in the current case.
Whether the cyclic/circular transactions through undisclosed bank accounts were adequately explained, and whether the peak credit method was correctly applied.
Whether further additions were warranted given the previous consideration of peak credit in the father's bank account operated by the son.
Whether the benefit of peak credit was correctly limited to cash deposits and withdrawals, excluding unexplained deposits by cheque and bank transfer.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deletion of Addition by CIT(A)

Legal Framework and Precedents: The assessment was conducted under Section 143(3) read with Sections 147 and 254 of the Income Tax Act, 1961. The Tribunal's directions on reassessment were pivotal.
Court's Interpretation and Reasoning: The Tribunal had directed the AO to verify whether the peak credit had been correctly computed and considered in the father's account.
Key Evidence and Findings: The CIT(A) found that the bank account in question had been included in the peak credit calculation, and no further addition was warranted.
Application of Law to Facts: The CIT(A) applied the Tribunal's directions and concluded that the peak credit of Rs. 2.99 crores was correctly assessed, precluding further additions.
Treatment of Competing Arguments: The CIT(A) considered the Revenue's arguments but found them unsupported by the Tribunal's directions and evidence.
Conclusions: The CIT(A) correctly deleted the addition, adhering to the Tribunal's instructions and the established peak credit calculation.

Issue 2: Reliance on Previous CIT(A) Order

Legal Framework and Precedents: The CIT(A) relied on a prior order concerning the assessee's father, which was upheld by the Tribunal.
Court's Interpretation and Reasoning: The CIT(A) found that the previous order provided a valid basis for the current decision, given the similar facts and transactions involved.
Key Evidence and Findings: The previous CIT(A) order had concluded that the sources of credit were explained through corresponding debits in other accounts.
Application of Law to Facts: The CIT(A) applied the reasoning from the previous order, supported by the Tribunal's affirmation, to the current case.
Treatment of Competing Arguments: The CIT(A) dismissed the Revenue's contention that the previous order was inapplicable, citing the Tribunal's consistent findings.
Conclusions: The reliance on the previous CIT(A) order was justified, as it was consistent with the Tribunal's directions and findings.

Issue 3: Explanation of Cyclic/Circular Transactions

Legal Framework and Precedents: The assessment involved scrutiny of undisclosed bank accounts and the cyclic nature of transactions.
Court's Interpretation and Reasoning: The CIT(A) concluded that the transactions were adequately explained as cyclic, with sources and destinations corresponding across accounts.
Key Evidence and Findings: The CIT(A) noted that the transactions were part of a practice of using multiple accounts to manage funds.
Application of Law to Facts: The CIT(A) applied the peak credit method to these transactions, finding no additional unexplained income.
Treatment of Competing Arguments: The CIT(A) addressed the Revenue's arguments by demonstrating that the transactions were accounted for in the peak credit calculation.
Conclusions: The cyclic transactions were adequately explained, and the peak credit method was correctly applied.

Issue 4: Further Additions and Peak Credit Consideration

Legal Framework and Precedents: The Tribunal had directed verification of whether the peak credit included the father's account.
Court's Interpretation and Reasoning: The CIT(A) found that the father's account was included in the peak credit calculation, negating further additions.
Key Evidence and Findings: The CIT(A) relied on the AO's verification that the account was included in the peak credit computation.
Application of Law to Facts: The CIT(A) applied the Tribunal's directions to confirm that no further additions were necessary.
Treatment of Competing Arguments: The CIT(A) dismissed the Revenue's claims of additional unexplained income, citing the comprehensive inclusion in the peak credit.
Conclusions: The CIT(A) correctly determined that no further additions were warranted, adhering to the Tribunal's instructions.

Issue 5: Limitation of Peak Credit Benefit

Legal Framework and Precedents: The peak credit method was applied to both cash and non-cash transactions.
Court's Interpretation and Reasoning: The CIT(A) found that the peak credit calculation encompassed all relevant transactions, not just cash.
Key Evidence and Findings: The CIT(A) noted that the peak credit of Rs. 2.99 crores included all cyclic transactions.
Application of Law to Facts: The CIT(A) applied the peak credit method comprehensively, including cheque and bank transfer deposits.
Treatment of Competing Arguments: The CIT(A) rejected the Revenue's argument that only cash transactions were considered, showing that all transactions were included.
Conclusions: The CIT(A) correctly applied the peak credit method to all transactions, not limiting it to cash deposits and withdrawals.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The Hon'ble ITAT has very clearly directed the A.O. to verify if the appellant's father's bank account...has been considered for the purpose of calculating the peak credit amount of Rs 2.99 Crs."
Core Principles Established: The peak credit method is a valid approach for assessing income from cyclic transactions across multiple accounts, provided all relevant accounts are considered.
Final Determinations on Each Issue: The CIT(A) was correct in deleting the addition, relying on previous orders, explaining cyclic transactions, and applying the peak credit method comprehensively.

In conclusion, the Tribunal upheld the CIT(A)'s decision, finding no error in the deletion of the addition and confirming that the peak credit method was correctly applied to all transactions, including those in the father's account. The Revenue's appeal was dismissed.

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