DEEKONDA VENKATESWARA RAO (HUF),TADEPALLIGUDEM vs. INCOME TAX OFFICER, WARD-1, TADEPALLIGUDEM

Facts

The assessee, an HUF engaged in maize trading, made substantial cash deposits of Rs. 1,11,27,529 in its bank account during AY 2016-17. The Assessing Officer initiated proceedings under Section 147, and despite the assessee filing a return showing income under Section 44AD, rejected its claim that the deposits were from business and added the entire amount as unexplained cash credit under Section 68. The CIT(A) upheld the A.O.'s order.

Held

The Tribunal observed that since the A.O. had accepted the assessee's business income under the presumptive scheme of Section 44AD, a complete rejection of the business nature of the deposits was contradictory. Although the assessee failed to provide conclusive evidence for the source of deposits, the Tribunal directed that the addition under Section 68 should be restricted to the 'peak credit' in the bank account, as cash withdrawals could have been re-deposited, citing previous Tribunal decisions. The A.O. was directed to re-verify the peak credit amount.

Key Issues

Whether the entire cash deposits in a bank account can be added as unexplained cash credit under Section 68, or if the addition should be restricted to the peak credit method when the assessee's business income is accepted under Section 44AD.