Cash withdrawals linked to land purchase and contested net profit rate - remitted for AO rehearing; 8% profit disallowed

Issue 1 - Unexplained investment u/s 69A: The tribunal examined the drawings ledger and monthly summaries showing cash withdrawals with narration linking the withdrawals to the land purchase, establishing a plausible source of funds. Because those ledger documents were not placed before the AO, the matter is remitted to the AO for fresh consideration after hearing the assessee and permitting production of further evidence. Outcome: remit for reconsideration in accordance with law; assessee permitted to produce evidence. Issue 2 - Net profit determination: The AO's unilateral adoption of 8% net profit (confirmed by the CIT(A)) lacked basis where audited books showed 7% and comparable industry margins were lower; no incriminating material was seized. Outcome: AO's and CIT(A)'s orders set aside and the appeal allowed (8% disallowed).

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Issues: (i) Whether the addition made under section 69A in respect of cash payments for purchase of property (A.Y. 2019-20) was justified where the assessee now produces drawings ledger and audited financial statements asserting withdrawals as source of funds; (ii) Whether the assessment officer was justified in estimating net profit at 8% of turnover (A.Y. 2020-21) contrary to the assessee's audited books showing 7%.

Issue (i): Whether addition under section 69A for cash payments is sustainable where the assessee has ledger entries of drawings and supporting financial statements.

Analysis: The assessee's ledger extracts and monthly summary of drawings account, now produced, indicate cash withdrawals linked to the property purchase and audited financial statements show available funds. These documents were not placed before the AO during assessment. The Tribunal finds evidential material on record supporting the contention that cash payments originated from drawings of the proprietary concern and permits the AO to reassess the issue after giving the assessee an opportunity to be heard on documents produced before the Tribunal.

Conclusion: Addition under section 69A is not finally sustained by the Tribunal; the matter is remitted to the AO for fresh consideration after hearing the assessee. The appeal in respect of this issue is partly allowed for statistical purposes.

Issue (ii): Whether the AO can estimate net profit at 8% when the assessee's audited books report net profit at 7% and comparable industry data support the declared margin.

Analysis: The assessee maintained audited books supporting a 7% net profit. The nature of the construction business reasonably involves cash disbursements (e.g., wages) and the Tribunal finds no convincing material or seized incriminating evidence to justify increasing the profit rate to 8%. Comparable entities' margins submitted by the assessee further support the declared rate. The AO's reliance on statements and non-retractions, absent material defects in the audited accounts, is insufficient to disturb the audited profit margin.

Conclusion: The AO's estimation of net profit at 8% is set aside and the declared 7% net profit is accepted; the appeal for A.Y. 2020-21 is allowed in favour of the assessee.

Final Conclusion: One assessment (A.Y. 2019-20) is partly allowed and remitted to the assessing officer for fresh consideration of the documents produced before the Tribunal; the other assessment (A.Y. 2020-21) is allowed in favour of the assessee, producing an overall outcome partly in favour of the assessee.

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