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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI H S SIDHU & SHRI O.P. KANT
O R D E R PER O.P. KANT, A. M.
This appeal by the assessee is directed against order dated 18/11/2013 of Ld. Commissioner of Income-tax (Appeals),XXVI, New Delhi for assessment year 2009-10, raising following grounds:
1. “That on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in giving contradictory finding by holding at page 9 of his order that a. Assessee’s transactions represent sale consideration of undisclosed business transactions in subject bank a/c and then not applying provisions of section 44AF (5% profit rate) to total turnover where disclosed/accepted turnover and undisclosed turnover from subject bank a/c is Rs. 35,43,434/- (well below specified cap of Rs. 40,00,000); b. And instead erroneously computing income at Rs. 714,738 on basis of perverse findings at page 10(Para 6.4) (by this addition which can be sustained is Rs. 14,071/-) 2. That on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in holding at page 9 para 6.3 that cited precedents do not match assessee’s facts where all the precedents cited are squarely applicable to appellant’s case specially P & H high court order at 242 CTR 61 & Allahabad high court order at page 207 Taxman 332 and all precedents cited advances appellants case for taxation on profit/deemed profit rate as per presumptive scheme u/s 44AF of the Act. 3. That on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in not giving the alternate relief of peak theory fully applicable to appellants facts as highlighted in para 3 of our submission addressed to Ld. CIT(A) reproduced at page 5 of his order (peak addition Rs. 236,587/-) 4. That on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in giving adverse directions at para 6.6 for passing to other authorities i) without show causing assessee on the same and ii) also it is outside the purview of powers of Ld. CIT(A) u/s 250/251 of the Act which are preyed to the expunged.
Relief Claimed i) To delete the addition sustained at Rs. 714,738/- from bank deposits of Rs. 21,25,620/- and to sustain the addition at Rs. 14,071/-; ii) To apply peak theory for maximum addition sustainable at Rs. 236,587/- iii) To expunge adverse directions without following audi altrem partem; iv) Any other relief as deemed fit and appropriate in facts and circumstances of the case That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.”
The facts in brief of the case are that the assessee, an individual, was the proprietor of M/s Laxmi Bearing during the relevant period of time and filed return of income for the year under consideration on 18/03/2010 declaring income of Rs.1,48,517/-. The case of the assessee was selected for scrutiny. In the case of assessee, an information of deposit of Rs. 21,25,620/- in bank account with IDBI bank, New Delhi was received from the Annual Information Return (AIR) and in the course of scrutiny proceedings, the assessee was asked to explain the source of the said deposits. The assessee explained that the deposits represent trading receipt of business of sale of automobiles parts and could not be declared the same by oversight, however on being asked 3 by the Assessing Officer to produce sale/purchase bills in support of his contention, he failed to do so. The Assessing Officer observed that this bank account was in operation since financial year 2007 – 08 relevant to preceding assessment year, and therefore according to him it could not have been possible to leave the trading receipt from adding in regular profit and loss account due to oversight. In view of failure on the part of the assessee to support the deposits with purchase and sale bills, the Assessing Officer held the entire deposit of Rs. 21,25,620/- as unexplained cash credit under section 68 of the Income-tax Act ,1961 (in short ‘the Act’). On appeal, the Ld. Commissioner of Income-tax (Appeals), reduced the addition to Rs.7,14,738/- following the asset expenditure basis. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds reproduced above.
At the outset, the Ld. Authorised Representative, submitted not to press grounds No. 1 and 2 of the appeal and therefore both the grounds are dismissed as infructuous.
In ground No. 3, the assessee raised the issue of not accepting the peak theory by the Ld. Commissioner of Income-tax( Appeals).
Before us Ld. Authorised Representative of the assessee submitted that deposits made in bank account were subsequently withdrawn and redeposited and peak of such deposits worked out to be Rs. 2,36,587/-, should only be added as unexplained cash credit under section 68 of the Act and not the entire deposits of Rs. 21,25,620/-. In support of his contention, the Ld. AR relied on the decision of the Tribunal Delhi bench in the case of Rajeev Khurana in the Hon’ble High Court of Delhi in the case of Commissioner of income tax versus Inderpal Chawla in ITA 1424/2010 pronounced on 24/09/2010.
In reply to the above, the Ld. Senior Departmental Representative (SR DR) relying on the orders of the authorities below submitted that the peak theory was not applicable to the facts of the case as the assessee himself has accepted the deposits as trading receipts, which were deposited in different cities in India and withdrawn from Delhi and therefore it was not possible for the assessee to send withdrawn money to different cities for redeposit. According to him, the Ld. Commissioner of Income-tax (Appeals) has adopted the best method for sustaining the addition in the circumstances of the case as the assessee was engaged in parallel business activity not recorded in regular books of accounts.
We have heard the rival submission and perused the material on record. In the ground raised the assessee has sought that the Ld. Commissioner of Income-tax (Appeals) should have adopted peak theory for sustaining the addition. The Ld. Commissioner of income tax appeals, in the impugned order has given detailed reasoning as why the theory of peak credit was not applicable to the facts of the assessee.
