Peak credit theory not applicable when cash not withdrawn but only deposited in bank account and used for investment in mutual funds.

Peak credit theory not applicable when cash not withdrawn but only deposited in bank account and used for investment in mutual funds-ITAT

ABCAUS Case Law Citation:
952 2016 (06) ITAT
Assessment Year: 2009-10
Date/Month of Judgment/Order: June, 2016

Brief Facts of the Case:

In this cross objection filed by the assessee, he was aggrieved with the part addition sustained by CIT(A) which the Assessing Officer had made on account of unexplained deposits in the Bank Account of the assessee. The CIT(A) had arrived at the amount of the addition on the basis of difference between total assets at the beginning of the year and total assets at the close of Financial Year. Whereas the assessee contended that CIT(A) should have considered the peak balance theory and should have made the addition on the basis of peak credit less the opening balance and income returned during the year.

The Tribunal observed that while restricting the amount of addition, CIT(A) had ignored the amount of income returned by the assessee during the year under consideration and the amount of income as per revised return. Therefore, ITAT held that the addition should have been worked out as being the accretion to net assets as calculated by learned CIT(A) minus the returned income filed by assessee for the year under reference.

Applicability of Peak Credit Theory:

Regarding the contention of the assessee that CIT(A) should have considered the peak credit, the Tribunal held that it does not hold any force in view of the fact that assessee had been disposing cash in the Bank Account and was not withdrawing them in the form of cash and was investing in various schemes of mutual funds.

Held:

ITAT held that CIT(A) had rightly rejected the theory of peak credit and rightly calculated the amount of addition on the basis of differences between opening and closing balances of assets. However, he ignored to give credit to the assessee for the returned income and accordingly the addition was restricted to amount  calculated after giving credit of return of income.