Shah Maganlal Gulabchand Choksi Vs ACIT (ITAT Surat)
Conclusion: Peak credit theory could not be applied when cash deposits were converted into cheque/RTGS withdrawals, especially when there was an indication of converting undisclosed income. The importance of following the SOP and guidelines issued by CBDT for handling demonetization cases, ensuring consistency and fairness in assessments. AO must conduct thorough verification and consider all evidence, including explanations provided by the assessee, before making additions for unexplained cash deposits u/s 69A and 68.
Held: Assessee was engaged in the business of trading of gold and silver bars. A survey was conducted on assessee u/s. 133A in consequence of a survey in case of M/s S. R. Traders. Assessee had received Rs. 13.36 crores by cheque/RTGS out of total cash deposit of Rs.24.35 crores in bank account of M/s R. S. Traders during demonetization period. During the survey, several documents and evidences were collected and impounded. The statement of Shri Himanshu, partner of assessee firm, was recorded u/s 131. Assessee-firm had carried out similar transactions with another concern by the name M/s Nirav & Co. The bank account of M/s Nirav & Co. with Surat Peoples Co-Operative Bank was found to be controlled and managed by Shri Himanshu. Cash of Rs.36.17 crore was deposited in the said bank account during demonetization period (10.11.2016 to 05.12.2016) in old high denomination notes of Rs.500/- and Rs.1,000/-. AO issued show-cause notice to assessee wherein it was mentioned that Shri Nirav Rashmi Kant Shah, proprietor of M/s Nirav & Co., was a small time employee of Shri Maharishi Chukkas who provided essential documents of Shri Nirav R. Shah to Shri Himanshu for opening the bank account. Shri Nirav R Shah filed police complaint that his bank account was fraudulently used by someone else. In view of the above, assessee was asked to explain the nature and source of cash deposit in the bank account of M/s Nirav & Co. Assessee was also asked to explain about purchase of 176 kgs. silver worth Rs.76 lakh from M/s Maharishi Traders. It was held that since AO had not followed the SOP, Guidelines etc. issued by the CBDT while passing the impugned assessment order, it was deemed proper to set aside the order of CIT(A) and restore the matter to the file of AO for verification of all the details and evidences as mandated under the said SOP/ Guidelines etc. AO was also directed to verify all details filed by assessee before the lower authorities and Tribunal and to consider claim of the assessee in accordance with law. We make it clear that we are not giving any opinion on the merits of the addition made by the AO. The theory of peak credit was not applicable since the cash deposits were made but withdrawals were through cheques/RTGS, the peak credit theory could not be applied. The court viewed the transactions as an attempt to convert undisclosed income into gold stock, making the peak credit benefit unwarranted. AO should have followed the SOP and guidelines issued by CBDT for demonetization cases. The matter was remanded to the AO for proper verification of details and evidence as mandated under the SOP and guidelines. The court emphasized that CBDT instructions and circulars were binding on all officers.