The relevant para of the impugned order is reproduced as under:
“6.2. I have perused the IDBI bank account where the deposits aggregating to Rs. 21,25,620/- have been made. Almost all deposits are outstation deposits; viz: Ujjain, Gondia, Varansi, Lucknow, Bilaspur, Hyderabad, Amrawati,Hubli, Rajsamand, Dimapur, Kozhikode, etc. and "almost all withdrawals are in cash in Delhi through cheques. The Ld. Counsel contended that the deposits are made by the outstation buyers of 'bearings' to whom the sale have been made by the appellant. I have analyzed the entire issue in-depth. The addition of peak credit in the bank account can only be made when it is established that the outgoings are being brought in back to make re-deposit in the bank. Where the cycle of deposits and withdrawals are not questionable, only the peak credit in the bank account is assessable as income has been held in the above mentioned cases relied upon by the. Ld. Counsel. However, it is not a case here because no prudent business man will make withdrawals in cash in Delhi and send it to far places across India to redeposit it in piecemeal in the bank account. Further, it is not the claim of the appellant that the withdrawals from the bank account are utilized for re-depositing in bank. Thus, in such a situation, I do not subscribe the theory of the peak credit in the bank account as 6 assessable income. The notable feature of the bank account is that the deposits are small and numerous as compared to withdrawals. The deposits in cash vary from Rs.5,000/- to Rs.49,000/-. Further, the AO has not brought any material on the record, which may substantiate his findings that the entire deposits are income. Thus, in view of above facts and the submission of the appellant, l am inclined to agree with the contention of the Ld. Counsel that the deposits and withdrawals in the IDBI bank account. are business transactions. Here, the deposits in the bank account appear sale consideration and the entire undisclosed business transactions are in cash. ”
We agree with the finding of the Ld. Commissioner of Income-tax (Appeals) as deposits made at different stations like Ujjain, Gondia, Varanasi etc and the withdrawals were made from Delhi and the assessee itself has accepted that the deposits were trading receipts from sale of automobiles parts and withdrawals were towards purchases then in such circumstances, the withdrawals are not utilised for redeposits and therefore peak theory of credit cannot be applied to the facts of the case. In the case of Shri Rajeev Khurana (supra) cited by the Ld. AR, the withdrawals from bank account constituted the source of deposits therein and source of deposit was not from trading receipts, thus facts of the case are distinguishable. In the case of Inderpal Chawla (Supra) also the AO didn’t make any adverse finding with regard to deposit in remand proceedings, the facts of the case distinguishable from that of the case in hand. The Ld. Commissioner of Income-tax (Appeals) has 7 applied the asset expenditure theory for sustaining the addition. The relevant Paras of the impugned order in this regard are as under:
“6.4. I have perused the P & - L account and the balance sheet of the appellant filed before the AO. According to which, the Sales, Closing Stock and Debtors are Rs. 14,17,814/-, Rs. 3,42,000/- and Rs. 1,30,120/- respectively. This fact indicates that the entire sale consideration is not realized within the year and the appellant is bound to have certain stock in trade and debtors in his business. Similarly, the appellant is bound to have stock in trade and debtors in respect of his undisclosed/unaccounted business. Taking the clue emerged from the above details of accounted business; I am of the considered view that the appellant is bound to have closing stock and debtors in respect of his unaccounted business whose admitted turnover is Rs. 21,25,620/-. As per the books of account, the ratio of closing stock plus debtors to the sales is 33.33% (closing stock of Rs. 3,42,000/- plus debtors of Rs. 1,30,120/- divided by Rs. 14,17,814/-). Applying this ratio to the admitted undisclosed sales of Rs. 21,25,620/-, the unexplained investment in business, in respect of closing stock and debtors, works out to Rs. 7,07,813/-, which does not get reflected from the undisclosed bank account. The cash deposits in the IDBI bank account only reflect the realized sales in cash and not the stock and debtors. Since the appellant has not been searched, therefore, there is no detail in respect of undisclosed assets in any form. 6.5 The income of the appellant has to be worked out on accrual basis or asset-expenditure .basis and higher of these two has to be assessed to avoid double taxation as the income on accrual/receipt basis, later on, gets appropriated / manifested / expended in assets and or expenditure. Presuming that the appellant has utilized his business establishment to run the undisclosed business also, then in such a situation, he is bound to have the stock in trade and debtors as undisclosed assets of his undisclosed/unaccounted business. The aggregate of unexplained investment of Rs.7,07,813/- in closing stock & debtors in the undisclosed/unaccounted business and increase of Rs. 6,925/- (balance of Rs. 60,985/- as on 31.03.2009 minus Rs. 54,060/- balance as on 01.04.2008) in the bank balance of IDBI bank 8 account, which works out to Rs. 7,14,738/- is the income of the appellant on asset-expenditure basis. Alternatively, following the Gross Profit (GP) rate as per the books of account of the appellant, the gross profit on admitted undisclosed sales of Rs. 21,25,620/- is worked out to Rs. 3,53,269/-, which is income on accrual/receipt basis. Since the income of the appellant worked out asset- expenditure basis is higher than the income on accrual/receipt basis, therefore, I am of the considered view that the appellant’s income from admitted unaccounted/undisclosed business is Rs. 7,14,738/-, which requires to be assessed over and above the income shown in the ROI.”
When the assesee is engaged in parallel business activity, some closing stock may remain in hand and similarly some debtors may also be pending for recovery, thus in such circumstances peak of the bank account will not reflect the true income because on the date of peak credit some withdrawals and some sales are outside the peak credit.
In our view, the Ld. Commissioner of Income-tax (Appeals) has rightly rejected the claim of the assessee of adopting peak theory for considering unexplained credit. We do not find any infirmity in the finding of the Ld. Commissioner of Income-tax (Appeals) on the issue in dispute, and accordingly the ground of the appeal is dismissed.
The ground No. 4 of the appeal was also not pressed by the Authorised Representative of the assessee and therefore same is dismissed as infructuous. 9 In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 27/06/2016.