Cash credit — Benefit of peak credit cannot be given to the assessee in the absence of any cash withdrawals and redeposit of the same — as held by AhdTrib in ITO v Murlidharan G Pillai; ITA No. 2258/Ahd/2010

ecided on: 16 December 2010 — In favour of: The Revenue.

The assessee is a salaried employee. The assessee’s return was scrutinised by the AO and during the course of the assessment proceedings, the AO observed that there were deposits of Rs. 17.84 lacs in his Bank Account. The assessee explained that he had borrowed funds from 15 persons. The AO did not accepted the version of assessee though assessee had filed confirmation of all the 15 parties on the ground that none of the parties appeared on service of summons and claim of borrowings remained unverified and made addition on account of unexplained investment under s 69A. In an appeal, the CIT(A), applying the theory of peak credit, allowed the appeal of the assessee in part. Being aggrieved, the revenue has filed the present appeal. The assessee has also filed cross-objection requesting to delete the addition sustained by the CIT(A).

The issue is whether the benefit of peak credit can be given to the assessee in the absence of any cash withdrawals and redeposit of the same.

The theory of peak can be applied only when assessee admits to have made withdrawals in cash and redeposits the same in the bank account without there being any outflow in any other expenditure or investment.

Firstly, there should be withdrawals in cash. If there are withdrawals in cash from the bank account then it cannot be accepted that same money could have been deposited in the bank account. There is no admission by the assessee that money deposited in the bank account represented his unaccounted money. Secondly, there are no withdrawals in cash from the bank account. Thirdly, there is no evidence of any source of money claimed to have been paid back to the depositors on different dates during the accounting year as per confirmations. Such repayment was shown to have been made in cash and there is no source of money of such repayment. Fourthly, alleged confirmations from the depositors cannot be relied upon because identities of the depositors are not verifiable, they are not available at the given addresses as in several cases, summons could not be served, onus is always on the assessee to produce the depositors to prove his case unless all the necessary ingredients of cash credit as per s 68 are primarily satisfied by the assessee which in this case has not been done. The assessee has to show that money has been transferred through banking channels from the bank account of the creditors to the bank account of the assessee, identity of the depositors/creditors is beyond a shed of doubt and money has also been repaid or interest has been repaid during the year and also the subsequent year and also gone back to the bank account of the depositor/creditors. If assessee is able to give in the first instance to the AO, then it can be said that assessee had discharged the onus and thereafter it is for the AO to enforce attendance of the depositors/creditors, and if they fail to appeal then adverse inference against the assessee cannot be drawn. However, where such prima facie case is not made out by the assessee in its favour, then the onus cannot be put on the department for enforcing the attendance of the depositors. Therefore, where assessee has not discharged the primary onus lying on him and it cannot be accepted that money could have come from the depositors. The confirmations are apparently self-serving documents without there being any proof of their truthfulness. They can safely be rejected as not being credible evidence.