ITAT directs to adopt Peak Calculation Method to Compute Profit from Unaccounted Cash Sales and Remand matter back to AO [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal has directs to adopt peak calculation method to compute profit from unaccounted cash sales and remand matter back to AO

The appellant, Himanshu L. Shethia, is Karta of HUF and running whole-sale trade in cloth in the name and style of “M/s. Himanshu Fabrics”. During the course of scrutiny assessment, it was seen that the assessee has made cash deposit to the tune of Rs.1,09,30,500/- and the AO treated the cash deposits as cash introduced from undisclosed sources and made addition of Rs.1,09,30,500/- to the total income of the assessee and demanded tax thereon.

The assessee submitted before the first appellate authority that the AO failed to consider the closing stock offered as additional income by the assessee in the subsequent assessment year, was nothing but the asset acquired out of such unaccounted income, and thus was inclusive of the amount incorporated in the bank account. Thus, the AO erred in not adopting either peak credit method or gross profit method, but treated the total deposits in the bank accounts as the income of the assessee. The CIT (A) dismissed the appeal, hence the assessee approached ITAT.

The Tribunal observed that there is a considerable force in the pleadings of the assessee in treating cash deposits in the bank account as unexplained income of the assessee and whereas the correct method is applying peak calculation method to compute the profit from the unaccounted cash sales made by the assessee.

The Coram of Smt. Annapurna Gupta, Accountant Member and Mr. T.R. Senthil Kumar, Judicial Member has held that “there is a considerable force in the submission of the assessee that entire cash deposits in the bank account cannot be added as income of the assessee. Cash sales made by the assessee do not have any bills or other record. However, the same is deposited in the bank accounts, and the purchases are made through bearer cheques to various parties. In the above circumstances, we deem it fit that the matter to be remanded to the AO only to the extent of considering the peak calculation and determine the income of the assessee in accordance with law”.

Mr. V.K. Singh appeared on behalf of the revenue.

To Read the full text of the Order CLICK HERE

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