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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘SMC’
Before: SHRI RAJPAL YADAV, VICE-
सुनवाई क� तार�ख/Date of Hearing : 19/05/2020 घोषणा क� तार�ख /Date of Pronouncement : 22/05/2020 O R D E R Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-3, Ahmedabad dated 16.4.2015 passed for the Asstt.Year 2010- 11.
Though the assessee has taken four grounds of appeal which contain sub-grounds also, but his grievance revolves around a single issue viz. the ld.CIT(A) has erred in confirming addition of Rs.23,87,399/- which was added by the AO with aid of section 69 of Income Tax Act, 1961.
Brief facts of the case are that the assessee is an individual and was doing trading in commodity market at the relevant time. He filed his return of income on 27.7.2010 declaring total income at Rs.4,18,060/-.
The case was selected for scrutiny assessment. On the basis of AIR information, the AO got information that the assessee has two bank accounts with ICICI Bank bearing no.029401512701 and 625901505193. In the first account, a sum of Rs.22,38,220/- was found to be deposited in cash on various dates. Similarly, in the second account an amount of Rs.1,49,179/- was found to be deposited in cash. The ld.AO has directed the assessee to explain source of such investment in the banks. The assessee has prepared a cash flow statement and submitted that there was an opening cash balance of Rs.4,27,000/-. He has withdrawn various amounts from the bank and re-deposited them. In other words, the stand of the assessee was that these amounts were used by the assessee for the purpose of commodity trading. There were withdrawals and deposits from the accounts, and if both are totaled up there is no unexplained deposit. The ld.AO has called for details from ICICI Bank with regard to the account no.029401512701. The bank has given a list of 18 transactions and disclosed that these were cross-bearer cheques which were cleared by the bank, and the amounts have not been withdrawn in cash. The AO has incorporated this information as annexure-A with the assessment order. On the basis of the above information, the AO harboured a belief that alleged cash withdrawn shown in the cash book was never withdrawn by the assessee, and it was never come back to the assessee so that this cash was available with the assessee for re-depositing. Hence, he made an addition of Rs.23,87,399/-. Appeal to the CIT(A) did not bring any relief to the assessee.
While impugning the orders of the Revenue authorities, Shri Divetia, the ld.counsel for the assessee took us through page no.22 of the paper book where summary of cash flow statement is being placed. He thereafter drew our attention towards pages 17 to 21 wherein the bank statement has been placed on record. He submitted that on the basis of these details, the assessee has prepared a cash flow which is available on page no.23 and 24 of the paper book. He pointed out that there is negative cash balance on the bank account as on 5.9.2009 which was Rs.3,51,801/-. At the most, if peak credit theory is being applied, then this addition can be retained. His line of the argument is that these amounts were being used by the assessee for commodity trading. Some of the cheques came from M/s.SMC Comtrade were deposited in this very account, and some cheques were issued from this very account. He drew our attention towards a cheque bearing no.432603 dated 4th June of SMC Trading of Rs.50,000/-. It has been credited in this account. Therefore, Shri Divetia’s emphasis is that there were no other sources of income with the assessee, from where he could deposit this cash. It is a circulation of money from this very account.
The ld.DR, on the other hand, contended that both the revenue authorities concurrently recorded a finding that amounts, which have been deposited by the assessee withdrawn from this account in cash, was never travelled back to him. He has issued cross bearer cheques, and those cheques have been encashed by the person in whose favour such cheques were issued. Therefore, there is no source of funds with the assessee, on the basis of which it can be alleged that these very amounts have been circulated in this account.
I have duly considered rival submissions and gone through the record carefully. Theory of peaking credit for ascertaining unexplained investment can only be applied if it is established on the record that 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. The assessee with the help of other corroborative evidence was not able to demonstrate the exact nature of transaction. In that exercise in order to ascertain the facts, one can harbor a belief that in the absence of specific details, in accordance with the mathematical formula, income is to be determined on the basis of peak credit theory. A perusal of both these accounts coupled with the submission of the assessee filed before the AO would reveal that the stand of the assessee from the very beginning was that he has discounted the cheques, in a way, he has issued a cheque to a person and in discounting, he took back the amount. This was alleged by him in his submissions, which has not been specifically dealt with. It is also discernable from the bank statement that these bank accounts have been used by the assessee for trading activity; a withdrawal in systematical manner at Rs.49,000/- per transaction is being made. If an assessee has to make payment on account of other reasons, then he would not have made payment every time at a fixed amount of Rs.49,000/-. The AO in the assessment order, though noticed the details of alleged cheque payments, and in some of payments, amounts were shown at Rs.90,000/-, Rs.1,00,000/-, but perusal of the bank statement at page no.17 and 18 would reveal that certain debit entries are with regard to contract with SMC Comtrade, through which the assessee has done commodity trading. These were payments made to this concern also. At this stage I deem it appropriate to take note of the summary of cash flow prepared by the assessee, which is available on page no.22 of paper book, and it reads as under: Vikas Thakur Summary Cash Flow Particulars Amount (Rs.) Amount (Rs.) A 427000 Cash available as on 1-4-2009 out past savings Total of Sources for Cash Salary Income received 600,000 B Cash withdrawal from Bank Account 294,999 Cash received from conversion of Cheque. 1,379,999 2,274,998 Total of Application of cash payments C Cash Deposited in bank accounts 2,387,399 Loss from Commodity Iran. 137,257 2,524,656 D Balance 177,342
On an analysis of these details, I am of the view that there are certain ambiguities in the details filed by the assessee vis-à-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 Rs.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. But 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 Rs.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, in the given circumstances, I am of the view that alternative submission of the assessee is accepted for assessing his income at peak of credit/negative balance in this account. Thus, taking into consideration the details of accounts, I confirm addition of Rs.3,51,801/- which is a negative balance as on 5.9.2009 in place of Rs.23,87,399/- made by the AO and confirmed by the ld.CIT(A). In other words, instead of addition of Rs.23,87,399/-, addition of Rs.3,51,801/- has been confirmed, and the rest is deleted. The AO has to compute the income of the assessee accordingly.
In the result, appeal of the assessee is partly allowed. Pronounced in the Open Court on 22nd May, 2020.