ITAT upholds CIT(A) decision on undisclosed savings bank transactions, peak credit method applied

The ITAT upheld the CIT(A)'s decision in a tax case involving undisclosed savings bank account transactions. The ITAT confirmed the use of the peak credit method and inclusion of commission earned from the undisclosed account in the assessee's total income. The appeal by the Revenue was dismissed, and the cross-objection by the assessee was allowed. The order was pronounced on 19-08-2016, providing relief to the assessee and upholding the CIT(A)'s calculations and rationale.

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Issues Involved:
1. Deletion of addition of cash deposits in the undisclosed savings bank account.
2. Calculation of peak credit for the undisclosed savings bank account.
3. Inclusion of commission earned from undisclosed bank account in the total income.

Detailed Analysis:

1. Deletion of Addition of Cash Deposits in the Undisclosed Savings Bank Account:
The primary issue revolves around the addition of Rs. 1,96,38,780/- made by the Assessing Officer (AO) as unexplained cash credit in the savings bank account of the assessee. The AO's addition was based on the observation that the assessee did not initially disclose the existence of this savings account and provided misleading information by only producing statements of current accounts. The AO concluded that the cash deposits represented concealed income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] provided partial relief by restricting the addition to the peak credit amount, considering regular cash deposits and withdrawals in the account.

2. Calculation of Peak Credit for the Undisclosed Savings Bank Account:
The CIT(A) determined that only the peak credit should be considered for addition under Section 68 of the Income Tax Act, 1961. The peak credit method involves considering the highest balance in the account at any point in time. The CIT(A) calculated the peak credit to be Rs. 3,14,434/- (derived from the highest deposit of Rs. 3,36,800/- minus the opening balance of Rs. 22,366/-). This approach was supported by precedents from the Jurisdictional Bench of ITAT and other cases, which established that only the peak credit should be added as income in cases of undisclosed cash credits.

3. Inclusion of Commission Earned from Undisclosed Bank Account in the Total Income:
The CIT(A) also observed that the commission earned from the transactions in the undisclosed savings bank account was not included in the assessee's income tax return. The CIT(A) noted that the assessee had shown a commission of Rs. 7,48,128/- from disclosed current accounts, which represented 5% of the turnover. Applying the same rate to the turnover of Rs. 1,98,77,470/- in the undisclosed savings account, the CIT(A) calculated the commission earned to be Rs. 9,93,874/-. Thus, the CIT(A) added this commission to the peak credit, resulting in a total addition of Rs. 3,14,434/- (peak credit) + Rs. 9,93,874/- (commission), providing relief for the remaining amount.

Conclusion:
The ITAT upheld the order of the CIT(A), confirming the use of the peak credit method and the inclusion of commission earned from the undisclosed savings bank account. The ITAT found no infirmity in the CIT(A)'s calculations and rationale, emphasizing that the CIT(A) had correctly applied the principles of peak credit and commission inclusion. Consequently, the appeal filed by the Revenue was dismissed, and the cross-objection filed by the assessee was allowed.

Order Pronounced:
The order was pronounced in the open court on 19-08-2016, confirming the CIT(A)'s decision and providing relief to the assessee while dismissing the Revenue's appeal.

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