THE ITO, VIJAYAWADA vs. SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the revenue is directed against order of the

Commissioner of Income Tax (Appeals), Vijayawada {CIT(A)}, vide ITA

No.17/CIT(A)/VJA/2015-16 dated 31.1.2017 for the assessment year

2007-08. The assessee filed the cross objections supporting the order

of the Ld.CIT(A).

i.e. addition made towards unexplained sources for peak credits in ICICI

Bank Account but not disclosed in the books of accounts amounting to `

50,89,252/- and Gross profit addition of ` 24,49,962/-.

During the assessment proceedings, the A.O. found that the

assessee has made the cash deposits in ICICI Bank account bearing

No.030301000019 but not disclosed the transactions in the regular

books of accounts. The A.O. worked out the peak credits in the bank

account at ` 50,89,252/- and assessed the same as income under the

head “unexplained sources”.

before the CIT(A) and argued that the A.O. erred in working out the

correct peak credit balance. The AO worked out the peak credit balance 2

ITA No.294 /Vizag/2017 Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada at ` 50,89,252/- instead of ` 5.00 lakhs as on 27.2.2007. The

Ld.CIT(A) upheld the addition of ` 5 lakhs as against the addition made

by the A.O. at ` 50,89,252/-.

before us. During the appeal hearing, the Ld. D.R. submitted that the

assessee made cash deposits in ICICI bank account on various dates to

the tune of ` 73,88,902/- and the peak credit balance was worked out

by the ITO at ` 50,89,252/- correctly and thus argued that the order Ld.

CIT(A) be set aside and restore the order of the AO.

incorrect workings of peak credits and actual peak credit balance was

Rs.5.00 lacs but not Rs.50,89,952/-. The A.R. further submitted that

while arriving at the peak credit balance, the A.O. did not consider and

exclude the closure of deposits on 5.3.2007, amounting to ` 7 lakhs.

The assessee further submitted that the transaction in the account of

ICICI bank were related to purchase and sales account of third parties

and the assessee received only meager amount of commission on

purchases and sales made for others. The assessee submitted that the

transaction did not pertain to his proprietory business, hence not

disclosed in the regular books of accounts. However, having failed to

ITA No.294 /Vizag/2017 Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada establish that the account does not belong to the him, the Ld. A.R.

submitted that for making the addition representing peak credit balance

the same should be worked out correctly taking into account of all the

credits and the debits in the bank account but not the cash deposits and

withdrawal alone. In nutshell the assessee submitted that withdrawals

by cheque also should be considered as source for redeposit. The Ld.AR

further submitted that the peak credit balance after taking into account

of all the debits and credits was worked to ` 5.00 lakhs which was

upheld by the Ld.CIT(A) and no interference is called for in the order of

the Ld. CIT(A).

on record and gone through the orders of the authorities below. The

assessee is operating ICICI bank account bearing No.030301000019

which was not disclosed to the department in the Income tax return.

Though the assessee claimed that the transactions in the said bank

account was representing the purchases and sales of goods relating to

others for a meager commission, the assessee failed to establish that

the transactions reflected in the bank account did not pertain to his own

business. The assessee neither disclosed the turnover in the bank

account nor disclosed the commission received on account of the

transactions made in the bank account. The assessee did not furnish 4

ITA No.294 /Vizag/2017 Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada any evidence like names of parties, their address, the quantum and

nature of transactions party wise and their PAN numbers, etc. Even the

quantum of commission given by the parties who said to have been

used the assessee’s bank account for their business purposes was not

disclosed for the I.T. purposes. In the absence of any evidence, we

have no hesitation to hold that the transactions of the account are

assessee’s unaccounted transactions.

6.1 The Ld. A.R. argued that while arriving at the peak credit, the A.O.

should take the entire debits and credits in the bank account. However,

the Ld. A.R. could not support his arguments with relevant evidences to

show that the cheques issued in favour of third parties were ploughed

back to the undisclosed bank account of the assessee and the assessee

also failed to establish that the stocks and goods purchased by issue of

cheques in the names of various parties were accounted in the regular

books of accounts. Since the assessee failed to establish that

withdrawals made by cheques in the name of third parties were brought

back to the account, contention of the Ld. A.R., for arriving the peak

credit balance the entire debits and credits required to be considered is

untenable. In the absence of any evidence to show that payments

made to third parties were brought back to the undisclosed account and

the resultant cash was circulated, only the cash withdrawals cash 5

ITA No.294 /Vizag/2017 Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada deposits and unexplained credits should be considered for arriving the

peak credit balance.

