2015 (7) TMI 324 - AT - Income Tax

Unexplained deposit in bank account - CIT(A) after applying the peak credit theory on the bank account restricted part addition - Held that - On an analysis of the account ld. first appellate authority had arrived at a conclusion that the account was used for the purpose of some business, because there are debit and credit entries in a systematic manner. The debit of equal or more or less of the same amount of the cash deposit in the bank account at regular interval is available. The total of the cash deposits in such circumstances cannot be considered as unexplained income of the assessee. The ld. CIT(A) has worked out the peak credit in both the accounts. These credits are on 14th July, 2006 in the current account and 27th January, 2007. He worked out the total of the cash deposits and thereafter computed the GP on turnover of cash deposits after 14th July, 2006 in current account and after 27th January, 2007 in savings account. The CIT(A) has worked out the GP element in these transactions. He has added the profit earned by the assessee in the business after working out the peak credit. In other words the maximum amount of the peak deposits is ₹ 3,82,688/-. This was considered as representing the investment in this activity which has been carried out with these two bank and thereafter worked out the profit element. He made an addition of ₹ 9,41,557/- which is total of Rs, 5,58,872/- ₹ 3,82,685/- i.e. profit on the turnover alleged initial investment in the shape of peak credit. This factor can take care of both these issues. The assessee in his C.O. has submitted that net profit shown by him is 3.36% in AY 2007-08. The maximum profit shown by him is 5.05% in AY 2010-2011 whereas the lowest is 1.94% in 2014-2015. Considering this subsequent history of the assessee the profit ought to be worked out by adopting a reasonable figure and not as high as 15.50% considered by the CIT(A). However, we do not see any merit in this contention of assessee because he is unable to support his claim with any authentic books of account. It is not discernible whether these net profits have been accepted in the scrutiny assessment or not. Considering the facts and circumstances of the case we do not find any reason to interfere in the order of CIT(A) - Decided against revenue and assessee. Disallowance of telephone and mobile expenditure,vehicle expenses, depreciation and petrol expenses - Held that - assessee has failed to submit the supporting evidence in respect of these expenditures. The ld. AO has made an ad hoc disallowance at 20% of the expenses. The ld. first appellate authority has confirmed the disallowance. Since the assessee is running a proprietorship concern, element of personal benefits out of the use of these facilities i.e. phone(s) and car cannot be ruled out. The assessee was not maintaining any log book nor produced any other details, in support of his claim. Therefore, ld. revenue authorities have rightly disallowed the expenditure on an estimate basis - Decided against assessee.

Summary

Issues:
- Disputed addition of unexplained deposit in bank account for AY 2007-08.

Analysis:
The Revenue appealed against the ld. CIT(A)'s order regarding the addition of an unexplained deposit in the bank account. The core issue revolved around the addition of Rs. 68,51,309 made by the Assessing Officer, which was later restricted to Rs. 9,41,557 by the ld. CIT(A). Both the Revenue and the assessee were dissatisfied with the decision, with the Revenue contesting the deletion of the addition, and the assessee objecting to the confirmation of the addition at Rs. 9,41,557.

The case involved the assessee's transition from a textile trading business to providing security services, with significant deposits made in two bank accounts during the relevant accounting period. The ld. AO observed cash deposits of Rs. 61,79,940 and directed the assessee to explain the source of these deposits. Despite the assessee's submissions and evidence, including financial statements and audit reports, the ld. AO rejected the contentions and made the addition under section 68 of the Income-tax Act, 1961.

Upon appeal, the ld. CIT(A) acknowledged the systematic nature of the account transactions but found the cash deposits unaccounted for in the books. Applying the peak credit theory, the ld. CIT(A) determined the peak credit of cash deposits in the accounts and calculated the gross profit declared post the peak credit dates. The ld. CIT(A) upheld the addition to the extent of Rs. 9,41,557, considering both the peak credit and the gross profit element.

The Revenue argued against the applicability of the peak credit theory, emphasizing the lack of consistent re-deposits matching the withdrawals. In contrast, the assessee's counsel supported the ld. CIT(A)'s decision and cited a relevant High Court case where a similar theory was upheld. The assessee presented detailed bank statements showing a chain of deposits and withdrawals to support the peak theory application.

After thorough consideration, the Tribunal upheld the ld. CIT(A)'s decision, emphasizing the systematic nature of the account transactions and the application of the peak credit theory to determine unexplained income. The Tribunal rejected the Revenue's and the assessee's contentions, maintaining the addition at Rs. 9,41,557.

Additionally, the Tribunal addressed other disputed expenditures, confirming the disallowance based on lack of supporting evidence and the possibility of personal benefits from phone and vehicle expenses. The appeal of the Revenue and the assessee's Cross Objection were ultimately dismissed, upholding the decisions made by the ld. CIT(A) regarding the unexplained deposit and other expenditure disallowances.