Ponnusamy Periasamy Vs ITO (ITAT Chennai)
Chennai ITAT Applies Peak Credit Theory, Deletes Addition of Entire Cash Deposits U/s 69A
The Chennai ITAT partly allowed the assessee’s appeal for AY 2011-12, directing that the addition under Section 69A of the Income-tax Act be restricted by applying the peak credit theory instead of taxing the entire cash deposits. The Assessing Officer had reopened the assessment under Section 148 and, after an ex parte best judgment assessment, treated cash deposits of ₹10,10,100 in the assessee’s bank account as unexplained money under Section 69A. The First Appellate Authority upheld the addition. Before the Tribunal, the assessee contended that the deposits represented business receipts from the coir fibre business, supported by continuous deposits and withdrawals and a Small Scale Unit Certificate relating to the manufacture of coir fibre. The Tribunal observed that the bank statement reflected frequent cash deposits and corresponding withdrawals, indicating circulation of funds in the course of business. Considering these facts and circumstances, it directed the Assessing Officer to compute the peak credit in the bank account and restrict the addition accordingly, instead of bringing the entire cash deposits to tax.
The Chennai ITAT partly allowed the appeal of an individual engaged in the coir fibre business by holding that the entire cash deposits of ₹10.10 lakh in the bank account could not be treated as unexplained money u/s 69A. The assessment had been completed ex parte after the assessee failed to respond to reassessment notices, leading the AO to tax the entire cash deposits as unexplained money. The CIT(A) upheld the addition for want of contemporaneous documentary evidence.
Before the Tribunal, the assessee contended that the deposits represented business receipts from the coir fibre business and pointed out that the bank account reflected continuous cash deposits and corresponding withdrawals. It was alternatively argued that, even if the explanation was not fully accepted, the addition should be restricted by applying the Peak Credit Theory, as the same money was being repeatedly withdrawn and redeposited. The assessee also produced a Small Scale Unit Certificate issued by the District Industries Centre evidencing the family’s coir fibre manufacturing business.
The Tribunal observed that the bank statement clearly showed frequent cash deposits coupled with corresponding withdrawals, indicating circulation of funds in the course of business rather than independent unexplained deposits. In such circumstances, it held that taxing the entire cash deposits was unjustified. Accepting the alternate plea, the Tribunal directed the AO to compute the peak credit in the bank account and restrict the addition accordingly, instead of bringing the entire cash deposits to tax. The appeal was accordingly partly allowed.
Cases Discussed:
FULL TEXT OF THE ORDER OF ITAT CHENNAI
