The Income Tax Appellate Tribunal (ITAT), Bangalore Bench while directing the matter to the file of Assessing Officer, observed that additional evidence showing the withdrawals and deposits of cash were not examined.
The assessee, Prakash Babu Nakundhi Krishna Reddy is an individual. He runs a cinema theatre by the name “HMT”. He also has cattle form and the poultry business besides deriving income from agricultural activities. In the course of assessment proceedings under section 143(3) of the Income Tax Act, 1961, the AO noticed the assessee had deposited a sum of Rs.87,06,500/- in his bank account with Indian Overseas Bank and the further a sum of Rs.24,16,500/- in IDBI Bank account. All the aforesaid deposits were cash deposits.
The total of the cash deposits was a sum of Rs.1,11,23,000. The AO called upon by the Assessee to explain the source of funds out of which the cash deposits were made. The Assessee explained that the cash deposits are from ticket sales of HMT auditorium, agricultural income and withdrawals from banks.
The assessee furnished the bank account statements and ledger copy of M/s Orbgen Technologies Pvt. Ltd. In the initial submission, the P & L account submitted by the assessee, the ticket sales was shown at Rs. 75.88.156 and has arrived at loss of Rs. 27,05,576. The assessee has furnished one more P & L account in which the sales of HMT Cinema was shown as 67,82,856 and net loss of Rs. 30,74,337.
However, the AO did not accept the explanation furnished by the assessee. On appeal by the assessee, the CIT(A) confirmed the order of the AO but gave a limited relief to the extent of Rs.1,85,000/-.
The issue that needs to be adjudicated in this appeal is as to whether the CIT(A) was justified in sustaining the addition of Rs.33,49,844 as against the addition of Rs.35,34,844 made by the AO as unexplained cash deposits in the bank account.
The assessee submitted that the source of cash deposits was cash availability as per the cash book now drawn by the Assessee and the source of receipt of cash can be attributed to the various sources already explained before the revenue authorities.
The cora headed by the Vice President, N.V. Vasudevan observed that when there are deposits and withdrawals from the cash book and the source of cash deposits in the cash account is explained, the earlier withdrawal of cash can be explained as source for the subsequent deposit of cash, provided there are no evidence or circumstances to show that the earlier withdrawals could not be available to the Assessee as a source for subsequent deposit.
The Tribunal said that in such circumstances one has to see the peak credit balance in the cash account and add only peak credit. The peak credit alone would have to be treated as unexplained. The peak credit theory has to take into consideration before treating the cash deposit as unexplained cash credits.
“Since the statement showing the withdrawals and deposits of cash in the cash account in the statement is now filed as additional evidence has not been examined by the AO, we deem it fit and proper to remand the issue to the AO for consideration afresh after affording Assessee opportunity of being heard. The Assessee will have to explain the source of cash deposit in the cash account with supporting evidence to enable the AO to accept the source of cash deposit in the cash account,” the ITAT said.
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