Peak credit basis applies to recycled deposits in an undisclosed account, while explained receipts must be credited.

Cash deposits in a bank account are added only to the extent they remain unexplained, and substantiated agricultural receipts must be given credit; here, the explained portion was accepted and the addition was sustained only for the balance. Where an undisclosed bank account shows both deposits and withdrawals, the movement of funds indicates recycling, so the proper basis for taxation is peak credit rather than taxing each deposit in full; that approach was upheld for the PNB account.

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Issues: (i) Whether the cash deposit of Rs. 4,29,000 in the State Bank of Patiala account warranted addition in full or only to the extent not explained. (ii) Whether the deposits in the undisclosed PNB account could be taxed in full or only on peak credit basis.

Issue (i): Whether the cash deposit of Rs. 4,29,000 in the State Bank of Patiala account warranted addition in full or only to the extent not explained.

Analysis: The explained agricultural receipt of Rs. 2,38,500 was accepted to the extent supported by material, but the claim regarding the remaining source was not fully substantiated. The assessee could not show that the entire deposit stood explained, and the record did not justify total deletion of the addition. At the same time, the accepted part of the source had to be given due credit.

Conclusion: The addition was sustained only to the extent of Rs. 1,90,500, and the balance explanation was accepted.

Issue (ii): Whether the deposits in the undisclosed PNB account could be taxed in full or only on peak credit basis.

Analysis: The bank account was undisclosed, but it contained both cash deposits and withdrawals. In such a situation, where the movement of funds shows recycling of amounts and the exact source of each deposit is not established, the appropriate basis is peak credit rather than taxation of every deposit as a separate addition. The finding on the existence of an undisclosed account did not by itself justify taxing the entire turnover of deposits.

Conclusion: The peak credit addition was upheld and the challenge to taxing the entire deposits was rejected.

Final Conclusion: The assessee obtained partial relief on the first issue, while the peak credit approach for the undisclosed bank account was sustained, resulting in a partial allowance of the appeal and dismissal of the Revenue's appeal.

Ratio Decidendi: Where deposits and withdrawals coexist in an unexplained bank account, addition is on peak credit basis rather than on the entire deposits, and explained receipts must be credited to the extent substantiated.

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