, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO.2375/AHD/2011 / ASSTT. YEAR: 2008-2009 ITO, WARD - 3(1) SURAT. VS SHRI VIKAS SOBHGMAL JAIN 2003, ROHIT A.C. MARKET RING ROAD, SURAT. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI DINESH SINGH, SR.DR REVENUE BY : SHRI SAPNESH SHETH, CA / DATE OF HEARING : 05/11/2015 / DATE OF PRONOUNCEMENT: 05/11/2015 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF LD.CIT(A)-II, SURAT DATED 5.8. 2011 PASSED FOR THE ASSTT.YEAR 2008-09. 2. THOUGH THE REVENUE HAS TAKEN THREE GROUNDS OF AP PEAL, BUT, GRIEVANCE OF THE REVENUE REVOLVES AROUND A SINGLE I SSUE, WHEREBY, IT HAS PLEADED THAT THE LD.FIRST APPELLATE AUTHORITY H AS ERRED IN RESTRICTING THE ADDITION TO RS.2,14,041/- AND RS.3,81,525/- BEI NG PEAK CREDIT IN THE BANK ACCOUNT AND GP OF TOTAL DEPOSITS INSTEAD OF RS .28,22,920/- ADDED BY THE AO. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF RETAIL-TRADING. HE HAS FILED A RETURN OF INCOME ON 5.5.2009 DECLARING TOTAL INCOME OF RS.1,0 6,420/-. THE CASE ITA NO.2375/AHD/2011 2 OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 20.8.2010, WHICH WAS D ULY SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVE ALED TO THE AO THAT ANNUAL INFORMATION WING HAS GOT INFORMATION THAT TH E ASSESSEE HAS BANK ACCOUNT WITH STATE BANK OF BIKANER & JAIPUR, WHERE HE HAS DEPOSITED A SUM OF RS.20,09,900/- IN CASH ON VARIOUS DATES. TH E LD.AO CALLED FOR INFORMATION FROM THE BANK BY EXERCISING POWERS UNDE R SECTION 133(6) OF THE INCOME TAX ACT, 1961. A PERUSAL OF THE INFORMA TION COLLECTED FROM THE BANK REVEALED THAT THE ASSESSEE HAD MADE TOTAL DEPOSITS OF RS.28,22,920/-INCLUDING A SUM OF RS.20,09,900/- IN CASH. ARMED WITH THIS INFORMATION, THE AO HAS CONFRONTED THE ASSESSE E TO SHOW THE SOURCE OF DEPOSITS IN THE BANK. THE ASSESSEE HAS R AISED TWO FOLD SUBMISSIONS. HE CONTENDED THAT THIS AMOUNT IS BEIN G USED FOR THE PURPOSE OF BUSINESS. THE TOTAL TURNOVER OF THE ASS ESSEE INCLUDING THE AMOUNTS DEPOSITED IN THE BANK NOT EXCEEDED A SUM OF RS.40 LAKHS. THEREFORE, HE IS NOT REQUIRED TO MAINTAIN THE BOOKS OF ACCOUNTS. AT THE MOST, THE PROFIT AT THE RATE OF 5% UNDER SECTION 44 AF CAN BE APPLIED. IN THE ALTERNATIVE, IT WAS CONTENDED THAT THIS ACCO UNT WAS BEING USED FOR THE PURPOSE OF BUSINESS. THE SALE PROCEEDS HAV E BEEN DEPOSITED IN CASH AND THE AMOUNTS HAVE BEEN WITHDRAWN. THE ASSE SSEE FURTHER CONTENDED THAT BY BONA FIDE MISTAKE, THE ACCOUNTANT FAILED TO DISCLOSE THIS ACCOUNT IN THE RETURN. SOMEHOW, THE AO WAS NO T SATISFIED WITH THE CONTENTIONS OF THE ASSESSEE, AND HE MADE ADDITION O F RS.28,22,920/-. 