2022 (6) TMI 1061 - AT - Income Tax

Tribunal orders peak calculation method for unaccounted cash deposits

The Tribunal allowed the appeal for statistical purposes, directing the AO to apply the peak calculation method to determine the assessee's income from ... Addition u/s 68 - unexplained cash deposits - calculation of peak deposits - Cash deposits and withdrawals either through bearer cheques or cross bearer cheques - HELD THAT:- Cash deposits were being made and the same were withdrawn by issuing cheques to various parties, whereas cash withdrawal of Rs.1000/- made on 27.4.2011 vide cheque no.579072 and few more cash withdrawal by way of cheque withdrawal only. The assessee also gave peak calculation at page no.67 & 68 of the paper book filed by the assessee. There is a considerable force in the submission of the assessee that entire cash deposits in the bank account cannot be added as income of the assessee. Cash sales made by the assessee do not have any bills or other record. However, the same is deposited in the bank accounts, and the purchases are made through bearer cheques to various parties. We deem it fit that the matter to be remanded to the AO only to the extent of considering the peak calculation and determine the income of the assessee in accordance with law. We order accordingly. Needless to say the assessee should cooperate with the AO for furnishing all the details for determining peak calculation of the above OBC Bank transactions. Thus, the appeal filed by the assessee is allowed to the extent indicated above. Appeal of the assessee is allowed for statistical purpose. Issues Involved:1. Delay in filing the appeal.2. Addition of cash deposits in the bank account as unexplained income.3. Application of peak credit method or gross profit method for determining income.4. Nexus between unaccounted stock disclosed during survey and cash deposits.5. Applicability of Section 68 of the Income Tax Act to bank account transactions.Detailed Analysis:1. Delay in Filing the Appeal:The assessee filed an appeal with a delay of 9 days due to acute back pain and trauma, as supported by a doctor’s certificate. The Revenue had no objection to condoning the delay. The Tribunal condoned the delay and proceeded with the appeal.2. Addition of Cash Deposits in the Bank Account as Unexplained Income:The assessee, a Karta of HUF running a wholesale cloth trade, filed a return declaring an income of Rs. 9,19,240/-. During scrutiny, it was found that the assessee had made cash deposits of Rs. 1,09,30,500/- in an OBC Bank account, which were not part of the regular business account. The assessee claimed these deposits were from unaccounted retail trading. The AO did not accept this explanation due to lack of corroborative evidence and added the entire amount as unexplained income.3. Application of Peak Credit Method or Gross Profit Method for Determining Income:The assessee offered a peak credit of Rs. 6,05,000/- or alternatively, 8% of the total turnover (Rs. 8,74,440/-) as income. The AO rejected this, stating the assessee failed to substantiate the transactions with supporting documents. The CIT(A) upheld the AO’s decision, noting that the assessee did not provide purchase and sales bills, stock details, or names of suppliers and customers to prove the transactions.4. Nexus Between Unaccounted Stock Disclosed During Survey and Cash Deposits:During a survey operation, excess stock worth Rs. 51,21,318/- was found and disclosed as investment from undisclosed income. The assessee argued that this stock was acquired from past earnings and the same had been offered for taxation. The CIT(A) found no nexus between the disclosed stock and the cash deposits, as the survey was conducted in a different assessment year.5. Applicability of Section 68 of the Income Tax Act to Bank Account Transactions:The CIT(A) rejected the assessee’s argument that Section 68 does not apply to bank accounts, stating that the AO rightly treated the cash deposits as unexplained income due to the failure to prove the nature and source of the deposits. The Tribunal found merit in the assessee’s argument that the entire cash deposits should not be added as income. Instead, it suggested applying the peak calculation method to compute the profit from unaccounted cash sales. The case was remanded to the AO to determine the income based on peak calculation, with instructions for the assessee to cooperate by providing necessary details.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the AO to apply the peak calculation method to determine the assessee’s income from the unaccounted cash deposits in the OBC Bank account. The Tribunal emphasized the need for cooperation from the assessee in furnishing the required details.