Additions of Peak credit in case of unexplained cash deposits recycled in saving account

ORDER

S. Rifaur Rahman, Accountant Member – This appeal by the assessee is directed against the order passed by CIT (A)-II, Hyderabad and it pertains to the A.Y. 2009-2010. The following grounds were urged before us.

2. At the time of hearing, Learned Counsel for the assessee did not advance any arguments with regard to ground No. 3. Ground No. 4 is general in nature. Therefore, grounds 3 and 4 are not taken into consideration. Ground No. 2 is with regard to not giving an opportunity of being heard before the CIT (A). Though the Learned Counsel for the assessee submitted that there are sufficient reasons for non-appearance on the dates fixed for hearing, it could not be substantiated before us and therefore, ground No. 1 is rejected. Thus, the only ground survives for our consideration is with regard to the addition of Rs. 18,98,800 referable to the cash deposits in bank account.

2.1 As could be noticed from the assessment order, the assessee is engaged in the business of purchase and sale of general goods and also dealer in gas. For the year under consideration, the assessee admitted total income of Rs. 1,54,700. During the scrutiny assessment proceedings the assessee was called-upon to furnish the ratio of head-wise expenses to turnover for the last 03 years, complete details of parties from whom huge purchases were made, details of sister concerns and also details of investments made. The assessee neither appeared nor submitted any information on the above points. Again a fresh opportunity was given indicating that in the absence of any reply the assessment would be completed under section 144 of the Act and an addition of Rs. 18,98,800 would be made since there were cash deposits with ICICI Bank, Santoshnagar Branch which was not explained. On 08.12.2011 the assessee appeared in response to the above show cause notice and requested time till 12.12.2011 but on the said date it did not appear and therefore, on the basis of the material available on record, assessment was completed wherein total of the cash deposits in the years under consideration was treated as unexplained credits added back to the income returned presumably under section 68 of the Act. The assessment was thus completed at a total income of Rs. 21,00,800.

3. Aggrieved, assessee contended before the CIT (A) that the assessee was not given a proper opportunity of being heard before concluding the assessment proceedings. It was also contended, in the statement of facts filed before the CIT (A), that during the financial year the assessee deposited cash of Rs. 18,98,800 on different dates in the savings bank account and the said deposits were made out of earlier withdrawal from the same bank account. In other words, the same cash was recycled round the year and it was explained to the Assessing Officer at the time of submitting bank statement. But the Assessing Officer failed to appreciate the same and sought to add all the deposits as unexplained deposits.

4. Even before the CIT (A) the assessee did not appear, despite granting several opportunities. Therefore, the Ld. CIT (A) concluded that the assessee is not interested in prosecuting the appeal and hence it is liable to be dismissed in the light of decision of the Apex Court in the case of CIT v. B.N. Bhattacharjee [1979] 118 ITR 461 . We also observed that the law assists a person who is vigilant and not those who sleep over their rights. Thus, without going into the merits of the addition, the Ld. CIT (A) confirmed the order passed by the Assessing Officer.

5. Further aggrieved, assessee is in appeal before us. Learned Counsel for the assessee submitted that even if an assessee has not appeared before the Assessing Officer and the CIT (A), the tax authorities should not take the benefit out of it and it is their duty to bring to tax the correct income assessable under the Act. Learned Counsel for the assessee sought to bring out the principle laid down by the Hon’ble Madras High Court in the case of CIT v. Indian Express (Madurai) (P.) Ltd. [1983] 140 ITR 705  to submit that it is not a lis between the two parties but what is expected of from the Assessing Officer is to make proper adjustments so as to bring to tax the correct income that is assessable under the Act. He submitted that the assessee is engaged in Kirana business and distribution of gas and his income over the past several years never crossed above Rs. 2 lakhs. He also submitted that in the immediately preceding year as well as in subsequent year, the income offered to tax was accepted by the Assessing Officer, which was hovering around Rs. 2 lakhs, which clearly proves that the assessee could not have earned income from the said business over and above Rs. 2 lakhs in which event, merely because there are certain deposits, Assessing Officer cannot make any addition on the ground that assessee has not furnished proof with regard to source of cash more particularly when the deposits were stated to be recycled – in which event only the peak cash credit is assessable to tax which works-out, in this case to Rs. 2,80,154. It is the contention of the Learned Counsel for the assessee that even while making the addition under section 68 of the Act the Assessing Officer has to logically verify as to whether an assessee could have earned such income or not, in the light of principle laid down by the Apex Court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 . In the instant case, the assessee is a small time businessman who could not have earned such income in one year and in fact, this fact was brought to the notice of the Ld. CIT (A) also in the form of statement of facts but the appeal was dismissed merely on the ground that none appeared for the assessee, overlooking the fact that in the earlier year as well as subsequent years the income offered by the assessee, hovering around Rs. 2 lakhs, was accepted by the Revenue.

6. On the other hand, Ld. D.R. strongly submitted that justice is only meant for people who are vigilant and not those who are indolent. Despite the fact that the Assessing Officer as well as the CIT (A) have given number of opportunities assessee did not come forward to furnish the details and therefore, there was no other alternative except to make the impugned addition. He thus, strongly supported the orders of the tax authorities.

7. We have heard the rival contentions and perused the record. In the case of P.K. Noorjahan (supra), the Hon’ble Supreme Court observed that section 68 of the Act imposes burden on the part of the assessee to explain the source of cash deposits but merely because it could not be explained the amount cannot automatically be added since the expression “May” used in Section 68 of the Act imposes an obligation on the Assessing Officer to verify as to whether assessee could have earned such huge income in one year. In the instant case, it is not in dispute that the assessee’s income either in the earlier year or in subsequent years has never crossed the threshold of Rs. 2 lakhs in which event the Assessing Officer could have kept the same in mind while making the addition. Even while computing the assessment to the best of his judgment, under section 144 of the Act, it is the duty of the Assessing Officer to make an addition on the basis of the available material and circumstances of each case. Judgement is a faculty to decide the matters with wisdom, truly and legally and it should not depend on the arbitrary caprice of an officer. In other words, though an element of guess work is involved in best judgement it should not be a wild one, as held by the Hon’ble Supreme Court in the case of State of Kerala v. Velukutti [1966] 60 ITR 239. In the instant case, the Assessing Officer ought to have taken into consideration the normal turnover of the assessee, the expected profit in each year, based on the earlier year’s income declared and accepted in order to estimate the income of the current year; while holding that there was some undisclosed income assessable to tax under section 68 of the Act. The assessee having furnished the bank statement Assessing Officer could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and it is a settled principle that in such cases ordinarily, peak credit is taken into consideration for the purpose of making an addition. On a conspectus of the matter, we are of the view that an addition of peak credit would meet the ends of justice. We, therefore, direct the Assessing Officer accordingly.

8. In the result, appeal filed by the assessee is treated as partly allowed.