2014 (2) TMI 832 - AT - Income Tax

Tribunal upholds assessment re-opening, confirms unexplained deposits, rejects accommodation entry income argument.

SHRI SUDHIR KUMAR SHARMA Versus INCOME TAX OFFICER

SHRI SUDHIR KUMAR SHARMA Versus INCOME TAX OFFICER - TMI Issues Involved:1. Re-opening of assessment under Section 148 of the Income Tax Act.2. Addition of income under Section 68 of the Income Tax Act.3. Applicability of peak credit theory.4. Assessment of commission income from accommodation entries.Issue-wise Detailed Analysis:1. Re-opening of assessment under Section 148 of the Income Tax Act:In ITA Nos. 17/Chd/2013 and 19/Chd/2013, the assessee raised the issue of re-opening the assessment under Section 148. However, this ground was not pressed by the assessee during the proceedings. Consequently, the Tribunal dismissed this issue as not pressed.2. Addition of income under Section 68 of the Income Tax Act:The primary issue in the appeals was the addition of unexplained cash deposits in the bank accounts of the assessees under Section 68. The Department had issued notices under Section 148 after discovering unexplained cash deposits. The assessees failed to produce complete books of account or any evidence to substantiate the source of these deposits. The Assessing Officer (AO) added the cash deposits as income from unexplained sources, amounting to Rs. 7,02,85,510/- in one case. The CIT(Appeals) upheld the AO's decision, noting that the assessees did not maintain proper records to prove the genuineness of the transactions or the identity and creditworthiness of the clients.The Tribunal found that the assessees had not discharged their onus to prove the source and nature of the cash deposits. The Tribunal referred to a similar case involving the same assessees and upheld the addition under Section 68, dismissing the assessees' grounds of appeal.3. Applicability of peak credit theory:The assessees argued for the application of the peak credit theory, which would limit the addition to the highest balance in their bank accounts during the year. However, the Tribunal rejected this argument, noting that the peak credit theory is not applicable when the deposits are not followed by corresponding withdrawals. The Tribunal cited the case of Bhaiya Lal Shyam Behari v. Commissioner of Income-tax, where the Allahabad High Court held that the peak credit theory requires a factual foundation, which was not established by the assessees.4. Assessment of commission income from accommodation entries:The assessees claimed that they were engaged in providing accommodation entries and that only the commission income from these activities should be taxed. However, this argument was not raised during the assessment proceedings or before the CIT(Appeals). The Tribunal noted that this issue was factual and could not be introduced at the appellate stage. The Tribunal found no merit in this argument and upheld the addition of the entire cash deposits as unexplained income.Conclusion:The Tribunal dismissed all the appeals filed by the assessees. The re-opening of assessments under Section 148 was upheld as the issue was not pressed. The addition of unexplained cash deposits under Section 68 was confirmed, and the peak credit theory was deemed inapplicable. The argument for taxing only the commission income from accommodation entries was rejected as it was not raised at earlier stages. The Tribunal's decision was consistent with previous rulings involving the same assessees.