Gopal Anil Kumar Vs DCIT (ITAT Bangalore)
ITAT Bangalore: Cash Purchase Explained from Drawings; Ad Hoc Profit Estimation Without Book Rejection Set Aside
The Bangalore Bench of the Income Tax Appellate Tribunal partly allowed the appeal of Shri Gopal Anil Kumar for AY 2019–20 and fully allowed the appeal for AY 2020–21, arising from search-related proceedings.
For AY 2019–20, the issue concerned an addition of ₹5.26 lakh under Section 69A on account of alleged unexplained cash payment for purchase of a plot. The Tribunal noted that the assessee had consistently explained that the cash payments comprised the sale consideration, stamp duty and incidental expenses, and were made out of drawings from his proprietary concern. Although the drawings ledger and monthly summaries evidencing cash withdrawals were available, they had not been produced before the Assessing Officer. After examining these documents at the Tribunal stage, the Bench found prima facie evidence of sufficient cash withdrawals linked to the property purchase. Since these documents were not earlier examined, the issue was remanded to the Assessing Officer to verify the drawings and decide afresh after granting due opportunity. Accordingly, the appeal for AY 2019–20 was partly allowed for statistical purposes.
For AY 2020–21, the Assessing Officer had estimated net profit at 8% as against 7% declared by the assessee, despite the existence of audited books of account, primarily relying on statements recorded during search/survey and alleged deficiencies in vouchers for cash expenses. The Tribunal held that without rejecting the audited books or pointing out major defects, such ad hoc estimation was unsustainable. It also recognised the peculiar nature of civil construction business, where substantial expenses—especially labour—are typically incurred in cash, and noted that no incriminating material was seized beyond regular books. Further, comparable cases showed lower profit margins, making the declared 7% reasonable. Consequently, the Tribunal set aside the estimation and deleted the addition, allowing the appeal for AY 2020–21.
In sum, the Tribunal reiterated that cash payments can be explained through drawings when supported by records, and that profit estimation cannot be made mechanically in the presence of audited books without cogent defects or incriminating evidence.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
