Peak credit theory for addition to income is applicable when deposit in bank account is out of cash withdrawals

Brief about the case

Assessee was engaged in the business of trading in gold ornaments. A.O. during the assessment proceedings through AIR Information noted that assessee has made cash deposit of Rs.2471500/-in his saving bank account. On questioning by A.O. about source of such cash deposit, assessee denied for having any such account and any such cash deposit. A.O. asked the information from the bank of the assessee. From the details furnished by the banks, A.O. noted that an amount of Rs.4057265/- has been deposited on various dates in two bank accounts which have not been reflected in the balance sheets/capital accounts filed by the assessee. Assessee failed to reply to the satisfaction of A.O. about the source of such deposits, hence A.O. made an addition of Rs.4057265/- to the total income of the assessee u/s 68 of the I.T. Act. Further, during the assessment proceeding, A.O. also observed that the assessee has purchased gold from various customers on different dates in cash of Rs.347600/-. Hence the same was also added u/s 40A(3) of the I.T. Act.

Assessee filed the appeal before CIT(A). During the assessment proceedings before CIT(A), assessee accepted the fact of maintaining the said two bank accounts which were disclosed to the income tax authorities, wherein deposits and withdrawals were made out of the unaccounted business of share trading, labour job of making of ornaments etc. The assessee expressed his inability to provide details of such transactions in the said bank accounts. He also argued that only the income earned out of said unaccounted transaction should be taxed in his case instead of deposits/credit entries as only deposits cannot be the income of the assessee. Alternatively, the assessee requested for addition of only the peak credit amount to the total income of the assessee which was accepted by the CIT(A).

Aggrieved with the decision, revenue filed the appeal before ITAT.

Contention of the Revenue

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