2017 (6) TMI 399 - AT - Income Tax

Tribunal overturns AO's addition for unexplained cash deposits, ruling in favor of assessee

The Tribunal ruled in favor of the assessee, deleting the addition of Rs. 13,00,000 made by the AO for unexplained cash deposits in the bank account. The ... Addition on account of deposits made in the bank account - assessee to explain the source had filed the confirmation from the family members of the assessee but the AO doubted the confirmation by treating the same as a document of settlement between the family members - Held that:- The reason of doubting the said evidence by the AO is that this document pertains to the transaction of giving advance by the assessee to the family members in the Financial Year 2004-05 and thereafter receiving the same back in the Financial Year 2010-11 has been written on a stamp paper purchased on 28.02.2014. Thus it is clear that the AO has misunderstood the document itself contents of which clearly explains and narrates both incidents of advance given by the assessee in the year 2004-05 and the same was refunded to the assessee by the family members in the Financial Year 2010-11. The purpose of giving this confirmation is only for the satisfaction of the taxing authority and not for a proof of settlement to the family members. Accordingly rejecting the said confirmation at the threshold without further examination and verification of the veracity of the confirmation by conducting a proper enquiry is not justified on the part of the AO. Further it is settled proposition of law that in case of deposits in bank the corresponding withdrawal for subsequent deposits can be considered as a proper source of fund in the hand of the assessee. Therefore in case whether there are multiple transaction of deposit and withdrawal on regular basis then only peak credit can be considered for the purpose of making addition on this account. - Decided in favour of assessee. Issues:- Addition of Rs. 13,00,000 as unexplained cash deposits in the bank account.Analysis:1. The only issue in this case pertains to the AO's addition of Rs. 13 lakhs as unexplained cash deposits in the bank account during the assessment under section 143(3). The assessee contested this addition before the CIT(A) but was unsuccessful.2. The assessee's representative argued before the Tribunal that out of the total deposits of Rs. 42,83,188, the AO accepted the source of Rs. 29,83,188 but rejected the source of the remaining Rs. 13 lakhs. The amount in question was explained as being received back by the assessee from family members, having been initially paid by the assessee for ancestral property in 2004-05. The AO's rejection was based on the timing of a stamp paper used for confirmation, purchased in 2014 but related to transactions in 2010-11 and 2004-05.3. The representative further contended that the AO failed to consider peak credits in the bank account, which amounted to Rs. 26,16,754, less than the accepted source of Rs. 29,83,188. Therefore, the representative argued that no addition was warranted. The AO, however, maintained that the burden of proof lay with the assessee, which was not discharged satisfactorily.4. Upon reviewing the submissions and evidence, it was found that the AO accepted the source of most deposits but rejected the Rs. 13 lakhs based on a confirmation from family members. The Tribunal noted that the confirmation was not a settlement document but a verification of the transaction. The AO's doubts regarding the stamp paper's date were deemed unfounded, as it was merely for confirmation purposes.5. Additionally, the Tribunal referred to a legal principle that for bank deposits, subsequent withdrawals can be considered as a valid source of funds. Citing a judgment from the Allahabad High Court, it was established that the peak credit theory should be applied, and in this case, the accepted source exceeded the peak credits, justifying the deletion of the addition.6. Considering the facts, legal principles, and precedents, the Tribunal ruled in favor of the assessee, deleting the addition made by the AO. The decision was based on the proper assessment of the evidence presented and adherence to established legal principles.7. Therefore, the appeal of the assessee was allowed, and the addition of Rs. 13,00,000 was overturned, following a thorough analysis of the case and relevant legal precedents.