High Court clarifies Income-tax Act: Separate additions for unexplained cash credits required, burden of proof on assessee.

The High Court of Allahabad ruled in a case concerning the interpretation of section 68 of the Income-tax Act, 1961. The Court held that separate additions are necessary for unexplained cash credits in different accounts, rejecting the argument that only the peak credit should be added. The burden of proof lies with the assessee to establish the source of each deposit, and withdrawals from one account cannot cover deposits in another. The Court sided with the Revenue, dismissing the applicant's plea and awarding no costs in the matter.

---

---

Issues:
Interpretation of section 68 of the Income-tax Act, 1961 regarding unexplained deposits and the application of peak credit principle.

Analysis:
The High Court of Allahabad was presented with a question regarding the treatment of unexplained deposits and whether the peak amount should be added in such cases. The reference pertained to the assessment year 1979-80. The facts revealed that cash credits in the names of various individuals were added to the applicant's income under section 68 of the Act. The applicant contended that only the peak credit should be added if the deposits were treated as unexplained. However, the Tribunal rejected this plea, emphasizing the need for separate additions for unexplained deposits in different accounts. The Tribunal held that the burden of proof lies with the assessee to establish the source of the deposit in each account. If the genuineness of a deposit is not proven, a separate addition is necessary. The Tribunal dismissed the applicant's argument that withdrawals from one account could cover deposits in another, stating that separate additions are required for unexplained cash credits in different accounts.

The applicant argued that since the cash credits were treated as income from unexplained sources under section 68, only the peak credit should be added. However, the Court disagreed, stating that the applicant must first own all cash credit entries in the books of account before claiming the benefit of peak credit. As the cash credits were in the names of different persons and claimed to be genuine deposits by the applicant, withdrawals or payments to different individuals in previous years do not entitle the applicant to the peak credit benefit. The Court found no legal flaw in the Tribunal's decision and answered the question in favor of the Revenue and against the assessee. No costs were awarded in this matter.

---