6.2 There is no dispute that the peak credit of the undisclosed bank

account required to be brought to tax. This issue has been accepted by

both the parties. The ld. CIT(A) has directed the A.O. to adopt peak

credit of ` 5.00 lakhs as against a sum of ` 50,89,252/- worked out by

the A.O. and the Ld.CIT(A) has not given the detailed working for

arriving the peak credit balance. However, as observed from the order

of the Ld. CIT(A), there is credit for closure of deposits made in the

account on 5.3.2007 which was also included for arriving the peak

balance. It is not explained whether the sources of deposits were

disclosed or not in the regular books of accounts. Therefore, while

confirming the action of the Assessing officer for making the addition of

peak credit balance, we direct the A.O. to work out the peak credit

balance correctly, taking into the account of the cash deposits, cash

withdrawals and the unexplained undisclosed entries in the bank

account. Accordingly, we set aside the order of the Ld. CIT(A) and

remit the issue back to the file of the A.O. to rework the peak credit

balance correctly. Needless to say, that the A.O. should give reasonable

opportunity to the assessee before completing the assessment.

ITA No.294 /Vizag/2017 Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada Accordingly, the appeal of the revenue on this ground is allowed for

statistical purposes.

the Ld.CIT(A). Since we have confirmed the action of the AO in the

appeal of the revenue with regard to the addition of peak credit balance

and remitted the matter back to the file of the AO to rework the peak

credit balance correctly we consider it is not necessary to adjudicate

cross objection separately. Accordingly, the cross objection stands

allowed for statistical purposes.

unaccounted purchases. The A.O. found that the assessee has made

the purchases of ` 60,86,864/- through various parties through the

same bank account of ICICI bank, and the A.O. has estimated the gross

profit @ 40.25% on the turnover amounting to ` 60,86,864/- and

brought to tax the amount of ` 24,49,962/-. The Ld. CIT(A) restricted

the addition to 15% of gross profit on unaccounted purchases which

worked out to ` 9,39,029/-.

appeal and the assessee has filed the cross objections. During the

appeal hearing, the Ld. D.R. argued that estimation of income @

ITA No.294 /Vizag/2017 Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada 40.25% is reasonable since no other evidence is produced for

expenditure incurred. Further the Ld. DR argued that the entire business

expenditure was accounted in the regular books of accounts and nothing

remained to be booked.

income @ 15% is highly unreasonable and requested to estimate the

reasonable profit.

on record and gone through the orders of the authorities below. The

assessee had issued cheques on various parties towards purchase of

copra and neither disclosed the sales nor the profit. The A.O. had

estimated the gross profit @ 40.25% on entire purchases taking the cue

from the Ld. CIT’s order u/s 263 of the Act in assessee’s own case for

the A.Y.2009-10. However, the A.O. has not brought on record any

comparable cases of others or the assessee’s own case in the earlier

years for resorting for estimation of income @ 40.25%. Whereas, the

CIT(A) has considered the comparable cases and observed that the rate

of gross profit from copra was ranging from 4.68% to 13.25% in regular

cases where the purchases and sales were accounted and accordingly,

sustained gross profit estimation @ 15% of unaccounted purchases. No

ITA No.294 /Vizag/2017 Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada other evidence was brought on record by the Ld. D.R. and the A.R. to

controvert the finding given by the Ld. CIT(A) to establish that the

income from unaccounted purchases is less than 15%. Therefore, we

do not find any reason to interfere with the order of the Ld. CIT(A) and

dismiss the appeal of the revenue as well as the cross objection of the

assessee on this issue.

filed by the assessee are partly allowed for statistical purposes.

The above order was pronounced in the open court on 11th Jul’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 11.07.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:- 1. अपीलाथ� / The Appellant – The ITO, Ward-1(3), Vijayawada 2. ��याथ� / The Respondent – Sri Pydimarri Venkata Naga Suresh Kumar, Prop. Sri Madhavi Enterprises, Shop No.223, M.G.W. Commercial Complex, Gollapudi, Vijayawada. 3. आयकर आयु+त / The CIT, Vijayawada 4. आयकर आयु+त (अपील) / The CIT (A), Vijayawada 5. #वभागीय ��त�न.ध, आय कर अपील�य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam 6. गाड� फ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM