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Income Tax Appellate Tribunal, KOLKATA ‘C(SMC
Before: Shri P.M. Jagtap
This appeal is preferred by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-6, Kolkata dated 26.08.2015 for the assessment year 2011-12 and the grounds raised by the Revenue therein read as under:- “(1) Whether the CIT(Appeals) erred in law by violating Rule 46A in not giving any opportunity to the AO while accepting the computation of peak credit which according to him should have been considered for addition.
(2) Whether the CIT(A) erred in fact as well as in law in accepting the method of computation of peak credit by the assessee who had evidently not established that the debit entries in the bank account had indeed been routed back as some of the credit entries to reduce the total income of Rs.41,94,000/- to only Rs.9,79,326/-.
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(3) Whether the CIT(A) erred in fact in not reproducing or not enclosing the said computation of peak credit with or in the appellate order.
The assessee in the present case is an individual, who is engaged in the business of wholesale rice trading. The return of income for the year under consideration was filed by him on 30.09.2011 declaring total income of Rs.6,20,250/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has maintained two Bank accounts with Bank of India, Bulchandrapur Branch and Axis Bank, Burdwan Branch, which were not reflected in the financial statements of the assessee. He also noticed that there was substantial deposit made by the assessee in the said two Bank accounts during the year under consideration. In this regard, the explanation offered by the assessee before the Assessing Officer, inter alia, was that the cash withdrawals made from the said Bank accounts were available and utilized for making deposits on the subsequent dates. It was also submitted by the assessee that the opening balance in the said accounts amounting to Rs.5,79,326/- as well as the gift of Rs.4,00,000/- received by him from his mother-in- law in cash was available for him to explain the cash deposits found to be made in the said two Bank accounts. The explanation of the assessee was not found acceptable by the Assessing Officer and he proceeded to add the entire deposit of Rs.42,00,416/- found to be made in the two Bank accounts of the assessee to its total income in the assessment completed under section 143(3) vide an order dated 26.03.2014.
Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) disputing the addition of Rs.42,00,416/- made by the Assessing Officer on account of deposits found to be made in his two Bank accounts and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) restricted the said addition to Rs.6,416/- only thereby giving relief of ./2015 Assessment year: 2011-2012 Page 3 of 7 Rs.41,94,000/- for the following reasons given in paragraph no. 5 of his impugned order:- “I have carefully considered the facts of the case and the appellant's submissions. As regards the claim of the appellant that a gift in cash of Rs.4,00,000/- were received by the appellant, the appellant has proved the identity of the donor. The donor i.e. the mother-in-law of the appellant confirmed in her statement recorded by the AO during her personal attendance that she had made the gift. She gave details of her sources of income which have not been rebutted by the AO. The only reason given by the AO for the rejection of the gift as genuine is that it was stated by the donor that the gift had been made as per the needs of the appellant. The reason given by the AO for rejection of the confirmation of the donor during her personal attendance is not sufficient to disbelieve the genuineness of the transaction and the donor's capacity to pay. Hence, the gift of Rs.4.00,000/- claimed to have been deposited in the bank account of the appellant with Axis Bank on 22.04.2010 is held to be genuine and the second ground of appeal is allowed. The total of cash deposits of Rs. 41,37,606/- (including interest of Rs. 5,606/-) in the said bank account has been held by the AO to be unexplained and was added back as undisclosed income. The appellant's case is that the deposits in the said amount are explained either by the opening balance of Rs.5,79,326/.