4. DISSATISFIED WITH THE ASSESSMENT ORDER, THE ASSE SSEE CARRIED THE MATTER BEFORE THE LD.FIRST APPELLATE AUTHORITY. TH E ASSESSEE HAS REITERATED HIS STAND AS WAS TAKEN BEFORE THE AO. T HE LD.FIRST APPELLATE AUTHORITY DID NOT ACCEPT THE CONTENTIONS OF THE ASS ESSEE THAT 5% OF THE TOTAL TURNOVER BE TAKEN AS PROFIT FROM THE BUSINESS . HOWEVER, WITH REGARD TO PEAK AMOUNT, THE LD.FIRST APPELLATE AUTHO RITY HAS OBSERVED THAT SINCE THE ASSESSEE HAS TAKEN A PLEA OF ROTATIO N OF THE FUNDS IN THIS ACCOUNT, IT WAS FOR THE AO TO MAKE AN INQUIRY ABOUT THE USER OF THIS ITA NO.2375/AHD/2011 3 ACCOUNT FOR THE PURPOSE BUSINESS AND THE INQUIRY CO ULD BE MADE BY COLLECTING DETAILS WITH REGARD TO THE ENTITIES TO W HOM CHEQUES HAVE BEEN ISSUED. ACCORDING TO THE LD.FIRST APPELLATE AUTHOR ITY, THE AO HAS FAILED TO CONDUCT THIS INQUIRY, AND THEREFORE, LD.FIRST AP PELLATE AUTHORITY HAS ACCEPTED PEAK THEORY AND CONFIRMED THE ADDITION OF RS.2,14,041/- WHICH IS PEAK CREDIT IN THE ACCOUNT ON A PARTICULAR DATE OF THE RELEVANT ACCOUNTING PERIOD. THE LD.FIRST APPELLATE AUTHORIT Y HAS FURTHER TAKEN TOTAL DEPOSITS AS TURNOVER OF THE ASSESSEE AND ESTI MATED THE GP AT 13.5% OF THE TURNOVER, WHICH GAVE RISE TO ADDITION OF RS.3,81,525/-. IN THIS WAY, THE LD.FIRST APPELLATE AUTHORITY HAS ALLO WED THE APPEAL OF THE ASSESSEE PARTLY. 5. WHILE IMPUGNING THE ORDER OF THE LD.CIT(A), THE LD.DR CONTENDED THAT THE ACCOUNT WAS NOT DISCLOSED BY THE ASSESSEE AND IT IS HIGHLY IMPROBABLE THAT PERSON COULD FORGET AN ACCOUNT WHER E ALLEGED BUSINESS TURNOVER OF RS.28,22,920/- AND DISCLOSED TOTAL TURN OVER OF RS.3,51,121/-. ACCORDING TO THE LD.DR, THERE IS NO BONA FIDE ERROR, RATHER, IT WAS A DELIBERATE ATTEMPT. HE FURTHER CO NTENDED THAT A PERUSAL OF THE ACCOUNT WOULD INDICATE THAT IT WAS NOT USED FOR RETAIL TRADE, RATHER THE ASSESSEE HAS ISSUED CHEQUES. THEREFORE, IT SUG GESTS THAT THE ACCOUNT WAS USED FOR SOME OTHER PURPOSE ALSO. ON T HE STRENGTH OF TWO DECISIONS OF THE ITAT RENDERED IN THE CASE OF MANOJ KUMAR JAIN VS. ITO, (2012) 25 TAXMANN.COM 440 (DELHI) AND M.H. RANEY VS . ITO, (2013) 34 TAXMANN.COM 5 (MUMBAI TRIB.), HE CONTENDED THAT, IF ASSESSEE FAILED TO EXPLAIN THE SOURCE OF DEPOSITS IN THE BANK ACCOU NT, THEN, THE AMOUNTS ARE TO BE ADDED WITH THE HELP OF SECTION 69 AS UNEXPLAINED INVESTMENT. 6. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESS EE CONTENDED THAT THE ASSESSEE DOES NOT BELONG TO ORGANIZED SECTOR. HE IS A SMALL TIME TRADER. IF TAKEN TOGETHER THE DEPOSITS AS WELL AS THE TURNOVER DISCLOSED BY THE ASSESSEE, THEN ALSO, IT DOES NOT EXCEED RS.4 0 LAKHS. THE ITA NO.2375/AHD/2011 4 ASSESSEE HAS ALREADY OFFERED INCOME ON THIS TOTAL T URNOVER DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 44AF OF THE AC T. HE FURTHER CONTENDED THAT IF THE ASSESSEE FAILS TO RECONCILE T HE TOTAL TRANSACTION IN THE BANK, AND IT IS DIFFICULT TO WORK OUT THE ACTUA L PURPOSE OF THESE TRANSACTIONS, THEN, AT THE MOST, PEAK CREDIT AVAILA BLE IN THE ACCOUNT CAN BE TAXED. ON THE STRENGTH OF JUDGMENT OF THE HONB LE GUJARAT HIGH COURT IN THE CASE OF CIT VS. TIRUPATI CONSTRUCTION CO., TAX APPEAL NO.1010 TO 1012 OF 2014 (COPIES PLACED ON RECORD), THE HONBLE HIGH COURT UPHELD THE APPLICATION OF THEORY OF PEAK CRED IT EVEN ON THE ENTERIS RECORDED IN SEIZED PAPER FOUND DURING THE SEARCH/SU RVEY. SIMILAR LOGIC SHOULD BE APPLIED ON THE ACCOUNT OF THE ASSESSEE, E VEN IF, THE ASSESSEE FAILED TO DISCLOSE THIS ACCOUNT AT THE TIME OF FILI NG OF THE RETURN. HE ALSO PLACED RELIANCE ON A LARGE NUMBER OF DECISIONS COMP ILED IN PAPER BOOK CONTAINING 63 PAGES. HE, PARTICULARLY, DREW OUR AT TENTION TO THE ORDER OF THE ITAT IN THE CASE SMT.MANULABEN CHAMPAKLAL, I TA NO.1155/AHD/2011. