Peak credit rule limits unexplained bank deposit addition where withdrawals and redeposits show a circulating fund.

Cash deposits in bank accounts were treated as unexplained income because the assessee did not substantiate the claim that they represented business receipts of the assessee, his wife, or his mother. However, the bank statements showed repeated withdrawals and redeposits during the relevant period, indicating a circulating fund rather than fresh unexplained credits at each entry. The opening balance was also required to be excluded while computing the unexplained portion. Accordingly, the addition was not sustainable on the aggregate of all deposits and was restricted to the peak amount, with the opening balance excluded, to that extent in favour of the assessee.

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Issues: Whether the addition made towards cash deposits in bank accounts as unexplained income required to be sustained in full or restricted to the peak amount after excluding the opening balance.

Analysis: The assessee failed to substantiate the claim that the deposits represented business receipts of the assessee, his wife, or his mother with supporting evidence. The deposits were therefore liable to be treated as unexplained. At the same time, the bank statements showed multiple withdrawals and deposits during the relevant period, indicating that the credits and debits formed part of a circulating fund. The opening balance was also required to be excluded while computing the unexplained portion, and the addition could not be made on the aggregate of all deposits.

Conclusion: The addition was upheld in principle but directed to be restricted to the peak amount, with the opening balance excluded, in favour of the assessee to that extent.

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