- or the cash withdrawals made before the impugned cash deposits. I find that the peak balance in the said account was Rs.9,79,326/- as on 22.04.2010 which is explained by the opening balance of Rs.5,79,326/- followed by cash withdrawal of Rs.5,00,000/- on 03.04.2010 and subsequent cash deposit of the same total amount of Rs.5,00,000/-(Rs.2,00,000/- on, 17.04.2010 and Rs.3,00,000/- on 19.04.2010) and cash deposit of Rs.4,00,000/- on 22.04.2010 held above to be explained by the cash gift from the appellant's mother-in-law. The subsequent cash deposits in the bank account are less than the aggregate of the cash withdrawals on prior dates. Further, the cash deposits of Rs.12,000/- on 12.11.2010 and Rs.50,000/- on 31.12.2010 in the appellant's bank account with Bank of India are less than the proximate cash withdrawals of Rs. 1,30,000/- on 29.10.2010 and Rs.3,50,000/ - on 06.12.2010 from the bank account with Axis Bank. The appellant has noted various judicial decisions to state that combined peak cash balance in his bank accounts after considering the prior cash withdrawals only can be considered for addition, if any. It is quite logical to infer that deposits made out of withdrawals made prior to the said deposits would have come out of the preceding withdrawals unless there is evidence to suggest that the withdrawals have been made for a specific purpose and not found their way back into the bank account as deposits. The Assessing Officer has not brought any material on record to prove that the cash withdrawn by the appellant would not have found its way back into the same bank account. It has been held time' and again in various judicial pronouncements that where ./2015 Assessment year: 2011-2012 Page 4 of 7
in respect of a bank account, there are instances of cash deposits as well as cash withdrawals, only thy 'peak credit of such a bank account can be considered to be the undisclosed income of the assessee and the cash withdrawals preceding cash deposits have to be considered as source of the said subsequent cash deposits. The appellant has relied on various case laws. It was also held by the ITAT, Kolkata, 'A' Bench in the case of Tanmoy Chatterjee Vs ITO, K/2009 vide its order dated 30/07/2010 as follows:
"We are of the considered view that the assessee has made cash deposit and also cash withdrawal from time to time from the said bank account. The assessee has also not been able to explain the source of deposit in the said bank account. Further, the Department has also not brought any evidence on record that the said cash withdrawal has been spent by the assessee. Therefore, we find substance in the submission of the assessee that the assessee made withdrawal from the said bank account and again deposited the same as the assessee could not utilize the withdrawal amount for the purpose for which it was withdrawn. No doubt the assessee has not stated any where the purpose for which the amount was withdrawn from time to time, The assessee has also placed the bank statement at page 7 of the paper book. Considering the said bank statement, the extract of which has been given by the Ld. CIT(A) at page 3 of the impugned order, which has already been reproduced hereinabove, we are of the considered view that the peak of the balance in the said bank account should be considered as unexplained investment u/ s. 69 of the 1. T. Act. "
Also, the Hon'ble ITAT, Kolkata 'C' Bench in its order dated 30,04.2010 in the case of Asit Baran Uttasanee Vs ITO in held as follows:
"8. We have carefully considered the submissions of the learned Representatives of the parties and the orders of the authorities below. There is no dispute to the fact that the assessee has not been able to explain the negative cash balance as observed by the Assessing Officer and the details of which are given on pages 3and 4 of the assessment order. However, we are of the considered view that the addition of the amount of negative balance made by the Assessing Officer aggregating Rs.11,80,150.52 u/s.68 of the Act is not justified. Considering the facts, we are of the considered view that it will be justifiable to take the peak of the negative balance as unexplained cash credit."
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Further, the Hon'ble ITAT, Kolkata 'C' Bench held in the case of ACIT vs. Loknath Prasad Gupta in IT (SS) A No. 185 & 190/Kol/2003 as under.-
"We have carefully perused the respective bank accounts and observed that there were various credits as well as, withdrawals in the said bank account beginning on and from 01-01-1990 to 20-03-2002, leaving a closing balance of Rs.8,461/-. There is no doubt that the deposit in the bank account is an unexplained investment by the assessee. However, it is seen that every deposit is followed by a withdrawal subsequently. The amount invested at one point of time has been withdrawn subsequently and there was further deposit in the bank account. Therefore, the peak credit of Rs.7,50,975/- covers the total deposits and withdrawal made by the assesese in the said bank account. Making the addition of aggregate deposits in the bank account without giving the benefit of withdrawals made by the assessee from time to time is not justified The Ld CIT(A) has rightly treated the peak balance of Rs.7,50,975/- as an unexplained investment made by the assessee in the nature of credits in the said bank account and, therefore, the addition of Rs 7,50,975/- is only called for. The order of the Ld. CIT(A) is therefore, upheld.
