2022 (8) TMI 797 - AT - Income Tax

Tribunal Upholds Peak Balance Theory for Unexplained Cash Credits in Tax Appeal

The Tribunal partially allowed the Revenue's appeal challenging the CIT(A)'s decision on unexplained cash credit for Assessment Year 2011-12. The Tribunal ... Unexplained cash credit - CIT-A accepting the Peak Balance Theory put forth by the assessee - assessee pleaded that it was engaged in money lending business which was rejected by revenue - whether method of peak credit was rightly adopted for addition of the alleged undisclosed income of the assessee? - HELD THAT:- Peak credit has to be worked out properly by considering only cash receipts and cash withdrawals and the same is required to be verified by Ld. AO. The same is the plea of Ld. Sr. DR who has submitted that peak credit was not made available to Ld. AO and therefore, modification in directions is required. We find that the assessee has made deposited cash and withdrawn the same throughout the year. Accepting the plea of Ld. Sr. DR, the working of the peak credit shall be furnished by the assessee to Ld. AO who is directed to consider the same and restrict the addition to the extent of peak credit of cash receipts and cash withdrawals. The cheque entries shall be separately examined and re-adjudicated. The directions given in the impugned order stand modified to that extent. Issues:1. Unexplained cash credit2. Peak Balance Theory application3. Power of CIT(A) to set aside Assessment OrderIssue 1: Unexplained cash creditThe appeal by Revenue for Assessment Year 2011-12 challenged the order of the Learned Commissioner of Income Tax (Appeals) dated 28-08-2020 regarding unexplained cash credit. The Revenue contended that the CIT(A) erred in accepting the Peak Balance Theory and directing the AO to delete the additions, arguing that the CIT(A) lacked the power to set aside the Assessment Order. The Revenue's appeal was based on the grounds that the CIT(A) made the decision relying on judicial precedents, which, according to the Revenue, could not determine the issue of unexplained cash credit, as it is a question of facts. The Revenue sought the restoration of the Assessing Officer's order.Issue 2: Peak Balance Theory applicationDuring the assessment proceedings, it was found that the assessee made cash deposits in multiple bank accounts, which were treated as unexplained money under section 69A as the source was not satisfactorily explained. The CIT(A) considered the application of the Peak Balance Theory based on previous judicial decisions. The CIT(A) directed the AO to verify the correctness of the peak cash balance and delete the addition if the funds available exceeded the peak credit. The Tribunal upheld the CIT(A)'s decision, emphasizing the importance of peak credit assessment in cases where the assessee fails to explain bank account entries adequately.Issue 3: Power of CIT(A) to set aside Assessment OrderThe Revenue challenged the CIT(A)'s authority to set aside the Assessment Order and argued that the CIT(A) could not direct the deletion of additions and provide an opportunity to the assessee. The Tribunal, while acknowledging the Revenue's concerns, upheld the CIT(A)'s decision based on the application of the Peak Balance Theory and directed the AO to properly verify the peak credit by considering only cash receipts and withdrawals. The Tribunal modified the directions given by the CIT(A) to ensure a thorough examination of the peak credit and cash transactions throughout the year. The appeal was partly allowed, and similar directions were issued to the AO for consistent application in similar cases.In conclusion, the Tribunal's judgment in the appeal addressed the issues of unexplained cash credit, the application of the Peak Balance Theory, and the authority of the CIT(A) to set aside Assessment Orders. The decision emphasized the importance of peak credit assessment in cases of unexplained cash deposits and provided detailed directions for the proper verification and restriction of additions based on peak credit calculations.