Peak Bank Balance Method limits taxation to net/peak bank credit where cash rotation is established and no alternate application shown.

Where cash deposits are repeatedly withdrawn and redeposited (cash rotation) and no material shows application of those funds elsewhere, the correct taxable measure of unexplained bank credits is the peak bank balance method - compute net credit as peak balance minus opening balance; accordingly the large ex parte addition based on gross deposits was reduced and only the net/peak balance was held taxable, with the excess disallowed as unexplained income absent contrary material.

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Issues: Whether the addition of Rs. 24,04,700/- on account of unexplained cash deposits in the assessee's bank account should be sustained or whether the assessee is entitled to benefit of rotation such that only the net/peak balance of Rs. 5,75,439/- is taxable.

Analysis: The Assessing Officer made an ex parte addition of Rs. 24,04,700/- as income from undisclosed sources under Section 144 of the Income-tax Act, 1961 based on cash deposit entries in the assessee's bank account. The assessee explained that the same cash was repeatedly withdrawn and redeposited to create bank transactions required for obtaining a visa. The CIT(A) examined the bank statement, found withdrawals corresponding to deposits, noted the opening balance and peak balance, and applied the peak balance approach to calculate net credit (peak balance minus opening balance) of Rs. 5,75,439/-. There is no material on record disputing the CIT(A)'s computation or showing alternative investments of the amounts deposited; the appellate tribunal found no basis to overturn the factual finding that cash had been rotated and that only the net/peak balance represents unexplained income.

Conclusion: The addition of Rs. 24,04,700/- is not sustainable in full; only net credit of Rs. 5,75,439/- is taxable. The CIT(A)'s order reducing the addition and allowing relief of Rs. 18,29,261/- is upheld in favour of the assessee.

Ratio Decidendi: Where cash is shown to have been repeatedly withdrawn and redeposited (rotation) and no material shows investment elsewhere, the correct taxable amount arising from unexplained bank credits is determined by the peak bank balance method (peak balance minus opening balance).

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