Thus the Hon'ble Tribunal has consistently held that only the peak balance can be treated as unexplained investment. Respectfully following this common ratio of various decisions of the jurisdictional tribunal, it is held that only the combined peak credit in the appellant's bank accounts with Axis Bank and Bank of India can be brought to tax , if it cannot be explained satisfactorily. As discussed above, the peak cash balance of Rs.9,79,326/- on 22.04.2010 in the appellant's bank account with Axis Bank (which is also the consolidated peak for both his accounts) is explained by the opening cash balance of Rs.5,79,326/- brought forward from the preceding year which cannot be considered the undisclosed income of the assessment year under appeal and the cash gift of Rs.4,00,000/- received from the appellant's mother-in-law. Thus, the combined peak cash balance has been explained satisfactorily by the appellant. The subsequent cash deposits (other than interest credited to the account with Axis bank) are explained by the prior cash withdrawals. Hence, only the total interest of Rs. 5,606/- credited to the amount with Axis Bank, total interest of Rs.387/ - credited to the bank account with Bank of India(A/c. No.7445) and interest of Rs. 423/- on dormant account no 1484 with Bank of India can be brought to tax. Hence, addition of Rs.6,416/-(i.e. Rs. 5,606/- + Rs.387/- + Rs. 423/-) is confirmed and the balance addition of Rs. 41,94,000/- is deleted. The third and fourth grounds of appeal are decided accordingly”.
./2015 Assessment year: 2011-2012 Page 6 of 7 Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and also perused the relevant material available on record. The main contention raised by the ld. D.R. is that the case made out by the assessee on the basis of peak credit theory was accepted by the ld. CIT(A) without giving any opportunity to the Assessing Officer to verify the same. He also contended that the said theory was put in to service by the assessee for the first time before the ld. CIT(Appeals) and the action of the ld. CIT(Appeals) in giving relief to the assessee by relying on the same without giving any opportunity to the Assessing Officer to verify the peak credit working of the assessee is in clear violation of Rule 46A of the Income Tax Rules. However, as pointed out by the ld. counsel for the assessee from the relevant portion of the assessee’s submission made before the Assessing Officer, which has been duly reproduced by the Assessing Officer in the assessment order, the Peak Credit Theory was put into service by the assessee even before the Assessing Officer by pointing out that the cash withdrawals made from the same Bank accounts were available and utilized for making deposits on the subsequent dates. It is thus clear that the argument based on Peak Credit Theory was raised by the assessee even before the Assessing Officer and the other submissions regarding availability of funds in the form of opening balance as well as gift claimed to be received from his mother-in-law in cash were also specifically made by the assessee before the Assessing Officer. It is thus clear that there was no new case made out by the assessee before the ld. CIT(Appeals) for the first time and there is no violation of Rule 46A on the part of the ld. CIT(Appeals) while giving relief to the assessee on the issue under consideration as alleged by the ld. D.R. Even on merit, a perusal of the copy of relevant Bank statement placed on record by the assessee clearly shows that all the withdrawals and deposits from the said Bank accounts were mainly made in cash and, therefore, only peak credit appearing in the said Bank account was required to be considered ./2015 Assessment year: 2011-2012 Page 7 of 7 for making addition to the total income of the assessee. Such peak credit in the said Bank account was Rs.9,79,326/- and since the same was substantially explained by the assessee by way of opening balance available in the relevant Bank account as well as the gift of Rs.4,00,000/- received in cash from his mother-in-law, I find no infirmity in the impugned order of the ld. CIT(Appeals) giving substantial relief to the assessee on this issue. I, therefore, uphold the same and dismiss this appeal filed by the Revenue.