SRI VISHWANATHAN VAIDYANATHAN ,BANGALORE vs. THE INCOME TAX OFFICER WARD-3(2)(4), BANGALORE

Ground No.1 and 7 are general in nature. Ground No.6 relating to levy of interest u/s 234B is consequential. At the time of hearing, the Ld A.R did not press the grounds numbered as 2 & 3 relating to validity of reopening of assessment. Accordingly, both the grounds are dismissed as not pressed. The remaining grounds relate to the addition relating to cash deposits sustained by Ld CIT(A).

The assessee along with two other persons named Sri K Sai Prasad and Sri V Venkatramanan has maintained a joint bank account with Bank of India. During the year under consideration, a sum of Rs.20,39,000/- was found deposited into this bank account. The assessee could not explain the sources of the deposits so made. However, he claimed before the AO only 1/3rd deposit belong to him. However, the AO completed the assessment by making addition of Rs.20,39,000/-.

It is pertinent to note that an identical addition towards unexplained deposit was made by the AO in respect of deposits made in the very same bank account in the financial year relevant to AY 2011-12. When the matter reached Tribunal, the ITAT restricted the addition to 1/3rd of the peak amount of deposits, vide its order dated 13.04.2017 passed in since the assessee was one of the three joint holders. Before Ld CIT(A), the assessee placed his reliance on the order so passed by the Tribunal in AY 2011-12. The Ld CIT(A), by following the order of the Tribunal, held in principle that the assessee is liable to be taxed only 1/3rd of the peak amount of deposits. However, the Ld CIT(A) was of the view that the peak credit worked out by the assessee suffers from certain mistakes. Accordingly, he gave reduction of only Rs.2.00 lakhs and accordingly directed the AO to assess 1/3rd of Rs.18,39,000/- in the hands of the assessee. Aggrieved by the order passed by Ld CIT(A), the assessee has filed this appeal.

I have heard rival contentions and perused the record. The Ld A.R submitted that the various observations made by Ld CIT(A) with regard to working of peak credit in paragraph 5.4 of his order are contrary to the facts. He invited my attention to the paragraph 5.4 of the order passed by Ld CIT(A), which reads as under:- “5.4 As regards claim of the appellant that addition should be only 1/3 rd of the peak cash deposits, the same has to be looked into on the basis of the facts in the case under consideration. For AY 2011-12, the ITAT has decided regarding peak credits on the basis of facts relevant to that year. However for the year under consideration, there is nothing on record to suggest that all the withdrawals made from the bank account were re-deposited in the bank account. A perusal of the withdrawal from bank account shows that an amount of Rs.2,50,000/- withdrawn on 27.09.2007 was paid by cheque to Sh V Vaidyanathan (may be the appellant himself) and the same was not a cash withdrawal. Further Rs 3,75,000/- withdrawn on 20.12.2007, Rs 2,75,000/- withdrawn on 28.01.2008, Rs 2,50,000/- withdrawn on 05.02.2008 are not cash withdrawals but payments made by cheque for making fixed deposits. The narration of these three entries shows 'DBD Deposit', which is the abbreviation for 'Double Benefit Term Deposit' as offered by the Bank of India to its account holders. So amount to the extent of Rs 11,50,000/- cannot

On the contrary, the Ld D.R supported the order passed by Ld CIT(A).

I have heard rival contentions and perused the record. During the course of hearing, the Ld A.R invited my attention to the working of peak credit placed in the paper book. For the sake of convenience, I extract the same below:-

As submitted by Ld A.R, the reference made by Ld CIT(A) to following withdrawals are not relevant, since the assessee has not included the same while working out peak credit balance:- 20.12.2007 - 3,75,000 28.01.2008 - 2,75,000 05-02-2008 - 2,50,000 The withdrawal made on 27.02.2008 amounting to Rs.2,75,000/- will not affect peak credit balance, as can be seen from the above said workings. Hence the observations made by Ld CIT(A) with regard to the above said four withdrawals are liable to be set aside.

The Ld CIT(A) has not given credit of withdrawal of Rs.2,50,000/- made on 27-09-2007 on the reasoning that the assessee has withdrawn money by using cheque. I do not find any rationale to this decision, since it is the assessee who has withdrawn money and hence the same should be given credit while working out peak credit. With regard to the withdrawal of Rs.3.00 lakhs made on 28-09-2007, the Ld CIT(A) has not given credit for the same on the reasoning that the deposits have been made after expiry of 53 days. In my view, this time gap can be considered only if it is shown that the withdrawal made earlier was not available with the assessee when subsequent deposits were made. In the absence of any such material, I am of the view that the assessee should be given credit of withdrawal of Rs.3.00 lakhs made. Accordingly, the observations made by Ld CIT(A) with regard to the above said two withdrawals are also liable to be set aside.

Accordingly, I set aside the observations made by Ld CIT(A) in paragraph 5.4 of his order. Since the assessing officer has not verified the peak credit workings, I restore this issue to his file for the limited purpose of verifying the peak credit workings and accordingly direct the AO to assessee 1/3rd of peak credit balance in the hands of the assessee.

In the result, the appeal of the assessee is treated as allowed for statistical purposes.