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. AS FAR AS APPLICABILITY OF PEAK THEORY IS CONCERNED, TO OUR MIND, THIS CONCEPT CAN ONLY BE ACCEPTED, IF IT IS DEMONSTRATED THAT THE ACCOUNTS OR THE DOCUMENTS CAME TO THE POSSESSIO N OF THE AO EXHIBIT THE ROTATION OF FUNDS. IN OTHER WORDS, THE AMOUNTS HAVE BEEN CONTINUOUSLY WITHDRAWN AND RE-DEPOSITED IN THE ACCO UNT. FOR EXAMPLE, IF THE ASSESSEE IS IN A RETAIL TRADE BUSINESS, HE M ADE SALES AND DEPOSITED THE SALE PROCEEDS IN CASH IN THAT ACCOUNT , THEREAFTER, THE AMOUNTS HAVE BEEN WITHDRAWN FROM THE ACCOUNTS AND U SED FOR THE PURPOSE OF PURCHASES, THEN, OF COURSE, PEAK THEORY CAN BE APPLIED. AS FAR THIS PROPOSITION IS CONCERNED, ON THE STRENGTH OF VARIOUS DECISIONS REFERRED BY THE LD.COUNSEL FOR THE ASSESSEE IS CONC ERNED, WE DO NOT HAVE ANY DISPUTE. THE DISPUTE IS THAT, THE ASSESSE E HAS NOT FILED ANY DETAILS, PARTICULARLY, THE CHEQUES ISSUED BY HIM, D EMONSTRATING THE PURPOSE OF ISSUE OF THESE CHEQUES. HAD THESE DETAI LS BEEN FILED, IT COULD ITA NO.2375/AHD/2011 5 HAVE BEEN EASILY DETERMINED THE USER OF THE ACCOUNT S FOR THE PURPOSE OF BUSINESS. WHEN THIS ISSUE FALLEN FOR CONSIDERATION BEFORE THE LD.FIRST APPELLATE AUTHORITY, IT HAS BEEN BRUSHED ASIDE WITH THE REASONING THAT THE AO FAILED TO CARRY OUT SUCH INVESTIGATION. BUT , WE FIND THAT THE ASSESSEE HAS NO WHERE PLACED THE DETAILS OF THE PER SONS TO WHOM CHEQUES HAVE BEEN ISSUED. IT WAS THE DUTY OF THE A SSESSEE TO FIRST, PRIMA FACIE , DEMONSTRATE THAT THIS ACCOUNT WAS USED FOR THE PU RPOSE OF BUSINESS, ONLY THEN, THE TOTAL TURNOVER COULD BE CO NSIDERED FOR ESTIMATING THE INCOME FOR TAKING THE BENEFIT OF PEA K THEORY. THE DOCUMENTARY EVIDENCE IN THIS CONNECTION IS NOT AVAI LABLE. THEREFORE, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND RESTORE TH IS ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION. THE ASSESSEE IS DIRECT ED TO SUBMIT ALL THE EVIDENCES DEMONSTRATING THE USER OF THIS BANK ACCOU NT FOR THE PURPOSE OF BUSINESS. IN CASE, A NEXUS IS BEING ESTABLISHED , THEN THE BENEFIT OF PEAK THEORY WOULD BE GRANTED TO THE ASSESSEE. THE ASSESSEE WILL BE AT LIBERTY TO SUBMIT ANY DETAILS IN SUPPORT OF HIS CON TENTIONS. THE OBSERVATIONS MADE BY US WILL NOT IMPAIR OR INJURE T HE CASE OF THE AO AND WILL NOT CAUSE ANY PREJUDICE TO THE DEFENCE/EXPLANATION OF THE ASSESSEE. THE LD.AO SHALL RE-ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW, KEEPING IN VIEW OF OUR ABOVE OBSERVATIONS AND AFTER PROVIDING OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. IN RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 5 TH NOVEMBER, 2015 AT AHMEDABAD. SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 05/11/2015