Peak Credit theory additions ordered despite details not provided, evidence not furnished for the purposes of withdrawals from bank account-ITAT

Peak Credit theory additions ordered despite details not provided, evidence not furnished for the purposes of withdrawals from bank account-ITAT

ABCAUS Case Law Citation:
ABCAUS 1080 (2016) (12) ITAT

Brief Facts of the Case:
The return of income of the assessee was selected for scrutiny under the CASS and accordingly statutory notices under section 143(2) and 142(1) were issued and served upon the assessee calling upon certain details and information.

The case of the assessee was adjourned from time to time at the request of the authorised representative (AR) of the assessee. However, the assessee did not cooperate despite notice for penalty u/s 271(1)(b)for non compliance to the requirement of notice u/s 142(1).

The assessee vide his letter submitted that he was indisposed and could not appear on the appointed date of hearing. Thereafter there was no response from the assessee.

As per Annual Information Report (AIR), throughout the year, the assessee had deposited cash of Rs. 29,54,385/- in his saving bank account at Syndicate Bank. The Assessing Officer (AO) again issued notice asking the assessee to file the statement of all the bank accounts held along with the narration of each entry of debit and credit to such account. However this notice also remained un-complied with.

Finally, the AO called upon the assessee as to why the assessment u/s 144 of the Act should not be not made by making an addition of cash deposited in your account maintained with Syndicate Bank, as unexplained cash credit u/s 68 of the Income Tax Act, 1961. Accordingly, AO framed the assessment ex-parte u/s 144 adding Rs.29,55,106/- on account of cash deposits into bank account as income from other sources u/s 68.

The assessee filed an appeal with the CIT(A) and stated that the he was a scrap dealer and the cash deposits was on account of sale proceeds of the scrap and withdrawal were made for purchase of the scrap. However, despite being categorically asked to give the name of the persons from whom purchases were made or to whom the sale was affected. The assessee did not give any documentary evidences substantiating the purchases made. Further, the assessee was also not able to give any documentary evidences as to the transportation of the scrap.

The plea of the assessee that it may be assessed on the basis of peak credit theory at the peak of the cash credit i.e. Rs. 1,15,340/- being the peak credit and not on the entire amount credited into his bank account, were disapproved by the FAA. CIT(A) held peak credit theory was not acceptable as this was not a case where the AO was making a addition on account of unexplained purchases or sales. The additions were made u/ s 68 of the Act wherein unexplained credits appearing in the books of accounts of the appellant are taken into account. The appellant having failed to adduce any evidence to this effect and offered no valid explanation to the sources of credits, it squarely falls within the mischief of provisions of sec. 68.

CIT(A) also rejected the plea that the assessee be assessed on presumptive basis u/s  44AD @ 5% of the turnover.

Aggrieved, the assessee carried the matter to ITAT.

Contentions of the Assessee:
It was submitted that adding the entire amount of deposits under section 68 was grossly wrong and contrary to the provisions of the Income Tax act as the assessee could be taxed only in respect of the income earned and not the gross amounts deposited in the bank account without taking into account the corresponding withdrawals.

The assessee prayed to the Tribunal that AO be directed to assess the income either on the basis of peak credit theory or on presumptive basis under section 44AD.

Observations made by the Tribunal:
The Tribunal observed that as per the copy of the account of the Syndicate Bank in the books of the assessee, all deposits were of less than Rs.50,000/- and the money was regularly withdrawn in cash by the assessee. Therefore the ITAT pined that in the circumstances of the case the addition of entire amount of deposits into bank of Rs. 29,79,700/- was wrong and could not be sustained.

The Tribunal endorsed that where the regular deposits and withdrawals from the bank were made for the purpose of business of the assessee, the income could be assessed on the basis of peak cash credit only.

Held:
The order of the CIT(A) was set aside with direction to the AO to assess the income of the assessee on the basis of peak credit theory

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