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Facts
The assessee's case was reopened due to non-filing of return and substantial deposits in the bank account. The AO added Rs. 26,21,000/- as undisclosed income based on peak credit calculation, ignoring the opening balance. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the AO erred by not considering the opening balance of Rs. 28,85,000/-, which led to an incorrect determination of negative cash balance. The addition made based on this flawed reasoning was deemed improper.
Key Issues
Whether the AO was justified in making an addition for undisclosed income by ignoring the opening balance and solely relying on peak credit calculation?
Sections Cited
148, 142(1), 148A, 56, 120, 124, 127, 147, 149, 151, 153, 151A, 270A, 144B
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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’: NEW DELHI
(Assessment Year: 2015-16) Vinay Kumar, vs. Assessment Unit, C/o Sabharwal & Partners, Income Tax Department, 4819/24, Mathur Lane, Ansari Road, Daryaganj, Delhi – 110 002. (PAN : BAUPK8765P) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri V.K. Sabharwal, Advocate Shri Sunil Kumar Verma, CA REVENUE BY : Shri Sanjay Kumar, Sr. DR Date of Hearing : 12.03.2025 Date of Order : 09.05.2025 O R D E R
The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“ld. CIT(A)” for short] dated 30.07.2024 for the Assessment Year 2015-16.
Brief facts of the case are, the case of the assessee was reopened by issue of notice under section 148 of the Income-tax Act, 1961 (for short ‘the Act’) for the reason ‘non-filing of return’ as well as based on the information that assessee has deposited Rs.10,00,000/- or more in the saving bank account and interest on the same were not declared. Accordingly, notices were issued. Several opportunities were given to the assessee by issue of notice u/s 148A (b) of the Act. Notices u/s 142(1) were also issued and served on the assessee. Subsequently, assessee has uploaded information vide reply dated 07.02.2023. Based on the information submitted by the assessee, the AO observed that assessee stated that he is a salaried person and further claimed that his income from other sources as out of loans received from market and loans paid to market and the information submitted by the assessee matches with the information available with him that the assessee has deposited to the tune of Rs.99,76,000/- in his bank account. The narrations disclosed in the ledger account submitted by the assessee were as “self loan paid directly to market” and “cash deposited loan received directly from market”. In order to verify the same, the details were called from the assessee and assessee has submitted a ledger account. Based on the information contained in the ledger, AO observed that the explanation given by the assessee and the details uploaded are not proved satisfactorily, the reasons of the assessee for the source of cash deposits and income claimed by him from other sources. Accordingly, he extracted the ledger accounts submitted by the assessee date-wise in his order at pages 6 to 11 of the order. He extracted the current year transactions of debit and credit. He observed that the cash available with the assessee on the basis of withdrawals, remains insufficient on many occasions to claim subsequent cash deposit made. The highest negative amount of Rs.26,21,000/- falls on 30.03.2015 under peak credit method. Based on the above analysis, he observed that assessee had some undisclosed sources of income out of which he made cash deposits into his bank account. Therefore, to bring to tax such undisclosed income, he proceeded to add the peak credit as undisclosed income of the assessee u/s 56 of the Act and also added interest income as per TDS information of Rs.7,299/- available with him.
3. Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. After considering the detailed submissions, ld. CIT (A) sustained the additions made by the AO.
4. Aggrieved assessee is in appeal before us raising following grounds of appeal :-
1. That the assessment order passed on 28.02.2023, as subsequently upheld by the Ld. CIT(A) on 30.07.2024 is perverse to the law and to the facts of the case, because of assuming incorrect jurisdiction by the Assessing Officer u/s 120 r.w.s. 124 of the Income Tax Act, 1961, without based upon any order passed u/s 127 by the Pr. CIT while initiating, commencement and continuation of proceedings u/s 147, 148, 148A, 149, 151 & 153 of the Income Tax Act, 1961, as such the assessment order passed becomes non est.
2. That the assessment order passed was further illegal under the law and to the facts of the case, because of providing insufficient time of '5' working days only to file the reply in the notice issued U/S 148A(b) dated 16.03.2022.
That the assessment order passed by the Assessing Officer as upheld by the Ld. CIT(A) was further not in consonance to the provisions of law contained u/s 151A of the Income Tax Act, 1961. Even the assessment order so passed on 28.02.2023 is unsigned, as such the order passed becomes non est.
