ITAT Holds Personal Bank Credits Cannot be Treated as Undisclosed Business Turnover Without Evidence 

The Income Tax Appellate Tribunal (ITAT) Ahmedabad found that the AO had rejected the books of account merely on suspicion without identifying any specific defect and accordingly deleted the addition as well as the penalties.

The assessee is engaged in business through proprietary concerns named Pranav Enterprise and Dexxon Polycoating Enterprise. The assessee filed his return declaring total income of Rs 9.50 lakh and turnover of Rs 9.61 crore. The assessment was completed under Sections 144 and 144B of the Income Tax Act, 1961. During scrutiny proceedings, the AO noticed credits amounting to Rs 2.64 crore in an HDFC Bank account held in the personal name of the assessee. Since the account was not reflected in the books of accounts, the AO treated the entire amount as undisclosed business turnover and increased the turnover to Rs 12.25 crore while rejecting the books of account under Section 145(3).

The income was calculated at 8% of the increased turnover, resulting in assessed income of Rs 98.06 lakh. Penalties under Sections 271A and 271B were also imposed for failure to maintain and audit books of account, while the penalty under Section 272A(1)(d) was levied for non-compliance with statutory notices.

The CIT(A) upheld the assessment and penalty orders, following which the assessee approached the Tribunal.

The Tribunal noted that the HDFC Bank account was a personal savings account which had been disclosed in the return of income. It observed that the assessee had furnished a detailed explanation showing that the credits were internal transfers from proprietary concerns, family members and HUF, along with receipts such as rent, dividend, interest, insurance proceeds, sale of agricultural land and reimbursements.

The tribunal observed that merely because amounts were credited in a personal account, it could not be assumed that they were undisclosed business turnover. The Tribunal further observed that the turnover declared by the assessee was duly supported by GST returns and TIS data. No defect relating to purchases, sales, stock records, vouchers or quantitative details had been pointed out by the AO. Therefore, rejection of books of account under Section 145(3) solely on the basis of suspicion was unsustainable.

Accordingly, the Tribunal held that the AO was not justified in estimating profit at 8% on the enhanced turnover and directed deletion of the addition. Since the very basis of the assessment failed, the penalties imposed under Sections 271A and 271B were also deleted, while allowing all four appeals.