ITAT Ahmedabad Upholds Reopening of IT Assessment On Cash Deposits, Orders Peak Credit Taxation

A coram comprising Judicial Member Siddhartha Nautiyal and Accountant Member Narendra Prasad Sinha held that the reopening was valid as it was based on tangible material, observing that “such information constituted tangible material… suggesting escapement of income.”

On merits, the Tribunal directed the Assessing Officer to compute the peak balance, noting that “taxing the entire deposits… would be excessive,” while also observing that the assessee could not escape taxation altogether due to failure to explain the source of funds.

The assessee had declared income of Rs 3.41 lakh for Assessment Year 2016–17. Based on information from the Investigation Wing, the Assessing Officer found cash deposits of Rs 78.29 lakh in an account with a cooperative credit society.

The assessee contended that he had merely lent his bank account to third parties and that the deposits did not belong to him. He claimed he was to receive nominal commission, though none was received.

The Assessing Officer rejected the explanation due to the absence of evidence such as the identity of depositors or supporting documents and added the entire amount under Section 69. The CIT(A) upheld both the reopening and the addition.

Before the Tribunal, while upholding the reopening, the Bench noted that the pattern of deposits followed by withdrawals indicated possible routing of funds. However, it distinguished earlier decisions granting relief on commission basis, observing that no comparable circumstances were established.

Balancing the facts, the Tribunal held that only the peak credit in the account should be taxed, directing the Assessing Officer to recompute the income accordingly.

For Appellants: S. N. Divatia, AR

For Respondents: C Dharani Nath, Sr. DR