2016 (10) TMI 844 - AT - Income Tax

Addition u/s 68 - peak credit theory - Held that - It is not in dispute that the assessee s income either in the earlier year or in subsequent years has never crossed the threshold of Rs. 2 lakhs in which event the Assessing Officer could have kept the same in mind while making the addition. Even while computing the assessment to the best of his judgment under section 144 of the Act it is the duty of the Assessing Officer to make an addition on the basis of the available material and circumstances of each case. Judgement is a faculty to decide the matters with wisdom truly and legally and it should not depend on the arbitrary caprice of an officer. In otherwords though an element of guess work is involved in best judgement it should not be a wild one as held by the Hon ble Supreme Court in the case of State of Kerala vs. Velukutti 1965 (12) TMI 32 - SUPREME Court . In the instant case the Assessing Officer ought to have taken into consideration the normal turnover of the assessee the expected profit in each year based on the earlier year s income declared and accepted in order to estimate the income of the current year; while holding that there was some undisclosed income assessable to tax under section 68 of the Act. The assessee having furnished the bank statement Assessing Officer could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and it is a settled principle that in such cases ordinarily peak credit is taken into consideration for the purpose of making an addition. On a conspectus of the matter we are of the view that an addition of peak credit would meet the ends of justice. We therefore direct the Assessing Officer accordingly.

Summary

Issues:
1. Dismissal of appeal by CIT(A) for lack of interest in prosecution.
2. Addition of cash deposits in bank accounts.
3. Disallowance of LIC premium paid.

Issue 1: Dismissal of appeal by CIT(A)
The assessee appealed against the order of CIT(A)-II, Hyderabad for the A.Y. 2009-2010. The grounds raised included the dismissal of the appeal by the Appellate Commissioner due to the assessee's lack of interest in prosecuting the appeal. The Learned Counsel for the assessee did not advance arguments for certain grounds during the hearing, leading to their exclusion from consideration. The CIT(A) concluded that the assessee showed disinterest in prosecuting the appeal, citing the decision of the Apex Court. The appeal was dismissed without delving into the merits of the addition made by the Assessing Officer.

Issue 2: Addition of cash deposits in bank accounts
The Assessing Officer made an addition of Rs. 18,98,800 as unexplained credits due to cash deposits in the assessee's bank account. The assessee contended that the cash deposits were from earlier withdrawals and were recycled throughout the year. The Assessing Officer completed the assessment under section 144 of the Act, treating the cash deposits as unexplained credits. The CIT(A) upheld the addition, noting the assessee's failure to appear despite multiple opportunities. The assessee argued that the Assessing Officer should have verified if the income declared was plausible based on past turnovers. The Hon'ble Supreme Court's decision in P.K. Noorjahan was cited to emphasize the Assessing Officer's duty to make additions judiciously. The Tribunal directed the Assessing Officer to consider the peak credit for the addition, allowing the appeal partly.

Issue 3: Disallowance of LIC premium paid
No detailed analysis was provided in the judgment regarding the disallowance of LIC premium paid. This issue was not further discussed in the judgment, and no specific decision or direction was given by the Tribunal regarding this ground.

In conclusion, the Tribunal partially allowed the appeal concerning the addition of cash deposits in bank accounts, emphasizing the Assessing Officer's duty to make additions judiciously. The dismissal of the appeal by CIT(A) for lack of interest in prosecution was upheld, and no specific mention or direction was given regarding the disallowance of LIC premium paid.