IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD

ITA No.2375/Ahd/2011 AY : 2008-2009
ITO (Appellant) vs. Vikas Sobhgmal Jain (Respondent)
Date of Order: 05-11-2015

ORDER

PER RAJPAL YADAV, JUDICIAL MEMBER:
The present appeal is directed at the instance of the Revenue against the order of ld.CIT(A)II, Surat dated 5.8.2011 passed for the Asstt.Year 2008-09.

The present appeal is directed at the instance of the Revenue against the order of ld.CIT(A)-II, Surat dated 5.8.2011 passed for the Asstt.Year 2008-09.

2. Though the Revenue has taken three grounds of appeal, but, grievance of the Revenue revolves around a single issue, whereby, it has pleaded that the ld.First Appellate Authority has erred in restricting the addition to Rs.2,14,041/- and Rs.3,81,525/- being peak credit in the bank account and GP of total deposits instead of Rs.28,22,920/- added by the AO.

3. Brief facts of the case are that the assessee is an individual engaged in the business of retail-trading. He has filed a return of income on 5.5.2009 declaring total income of Rs.1,06,420/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued on 20.8.2010, which was duly served upon the assessee. On scrutiny of the accounts, it revealed to the AO that annual information wing has got information that the assessee has bank account with State Bank of Bikaner & Jaipur, where he has deposited a sum of Rs.20,09,900/- in cash on various dates. The ld.AO called for information from the bank by exercising powers under section 133(6) of the Income Tax Act, 1961. A perusal of the information collected from the bank revealed that the assessee had made total deposits of Rs.28,22,920/-including a sum of Rs.20,09,900/- in cash. Armed with this information, the AO has confronted the assessee to show the source of deposits in the bank. The assessee has raised two fold submissions. He contended that this amount is being used for the purpose of business. The total turnover of the assessee including the amounts deposited in the bank not exceeded a sum of Rs.40 lakhs. Therefore, he is not required to maintain the books of accounts. At the most, the profit at the rate of 5% under section 44AF can be applied. In the alternative, it was contended that this account was being used for the purpose of business. The sale proceeds have been deposited in cash and the amounts have been withdrawn. The assessee further contended that by bona fide mistake, the accountant failed to disclose this account in the return. Somehow, the AO was not satisfied with the contentions of the assessee, and he made addition of Rs.28,22,920/-.

4. Dissatisfied with the assessment order, the assessee carried the matter before the ld.First Appellate Authority. The assessee has reiterated his stand as was taken before the AO. The ld.First Appellate Authority did not accept the contentions of the assessee that 5% of the total turnover be taken as profit from the business. However, with regard to peak amount, the ld.First Appellate Authority has observed that since the assessee has taken a plea of rotation of the funds in this account, it was for the AO to make an inquiry about the user of this account for the purpose business and the inquiry could be made by collecting details with regard to the entities to whom cheques have been issued. According to the ld.First Appellate Authority, the AO has failed to conduct this inquiry, and therefore, ld.First Appellate Authority has accepted peak theory and confirmed the addition of Rs.2,14,041/- which is peak credit in the account on a particular date of the relevant accounting period. The ld.First Appellate Authority has further taken total deposits as turnover of the assessee and estimated the GP at 13.5% of the turnover, which gave rise to addition of Rs.3,81,525/-. In this way, the ld.First Appellate Authority has allowed the appeal of the assessee partly.

5. While impugning the order of the ld.CIT(A), the ld.DR contended that the account was not disclosed by the assessee and it is highly improbable that person could forget an account where alleged business turnover of Rs.28,22,920/- and disclosed total turnover of Rs.3,51,121/-. According to the ld.DR, there is no bona fide error, rather, it was a deliberate attempt. He further contended that a perusal of the account would indicate that it was not used for retail trade, rather the assessee has issued cheques. Therefore, it suggests that the account was used for some other purpose also. On the strength of two decisions of the ITAT rendered in the case of Manoj Kumar Jain Vs. ITO, (2012) 25 taxmann.com 440 (Delhi) and M.H. Raney Vs. ITO, (2013) 34 taxmann.com 5 (Mumbai – Trib.), he contended that, if assessee failed to explain the source of deposits in the bank account, then, the amounts are to be added with the help of section 69 as unexplained investment.

6. On the other hand, the ld.counsel for the assessee contended that the assessee does not belong to organized sector. He is a small time trader. If taken together the deposits as well as the turnover disclosed by the assessee, then also, it does not exceed Rs.40 lakhs. The assessee has already offered income on this total turnover during the assessment proceedings under section 44AF of the Act. He further contended that if the assessee fails to reconcile the total transaction in the bank, and it is difficult to work out the actual purpose of these transactions, then, at the most, peak credit available in the account can be taxed. On the strength of judgment of the Hon’ble Gujarat high Court in the case of CIT Vs. Tirupati Construction Co., Tax Appeal No.1010 to 1012 of 2014 (copies placed on record), the Hon’ble High Court upheld the application of theory of peak credit even on the enteris recorded in seized paper found during the search/survey. Similar logic should be applied on the account of the assessee, even if, the assessee failed to disclose this account at the time of filing of the return. He also placed reliance on a large number of decisions compiled in paper book containing 63 pages. He, particularly, drew our attention to the order of the ITAT in the case Smt.Manulaben Champaklal, ITA No.1155/Ahd/2011.

7. We have duly considered rival contentions and gone through the record carefully. As far as applicability of peak theory is concerned, to our mind, this concept can only be accepted, if it is demonstrated that the accounts or the documents came to the possession of the AO exhibit the rotation of funds. In other words, the amounts have been continuously withdrawn and re-deposited in the account. For example, if the assessee is in a retail trade business, he made sales and deposited the sale proceeds in cash in that account, thereafter, the amounts have been withdrawn from the accounts and used for the purpose of purchases, then, of course, peak theory can be applied. As far this proposition is concerned, on the strength of various decisions referred by the ld.counsel for the assessee is concerned, we do not have any dispute. The dispute is that, the assessee has not filed any details, particularly, the cheques issued by him, demonstrating the purpose of issue of these cheques. Had these details been filed, it could have been easily determined the user of the accounts for the purpose of business. When this issue fallen for consideration before the ld.First Appellate Authority, it has been brushed aside with the reasoning that the AO failed to carry out such investigation. But, we find that the assessee has no where placed the details of the persons to whom cheques have been issued. It was the duty of the assessee to first, prima facie, demonstrate that this account was used for the purpose of business, only then, the total turnover could be considered for estimating the income for taking the benefit of peak theory. The documentary evidence in this connection is not available. Therefore, we set aside the order of the ld.CIT(A) and restore this issue to the file of the AO for re-adjudication. The assessee is directed to submit all the evidences demonstrating the user of this bank account for the purpose of business. In case, a nexus is being established, then the benefit of peak theory would be granted to the assessee. The assessee will be at liberty to submit any details in support of his contentions. The observations made by us will not impair or injure the case of the AO and will not cause any prejudice to the defence/explanation of the assessee. The ld.AO shall re-adjudicate the issue in accordance with law, keeping in view of our above observations and after providing opportunity of hearing to the assessee.

8. In result, the appeal of the Revenue is allowed for statistical purpose. Order pronounced in the Court on 5th November, 2015 at Ahmedabad.

Sd/-                                          Sd/-
(ANIL CHATURVEDI)              (RAJPAL YADAV)
ACCOUNTANT MEMBER        JUDICIAL MEMBER