ITAT Applies Peak Credit Theory to ₹1.56 Crore Cash Deposits

ITO Vs Ransinh Tejsinh Vaghela (ITAT Ahmedabad)

Peak credit theory applies where bank deposits are followed by withdrawals and subsequent redeposits of substantially the same funds. The entire gross deposits cannot be treated as unexplained money merely because the transactions involve repeated cash circulation. The addition must be restricted to the net unexplained peak credit after allowing credit for the opening cash balance, agricultural receipts and other income disclosed by the assessee.

Summary: The ITAT Ahmedabad held that the entire cash deposits of ₹1,56,21,790 could not be treated as unexplained where the bank statement and cash book showed repeated withdrawals and redeposits of substantially the same funds. The Tribunal upheld the CIT(A)’s direction to apply the peak credit theory and directed the Assessing Officer to give full credit for the opening cash balance, net agricultural receipts and other income disclosed in the return, restricting the addition under Section 69A read with Section 115BBE to the remaining unexplained peak credit, if any. The Tribunal also rejected the assessee’s challenge to Section 115BBE, holding that the amended provision was effective from 01.04.2017 and applicable to AY 2017-18.

Core Issue: Whether the entire cash deposits of ₹1,56,21,790 in the assessee’s bank account could be treated as unexplained money under Section 69A read with Section 115BBE when the bank statement and cash book demonstrated repeated withdrawals and redeposits of circulating funds, and whether the computation of peak credit required allowance for opening cash balance, net agricultural receipts and other income disclosed in the return. The additional issue was whether the amended provisions of Section 115BBE were applicable to Assessment Year 2017-18.