PRAKASH BABU NAKUNDHI KRISHNA REDDY,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 7(2)(1), BANGALORE
What did the Tribunal hold?
The Tribunal admitted additional evidence in the form of a daily cash summary and held that the peak credit theory should be applied to determine unexplained cash deposits. The issue was remanded to the AO for fresh consideration.
What were the facts?
The assessee, an individual running a cinema theatre and other businesses, deposited a significant amount of cash in his bank accounts. The Assessing Officer (AO) treated a portion of these deposits as unexplained income. The CIT(A) confirmed the addition but granted partial relief.
What were the issues?
Whether the AO was justified in treating cash deposits as unexplained income without considering the peak credit theory. Whether additional evidence should be admitted for proper adjudication.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI CHANDRA POOJARI
PER SHRI N.V VASUDEVAN, VICE-PRESIDENT :
This is an appeal of the assessee against the order dated 14.11.2019 of CIT(A)-7, Davangere, relating to Assessment Year 2016-17.
The only issue that needs to be adjudicated in this appeal is as to whether the CIT(A) was justified in sustaining the addition of Rs.33,49,844/- as against the addition of Rs.35,34,844/- made by the AO as unexplained cash deposits in the bank account. The assessee is an individual. He runs a cinema theatre by name “HMT”. He also has cattle form and the poultry business besides deriving income from agricultural activities. In the course of assessment proceedings under section 143(3) of the Income Tax Act, 1961 (‘the Act’), the AO noticed the assessee had deposited a sum of Rs.87,06,500/- in his bank account with Indian Overseas Bank and the further a sum of Rs.24,16,500/- in IDBI Bank account. All the aforesaid deposits were cash deposits. The total of the cash deposits was a sum of Rs.1,11,23,000/-. The AO called upon by the Assessee to explain the source of funds out of which the cash deposits were made. The Assessee explained that the cash deposits are from ticket sales of HMT auditorium, agricultural income and withdrawals from banks. The assessee furnished the bank account statements and ledger copy of M/s Orbgen Technologies Pvt. Ltd. In the initial submission, the P & L account submitted by the assessee, the ticket sales was shown at Rs. 75.88.156/- and has arrived at loss of Rs. 27,05,576/-. The assessee has furnished one more P & L account in which the sales of HMT Cinema was shown as 67,82,856/- and net loss of Rs. 30,74,337/-.
The AO did not accept the explanation furnished by the assessee for the following reasons:
“The assessee has not provided the bifurcation of the cash collections from tickets and from credit/debit cards. Hence, the contention of the assessee that the cash deposits is from tickets sales and withdrawals from banks cannot be accepted as the assessee has not substantiated the same. Further, the assessee has stated that the deposits are from agricultural activities and withdrawals from two bank accounts. In respect of agricultural activities, the asssesse has not provided any proof. Further, the assessee has stated that some of the deposits are from withdrawals from the banks, has not been fully substantiated. Considering that the assessee is running a theatre, and theatre collection which is shown at Rs. 75,88,156/- and the total banks deposits being Rs. 1,11,23,000/- , a sum of Rs. 35,34,844/- being the difference is brought to tax as the deposits remains unexplained satisfactorily. The same is brought to tax u/s 69A of the I T Act.”
On an appeal by the assessee, the CIT(A) confirmed the order of the AO but give a limited relief to the extent of Rs.1,85,000/-. The relevant observations of the CIT(A) are given in paras 5.1 and 5.3 of the impugned order of the CIT(A) which reads as follows:
“5.1 The submission of the appellant has been considered. During the year the appellant has deposited cash of Rs 87,06,500 in Indian Overseas Bank and Rs 24,16,500 in IDB1 Bank. This cash deposit of Rs I,11.23.000/- is sought to be explained by the appellant by stating that cash withdrawal from IDBI was Rs 52,95,000/-- and deposit in that Bank was Rs 24,16,500/- and the difference of Rs 28,78.500/- is deposited in IOB. However, no details showing one to one co-relation between the cash withdrawal and cash deposit has been filed to prove this claim of the appellant. Further, the claim that Rs 1,07,000/- is withdrawn from IOB on 07-04-2015 and again deposited on the same date in the same Bank has not been substantiated with any evidence and therefore, the explanation is too vague to be accepted.
5.3 The contention of appellant that the AO has not considered agricultural income of Rs 1,85,000/- which is received from farming and deposited in cash appears to have merit. In the return of income the appellant has shown agricultural income of Rs 1,85,000/- and considering the fact that sale proceeds of agricultural produce could have been received in cash, cash deposit of Rs 185,000/- need to be allowed. Therefore, the appellant gets a relief of .Rs 1,85,000/- against addition of Rs 35,34,844/- by the AO.”
Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. Learned Counsel for the assessee submitted that the source of cash deposits was cash availability as per the cash book now drawn by the Assessee and the source of receipt of cash can be attributed to the various sources already explained before the revenue authorities. The learned counsel submitted that what can be taxed as unexplained cash deposit is only the peak credit in the cash account. In this regard, the learned Counsel for the assessee has filed before us the daily cash summary for the period from 01.04.2015 to 31.03.2016. He highlighted the fact that it is only on 3rd to 5th July that there was a peak credit of Rs.3,17,500/- and only this amount can be added as unexplained cash under section 69A of the Act. The assessee has filed application for admission of the daily cash summary as additional evidence. In the petition for admission of additional evidence, the assessee has submitted that he had before the lower authorities furnished information of cash withdrawals and deposits. However, daily cash balances showing peak credits for each day were not made available before the lower authorities.
The failure to furnish the same during the proceedings before the authorities below was not wilful or deliberate and that there was no negligence, mala fides, laxity or inaction on the part of the Assessee in not producing the same before the authorities below. It was also submitted that the additional evidences furnished now are essential for establishing the facts of the case in the right perspective and support the case of the Appellant.
Though the learned DR opposed the application for admission of additional evidence, we are of the view that admission of the additional evidence is required for proper adjudication of the issue that arises for consideration in this appeal and therefore the additional evidence is admitted for adjudication.
It was pointed out by the learned counsel for the Assessee that there are withdrawals and deposits in the cash book and the source of deposits can be explained by the Assessee with supporting evidence. It was submitted that it is an accepted rule that a withdrawal from the cash book would be a source for deposit of cash in the bank account at a later date. Towards this, the Assessee has submitted the break-up of daily cash balance which takes into account the receipts and outflow of cash from all sources. Admittedly these were not available before the authorities below and an Application under Rule 29 of the ITAT Rules was furnished which has been accepted by us. We are of the view that when there are deposits and withdrawals from the cash book and the source of cash deposits in the cash account is explained, the earlier withdrawal of cash can be explained as source for the subsequent deposit of cash, provided there are no evidence or circumstances to show that the earlier withdrawals could not be available to the Assessee as a source for subsequent deposit. In such circumstance one has to see the peak credit balance in the cash account and add only peak credit. The peak credit alone would have to be treated as unexplained. The peak credit theory has to take into consideration before treating the cash deposit as unexplained cash credits. Since the statement showing the withdrawals and deposits of cash in the cash account in the statement is now filed as additional evidence has not been examined by the AO, we deem it fit and proper to remand the issue to the AO for consideration afresh after affording Assessee opportunity of being heard. The Assessee will have to explain the source of cash deposit in the cash account with supporting evidence to enable the AO to accept the source of cash deposit in the cash account.
In the result, the appeal of assessee is allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page.
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