PANDURANG W. SALGAONKAR,MUMBAI vs. ITO 25(2)(2), MUMBAI

PER MAHAVIR SINGH, JM:

The assessee could not file details or could not explain the source of deposits of cash in the savings bank account No.011/5038 maintained with the above stated bank and accordingly the AO treated the cash deposits in this account as unexplained amounting to Rs.17,77,100/-. Aggrieved, the assessee preferred appeal before CIT (A). Before CIT (A) the assessee only requested for taking the peak credit and also for considering the cash withdrawals to be set off against the deposits. But CIT (A) has not considered the submissions of the assessee and confirmed the addition by observing as under:- “6a. On the issue of c ash deposits of Rs.17,77,100/-, the appellant’s only contention was that it was personal in nature and mere submission of cash ledger (which shows only contra entries) and personal balance sheet does not conclude proper disclosure of the nature and source of all the deposits in the bank. The appellant has contended that the only intent and purpose of withdrawing and depositing cash was to maintain minimum balance in bank account and hold the amount in cash. No person would withdraw cash merely for the purpose of depositing the cash back in the bank. In the absence of source of cash deposits, the addition of Rs.17,77,100/- is upheld. The appeal on the above ground is disallowed”.

Aggrieved against the action of CIT (A), now the assessee is in appeal before us.

6. In view of the above facts and circumstances, We are of the view that this issue is covered by the decision of Coordinate bench in the case of ITO vs. Shri Piyush Poddar in for AY 2006-07 dated 07.09.2015, wherein exactly on similar circumstances, the Tribunal has directed the AO to assess the peak credit and by observing held as under: "10. We have heard the rival submissions and perused the materials available on record. It is seen that the assessee apart from his regular income had a bank account with Central Bank of India which was used by him only for the limited purpose of providing accommodation entries to various parties. Initially the assessee took a stand that he was deriving finance commission @.25% of all the transactions in the accommodation entry business and offered the same to tax., However, he shifted his stand by accepting the peak credit theory before the ld. CIT(A). This is evident from the fact that he had not preferred further appeal before the Tribunal against the ld. CIT(A)'s order. In accordance with the directions of the Hon'ble Calcutta High Court, we had examined the veracity of the claim of peak credit theory made by the assessee in respect of all the transactions in Central Bank of India. It is observed that the assessee had rotated his own funds in Central Bank of India for providing accommodation entries to various parties. It is not disputed that the genuineness of the transaction could not be proved by the assessee by mentioning the names, addresses, PAN, confirmation of the parties to whom the payments were made and from payments were received by the assessee. Hence it is proved that transactions contained in the bank account are not genuine. Once the transactions in the bank account are proved ingenuine then it is an accepted practice of adopting the peak credit theory for the purpose of determination of undisclosed income of the assessee. Hence, reliance placed by the ld. DR in the decision of the Hon'ble Allahabad High Court reported in 276 ITR 38 which rejected the concept of peak credit theory is not applicable to the facts of the instant case. In the case before the Hon'ble Allahabad High Court, the assessee claimed that the credits in the bank account represented genuine loans borrowed and the character of the loan transactions were not disputed and hence their lordships of Allahabad High Court held that the peak credit theory would not be applicable in that case. But in the facts of the instant case, the assessee had clearly owned up the transactions and that he is engaging himself in accommodation entry business with his own funds as well as funds received from parties to whom the accommodation entries are provided by the assessee and the names and addresses of such parties could not be provided by him for want of maintenance of books and details. This goes to prove that the genuineness of the transactions contained in the accommodation entry business as reflected in the said bank account could not be proved by the assessee. This is a distinct and crucial factor which distinguishes the decision rendered by the Hon'ble Allahabad High Court in 276 ITR 38 which was heavily relied upon by the Revenue.

Kumar Gupta in IT(SS)A. No.11/Kol/2014 dated 0.2.2005 wherein ITAT observed that the claim of the assessee was that the cheque withdrawals were for giving loan for the short period. Held as follows :-

"The AO cannot refuse to grant set off for the withdrawal made by cheque without bringing on record any materials so that the amount withdrawn by cheque cannot have been received back by the assessee and utilized by him in making subsequent deposits by cheque. Taking all this into consideration, we are of the considered opinion that AO should adopt peak credit method to arrive at the undisclosed income of the assessee in the undisclosed bank account No.SB 6664 with the Syndicate bank." Reference may also be drawn to the decision of the Hon'ble Apex Court in the case of CIT vs Smt. P.K.Noorjehan reported in 237 ITR 570(SC) wherein their lordships have held that mere unsatisfactoriness of the explanation offered by the assessee, does not, and need not, automatically result in deeming the value of investment to be the income of the assessee. That is still a matter within the discretion of the officer and, therefore, of the Tribunal. In other words, the discretion has been conferred on the Income tax Officer u/s 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. The Income Tax Officer is not obliged to treat the value of investment as income in every case where the explanation offered by the assessee is found to be unsatisfactory.

In view of the above order of the Co-ordinate Bench in the case of Pyush Poddar (supra), we remit the issue back to the file of the AO and direct him to assess the peak credit out of the cash deposits in the bank account of the assessee on the same principle as in the case of Pyush Poddar (supra). Accordingly, this issue of assessee’s appeal is set aside to the file of AO and allowed for statistical purposes.

Order pronounced in the open court on 15/06/2016.