Case Law Details
Ritu Mittal Vs ITO (ITAT Agra)
The Agra Bench of the Income Tax Appellate Tribunal (ITAT), in Ritu Mittal v. ITO, partly allowed the assessee’s appeal and held that an independent addition towards cash deposits under Section 69A of the Income-tax Act could not be sustained without considering the business income already accepted by the Assessing Officer (AO). The Tribunal further observed that, even if the business explanation was not accepted, the issue should be examined by applying the peak credit theory instead of taxing the entire amount of deposits.
The assessee had filed her return of income for Assessment Year 2011-12 declaring taxable income of ₹2,22,440, which included business income of ₹1,20,000. The AO noticed cash deposits aggregating to ₹13,08,515 in the assessee’s bank account maintained with the State Bank of India and, in reassessment proceedings under Sections 147 read with 144, treated the entire amount as unexplained money under Section 69A.
The assessee challenged the reassessment by filing a revision petition under Section 264 before the Principal Commissioner of Income Tax (PCIT), which was initially rejected. The assessee thereafter approached the Allahabad High Court, which quashed the revision order. In the second round of proceedings, the PCIT directed the AO to conduct a fresh assessment after providing due opportunity to the assessee.
During the fresh proceedings, the assessee submitted that she was engaged in the business of trading in machinery parts but did not maintain books of account or ledgers relating to purchases and sales. She also contended that the peak credit balance in the relevant bank account was only ₹97,832 and furnished workings supporting the peak credit computation. However, the AO concluded that the assessee had failed to establish the existence of any business activity through documentary evidence and held that the cash deposits could not be linked to business transactions. Accordingly, the entire cash deposit of ₹13,08,515 was again added under Section 69A, which was subsequently upheld by the CIT(A).
The Tribunal observed that the AO had accepted the returned income, including business income of ₹1,20,000, while computing the total income. This indicated that the business carried on by the assessee had effectively been accepted. Therefore, making a separate addition towards cash deposits without considering the accepted business activity was held to be unsustainable in law.
The Tribunal further held that, even if the business explanation was to be disregarded, the appropriate course would be to apply the peak credit theory, particularly in cases involving frequent withdrawals and redeposits in the same bank account. Since the assessee had already furnished detailed peak credit workings before the lower authorities, the Tribunal directed the AO to examine those computations and bring only the peak credit amount to tax instead of the entire cash deposits of ₹13,08,515. Accordingly, the grounds raised by the assessee on this issue were partly allowed, and the appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT AGRA
1. The appeal in ITA No. 215/AGR/2026 for AY 2011-12, arises out of the order of the ld National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 20.01.2026 against the order of assessment passed u/s 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.05.2025 by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as ‘ld. AO’).
2. No arguments were advanced before me in respect to Ground Nos. 1, 2 and 3 raised by the assessee. Hence, the same are dismissed as not pressed.
3. Ground No. 5 is general in nature and does not require any specific adjudication.
4. Ground Nos. 4 to 4.2 raised by the assessee are challenging the addition made on account of cash deposit of Rs. 13,08,515 as unexplained money u/s 69A of the Act.
5. I have heard the rival submissions and perused the material available on record. The assessee filed a return of income for AY 2011-12 declaring taxable income of Rs. 2,22,440. The ld AO noted that assessee had made cash deposit of Rs. 13,08,515 in her bank account maintained with SBI during the year under consideration. This was added as unexplained cash deposit in the reassessment completed u/s 147 r.w.s. 144 of the Act on 03.12.2018.
6. Aggrieved by the said order, the assessee filed revision petition u/s 264 of the Act before the Jurisdictional Principal Commissioner of Income Tax (PCIT). The ld PCIT passed an order u/s 264 of the Act on 23.03.2021, wherein the revision application of the assessee was rejected. The assessee filed a writ petition before the Hon’ble Allahabad High Court. The Hon’ble Allahabad High Court quashed and set aside the revision order u/s 264 of the Act dated 23.03.2021. Further, in the second round, the ld PCIT passed an order u/s 264 of the Act dated 10.05.2024 and directed the ld AO to pass a fresh order de novo after providing due opportunity to the assessee. The details called for by the ld AO were furnished by the assessee to the extent available. The assessee categorically stated that the nature of goods purchased and sold are machinery parts and no books of account are maintained and accordingly no ledger for purchases or sales are available. The assessee submitted before the ld AO that the peak credit balance in the bank account was only Rs. 97,832 on 25.01.2011. The ld AO after consideration of the reply of the assessee concluded that assessee had not furnished any valid proof to justify the existence of carrying on business of machinery parts. Hence, he concluded that the deposits made in the bank account could not be construed as emanating from business activities of the assessee. Accordingly, he proceeded to add the cash deposit of Rs 13,08,515 as unexplained money u/s 69A of the Act de hors the business activities of the assessee. This action of the AO was upheld by the ld CIT(A).
7. It is pertinent to note that the return of income of Rs. 2,22,442/- filed by the assessee included business income of Rs. 1,20,000, which has been taxed by the ld AO, as is evident from the fact that the ld AO had started the determination of total income from the income returned by the assessee. This goes to prove that the business carried on by the assessee is accepted by the ld AO. Hence, making an independent addition on account of cash deposits without giving weightage to the business carried on by the assessee is held unsustainable in the eyes of law. In any event, even if the business carried on by the assessee is not accepted then the logical conclusion for the cash deposits issue would be to go by the peak credit theory. The peak credit theory is one of the recognized methods of arriving at the peak income of the assessee especially when there was frequent withdrawal and deposits in the bank account. In the instant case, the assessee had pleaded that there are regular withdrawals of cash from the bank account and had also enclosed the workings of peak credit before the lower authorities. The same are also enclosed in pages 87 to 89 of the paper book. Let this workings be examined by the ld AO and only the peak credit amount should be brought to tax instead of Rs. 13,08,515/-. This in my considered opinion would meet the ends of justice. Accordingly grounds by the assessee in this regard are partly allowed.
8. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 02/06/2026.
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