Peak cash balance test applies where cash withdrawals are claimed as the source of later deposits.

Additional evidence in the form of a daily cash summary was treated as admissible because it was relevant to proper adjudication and its earlier non-production was explained. On the cash deposits issue, where the cash book showed withdrawals and later deposits, earlier withdrawals could be a source for later deposits if the surrounding facts supported that explanation. The proper enquiry was into peak cash balance rather than treating the entire deposits as unexplained. As the newly produced cash-flow statement had not been examined by the Assessing Officer, the matter required fresh factual verification on remand after giving the assessee an opportunity of hearing.

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Issues: (i) Whether additional evidence regarding the daily cash summary was admissible for adjudication of the appeal; (ii) whether, on the material available, the unexplained cash deposits had to be examined on the basis of peak cash credit and the matter required remand to the Assessing Officer.

Issue (i): Admissibility of additional evidence depended on whether the material was necessary for proper adjudication and whether its non-production before the lower authorities was explained. The daily cash summary was relevant to determine the availability and movement of cash and to test the explanation of deposits already offered by the assessee.

Conclusion: The additional evidence was admitted.

Issue (ii): Where cash withdrawals and deposits are shown in the cash book, earlier withdrawals may constitute a source for later deposits if surrounding circumstances do not show otherwise. In such a situation, the proper approach is to examine the peak cash balance rather than treat the entire deposits as unexplained. Since the newly produced cash-flow statement had not been examined by the Assessing Officer, a fresh factual verification was necessary.

Conclusion: The issue was remanded to the Assessing Officer for fresh consideration after giving the assessee an opportunity of hearing.

Final Conclusion: The appeal succeeded only to the extent of admission of additional evidence and remand for fresh verification of the cash deposits, without a final merits determination on the addition.

Ratio Decidendi: Where cash deposits are claimed to be sourced from earlier cash withdrawals reflected in the cash book, the proper enquiry is into the peak cash balance and related factual availability of funds, and additional evidence necessary for that enquiry may be admitted for just adjudication.

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