Peak credit principle applied to cash deposits, with the addition remanded for fresh verification of the deposit-withdrawal cycle.

Cash deposits in a bank account were not accepted as fully explained, but the Tribunal noted that the assessee had claimed peak credit on the basis of a recurring cash deposit and withdrawal pattern supported by a cash flow statement. Because that working had not been examined by the Assessing Officer or the first appellate authority, the matter was remanded for fresh verification with an opportunity to the assessee, and the addition was to be restricted to the verified peak credit rather than sustained on the gross deposits if the claim was proved.

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Issues: Whether the addition made in respect of cash deposits in the bank account was to be sustained in full, or whether it should be restricted to the peak credit after verification of the deposit and withdrawal pattern.

Analysis: The assessee did not succeed before the lower authorities in explaining the source of the cash deposits by documentary evidence. Before the Tribunal, the substantive challenge to the addition was not a complete denial of taxability, but a request that the addition be confined to peak credit on the footing that subsequent withdrawals were available for redeposit. A cash flow chart and supporting details were placed on record, and the Tribunal found that the working required verification because it had not been examined by the Assessing Officer or the first appellate authority. In these circumstances, the Tribunal held that the issue warranted restoration for fresh examination with due opportunity to the assessee.

Conclusion: The matter was remanded to the Assessing Officer with a direction to verify the assessee's peak credit claim and restrict the addition accordingly; the full addition was not sustained.

Ratio Decidendi: Where cash deposits and withdrawals form a recurring sequence and the peak credit claim is supported by a verifiable cash flow, the unexplained deposit addition may be confined to the peak amount after proper verification, rather than taxing the gross deposits in full.

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