That the assessment order passed on 28.02.2023 which was subsequently upheld by the Ld. CIT(A) was further incorrect under the law and to the facts of the case, because insufficient time was afforded in the SCN dated 31.01.2023 for 07.02.2023, which is against the principles of law and natural justice.
That the assessment order passed on 28.02.2023, by the Assessing Officer which subsequently upheld by the Ld. CIT(A) was further incorrect as illegal under the law and to the facts of the case, because no permission if any has ever been obtained from the Pr. CCIT, Delhi as claimed, u/s 151 of the Income Tax Act, 1961, because the copy of the same has never been supplied prior to pass the assessment order, as such the assessment order passed becomes non est.
That the Assessing Officer and Ld. CIT(A) both were further incorrect under the law and to the facts of the case, because of not taking into consideration that the appellant is a permanent resident of Village and Post Office Chandpura, Etawah (UP) and filing regularly his ITR there before his concurrent jurisdictional Assessing Officer.
That the Assessing Officer and the Ld. CIT(A) were further incorrect under the law and to the facts of the case, while accepting part of the statement only which produced and placed upon records for the loan received / paid during the year, without taking into consideration and accepting of the opening cash balance disclosed / appearing therein as on 01.04.2014 of Rs.28,85,000/-, on which no adverse inference or any reason if any has ever been provided as recorded for not accepting the same.
8. That the Assessing Officer was further not justified and had erred in law to initiate penalty proceedings u/s 270A and charged interest, being the illegal and impugned additions made in the declared income and the appellant assails his rights to amend, alter or change any grounds of appeal
at any time even during the course of hearing of the instant appeal. PRAYER:- It is, therefore, prayed that:
1. That the re-assessment order passed u/s 147 r.w.s. 144B of the Income Tax Act 1961 on 28.02.2023 as upheld by the Ld. CIT(A) may please be quashed as being non est or alternatively the illegal and impugned additions so made of Rs.26,21,000, may please be deleted / quashed.
2. That the interest charged and penalty proceedings initiated u/s 270A of the Income Tax Act, 1961, may also be waived being consequential to the illegal and impugned additions made and relief claimed therefrom.
3. That any other relief which this Hon'ble Court may please be deemed fit and proper on the facts and in the circumstances of the case. It is prayed accordingly.”
5. At the time of hearing, ld. AR of the assessee did not press Grounds No.1 to 6, hence the same are dismissed as not pressed.
6. With regard to Ground No.7, he brought to our notice findings of the AO and submissions extracted by the AO from the ledger account submitted by the assessee. He submitted that AO has proceeded to make the addition on the basis of negative balance observed by him for making the deposit in the bank. He submitted that he conveniently omitted to Rs.28,85,000/- and brought to our notice the ledger account placed on record at page 18 of the paper book. He submitted that the basis of making addition is only on the basis of negative balance observed by the AO while calculating the peak credit. Therefore, the addition made by the AO is uncalled for.
7. On the other hand, ld. DR of the Revenue brought to our notice page 14 of the assessment order, he submitted that AO clearly brought on record the entries found in the bank statements. It clearly prove that the deposits made into his bank accounts to the tune of Rs.26,21,000/- were not sourced from his earlier withdrawals. He submitted that AO has analysed the ledger account and gave a clear finding that the assessee has no source of cash deposits in his bank account and supported the findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that based on the information available with the AO that the assessee has deposited Rs.99,76,000/- in his bank account. He observed that the assessee is regularly giving and taking loans from the market. Accordingly, he extracted only debit and credit transactions from the ledger account submitted by the assessee and calculated negative peak credit of Rs.26,21,000/- and he observed that cash available with the assessee on the basis of withdrawal remains insufficient on many occasions to subsequent cash deposit made by the assessee. Based on the above finding, he proceeded to make the addition of negative peak credit as undisclosed cash deposits in the hands of the assessee. We observed that he has extracted only the cash deposits into the bank and cash withdrawal during the year. Therefore, he determined the negative cash balance. He conveniently ignored the opening balance held by the assessee on 01.04.2014 of Rs.28,85,000/-. In our view, non-consideration of opening balance led to the negative cash balance. Therefore, the cash deposits made in the bank account matches with the information submitted by the assessee and when the assessee has explained the details of cash deposits and cash withdrawals which match with the books maintained by him, there is no requirement for the AO not to consider the opening balance held by the assessee. Therefore, the whole reasoning basis of making addition is not proper. Accordingly, ground no.7 raised by the assessee is allowed.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on this 9th day of May, 2025.