2016 (3) TMI 961 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on unexplained cash deposits, emphasizes record-keeping

Income Tax Officer, Ward – 11 (4), Ahmedabad Versus Shri Tikamchand Mutha and Shri Sureshchand Mutha

The Tribunal upheld the CIT(A)'s decision, dismissing appeals and cross-objections from both parties regarding unexplained cash deposits and cash credit ... Unexplained cash deposits in the bank account by adopting peak cash deposits (on 60 days basis) - Held that:- CIT(A) observed that even if it was accepted that peak theory would be valid in this case, because the assessee was in the business of financing; the day to day peak could not be applied in the present case because as admitted by the father of the assessee and the Authorized Representative of the assessee that the loan was disbursed by the assessee to various persons for 2 to 4 months. The CIT(A), therefore, held that if peak theory is to be applied, then the peak has to be worked out on the basis of 60 days; meaning thereby, if a cash withdrawal is made on the first day then, it can be expected to be deposited in the bank account of the assessee on or after 61st day. Similarly, withdrawal of second day could be expected to be deposited back on or after 62nd day. In this background, the CIT(A) rightly directed the Assessing Officer to work out the peak on the above basis and tax that peak amount as unexplained investment of the assessee. Therefore, these reasoned and factual findings of the CIT(A) do not require any interference from our side Addition on account of cash credit - Held that:- This addition in question has been confirmed the CIT(A) in appeal on the ground that the assessee has failed to prove the genuineness of loans from the parties and creditworthiness of other depositors. It is not in dispute that no such proof was furnished before the Assessing Officer but only affidavits from such depositors were produced before the First Appellate Authority which was not admitted by him on the ground that the same was not genuine as per the reasons recorded in the appellate order. Therefore, in our opinion, the CIT(A) has rightly confirmed the addition as unexplained cash credit u/s 68 of the Act because no books of accounts are maintained by the assessee and there were no such details on record which can be verifiable. Issues involved:1. Assessment of unexplained cash deposits in the bank account by adopting peak cash deposits.2. Confirmation of addition on account of cash credit.Analysis:Issue 1: Assessment of unexplained cash deposits in the bank account by adopting peak cash deposits:The case involved two appeals filed by the Revenue and the Cross-objection thereof against the orders of the Commissioner of Income Tax (Appeals)-XVI for Assessment Year 2007-08. The Revenue raised original and revised grounds challenging the restricted addition of unexplained cash deposits in the bank account. The CIT(A) directed the Assessing Officer to consider the peak balance of the bank account on a 60-day basis for assessing unexplained investment. The Revenue contended that the entire cash deposit should be assessed as unexplained investment due to the absence of evidence from the assessee. However, the authorized representative for the assessee argued for the deletion of the addition. The CIT(A) observed that the withdrawals from the father's partnership firms could not explain the credit entries in the assessee's account. The CIT(A) directed the peak amount to be taxed as unexplained investment based on the 60-day peak theory. The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal and the first ground of the assessee's cross-objection.Issue 2: Confirmation of addition on account of cash credit:The second ground of the assessee's cross-objection related to the addition of cash credit, which was confirmed by the CIT(A) due to the lack of proof of genuineness of loans and creditworthiness of depositors. The Tribunal upheld the CIT(A)'s decision, stating that no verifiable details were provided by the assessee. Therefore, the addition of unexplained cash credit under section 68 of the Act was justified. As a result, the Tribunal dismissed the appeal filed by the Revenue and the cross-objection filed by the Assessee in this regard.In conclusion, the Tribunal upheld the CIT(A)'s decision on both issues, dismissing the appeals and cross-objections filed by both parties. The judgment provided detailed reasoning for the assessment of unexplained cash deposits and the confirmation of cash credit addition, emphasizing the importance of maintaining proper records and providing verifiable evidence in such cases.