ITAT: 8% Profit Estimation Unjustified When Books Are Audited & No Incriminating Material Is Found

Shri Gopal Anil Kumar, a civil contractor from Bengaluru, appealed against a common order of the CIT(A) for AYs 2019-20 and 2020-21. A search and survey were conducted on December 2, 2021.

For AY 2019-20, the Assessing Officer treated cash payments of Rs. 5.26 lakh made for the purchase of a plot as unexplained under Section 69A, due to non-production of the cash book and drawings ledger.

For AY 2020-21, the AO rejected the declared profit rate of 7% and estimated profit at 8%, alleging cash expenses, lack of vouchers, and reliance on statements recorded during the survey.

Main Issues: Whether cash payments for property purchase could be treated as unexplained under Section 69A when sourced from drawings, and whether profit could be estimated at 8% without rejecting audited books or finding incriminating material.

ITAT’s Ruling: For AY 2019-20, the ITAT held that supporting documents indicated the availability of cash withdrawals but were not examined earlier. The matter was remanded to the AO for fresh verification after allowing the assessee to produce evidence.

The Tribunal held that profit estimation at 8% was arbitrary. In the construction business, cash expenses are common, and the absence of vouchers alone cannot justify a higher profit when books are audited, and no incriminating material is found. Comparable cases also showed lower margins. The addition was deleted, and the appeal was allowed.

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