EPK PROPERTY DEVELOPERS ,CHENNAI vs. ITO NON CROP, WD 22(1), TBM, TBM

The brief facts of the case emanating from the records are that the assessee is a partnership firm engaged in the business of purchase, development and sale of plots of land in and around Chennai. As per the information available with the Risk Management Strategy formulated by the CBDT, the department found that there was cash withdrawal of Rs.21,67,22,040/- and cash deposit of Rs.40,000/- made by the assessee but not filed the return of income for the AY 2019-20. Accordingly, the AO initiated the proceedings u/s.147 / 148A of the Act and followed the due procedures. Further, a notice u/s.148 of the Act was issued on 28.03.2023 to the assessee and in response to the notice, the assessee filed the return of income in ITR-5 on 30.03.2023 by declaring a total income of Rs.8,16,920/-. Subsequently, the case was selected for scrutiny and issued statutory notices to the assessee. During the assessment proceedings the assessee filed partial responses to the notices issued including for the final show cause notice dated 02.01.2024 the assessee filed partial details before the AO. The assessee submitted the reply to the show cause notice stating that the details reported by the Risk Management Strategy of CBDT are incorrect and the actual bank transactions carried out by the assessee during the AY 2019-20 are as below:-

Further, the assessee also explained that the expenditure of purchases will not have purchase bills as the assessee is involved in real estate transactions of land and sites. These sites and land are transferred to the buyers through possession and the assessee will only have a power of attorney. The

However, on perusal of the details and submissions made by the assessee, the AO found that the cash withdrawals made by the assessee has not been explained along with the supporting evidences and hence concluded by making the additions u/s.69A of the Act to the tune of Rs.10,000/- and u/s.69C of the Act of Rs.5,41,80,510/- as unexplained expenditure by holding as under:-

Aggrieved by the additions made by the AO, the assessee preferred an appeal before the ld.CIT(A) on 05.04.2024. Before the ld.CIT(A), the assessee explained that the return of income could not be filed for the AY 2019-20 due to the impact of Covid-19 Pandemic. Further, in response to notice u/s.148 of the Act, the assessee had filed the return of income along with the audit report in Form 3CD and 3CB declaring the entire details of transactions along with the income. Further, the assessee also explained that the inaccurate particulars held by the department were also rectified by providing proper details of bank transactions and provided the copies of bank statements, details of advances and confirmations, which were produced before the AO also. The assessee also produced the details of cash withdrawals made to make the payments towards development expenses of the plots and also to pay advances to the land owners. Further, the assessee furnished a detailed list of advances paid along with the confirmations from Vanavil Estate and Rajeshwari Educational and Charitable Trust. The assessee also explained that the cash withdrawals are made to make the payment towards development expenses through the daily wage workers engaged.

After considering the submissions made by the assessee, the ld.CIT(A) dismissed the appeal of the assessee by confirming the order of the AO and passed an order dated 07.11.2025 by holding as under:-

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us by raising the following grounds of appeal:-

The ld.AR for the assessee submitted that both the authorities have erred in disallowing the entire expenditure of Rs.5,41,80,510/- as unexplained expenditure u/s.69C of the Act is against the law as the reason for such action is that the amount has been drawn from the bank account by the assessee. The assessee submitted the nature of business carried on along with explanations for expenditure made after withdrawal of cash from the bank account, a detailed list of advances received and paid along with the confirmations before the AO during the assessment proceedings. However, the AO without considering any of the submissions, has made an addition of cash withdrawal as per the INSIGHT information of Rs.5,41,80,510/- without co-relating to any of the expenditure of actual cash withdrawal along with the addition of Rs.10,000/- as unexplained money. Further, the ld.AR submitted that though the assessee submitted the entire details of expenditure in the real estate business showing purchases of Rs.12.51 crores, labour charges of Rs.2.15 crores and development expenditure of Rs.7.6 lakh, the ld.CIT(A) has confirmed the additions made by the AO by dismissing all the grounds of appeal. The ld.AR submitted that the assessee has explained the need for cash withdrawals, for the nature of business carried on by the assessee towards payment for development expenses and land advances. The assessee had also filed a detailed list of advances along with the confirmations from the parties before the ld.CIT(A).

Per contra, the ld.DR supported the orders of the lower authorities and submitted that the assessee had not explained the reasons for cash withdrawal properly before the AO and only explained the discrepancy in cash withdrawal shown in the INSIGHT Portal and actual cash withdrawal. Therefore, the ld.DR submitted that there is no error in the order of the ld.CIT(A) and prayed for dismissing the appeal of the assessee.

We have heard the rival submissions made by both sides, perused the orders of the lower authorities and carefully examined the material available on record including the paper books filed by the assessee. The issue arising for our consideration is whether the authorities below were justified in making and sustaining the addition of Rs.5,41,80,510/- u/s.69C of the Act towards unexplained expenditure merely on account of cash withdrawals made by the assessee from its bank accounts.

The facts borne out from the records reveal that the assessee is a partnership firm engaged in the business of purchase, development and sale of plots and lands in and around Chennai. The assessment was reopened based on information received through the Risk Management Strategy of CBDT regarding substantial cash withdrawals and deposits in the bank accounts of the assessee. During the course of assessment proceedings, the assessee had explained that the figures reflected in the INSIGHT portal were not accurate and furnished revised details of actual bank transactions. The assessee further submitted that the cash withdrawals

We find from the records that the assessee had also furnished partial details such as ledger extracts, cash book, details of advances paid and certain confirmations from parties before the Assessing Officer as well as before the ld.CIT(A). The assessee has consistently contended that in the real estate business, particularly in rural areas, payments towards land procurement and site development are often carried out in cash due to prevailing business practices and commercial expediency. The audited financial statements placed before us also indicate that the assessee had disclosed purchases, labour charges and development expenditure in its books of account.

However, at the same time, we also notice that the assessee could not substantiate the entire cash utilization with complete documentary evidences. The assessee admittedly failed to furnish comprehensive supporting documents such as complete vouchers, bills, identity particulars of recipients, confirmations from all concerned parties and other corroborative evidences before the Assessing Officer. Even during the appellate proceedings, only partial evidences were furnished. Therefore, the claim of the assessee cannot be accepted in entirety without any verification.

In our considered opinion, though the AO was justified in doubting the unverifiable portion of expenditure, the action of treating the entire cash withdrawals of Rs.5,41,80,510/- as unexplained expenditure u/s.69C of the Act is excessive and unreasonable in the peculiar facts of the present case. It is an undisputed fact that the assessee was carrying on substantial business activities during the year and the books of account were subjected to audit. The Revenue has not brought any material on record to establish that the entire cash withdrawals were diverted for

Further, we find force in the contention of the ld.AR that sustaining the entire addition would result in an abnormally high and impractical profit percentage, which is not possible in the normal course of real estate business. The net profit disclosed by the assessee was only 0.57%, whereas the addition made by the AO would inflate the profit to an unrealistic level of around 38.58%. Such estimation, in our view, defies commercial realities and cannot be sustained merely for want of complete supporting evidence.

It is a settled principle of law that where the expenditure is not fully verifiable, a reasonable estimation of disallowance should be made instead of disallowing the entire claim. Considering the totality of facts and circumstances of the case, nature of business carried on by the assessee, partial evidences furnished before the authorities below and also the deficiencies noticed in substantiating the entire claim, we are of the considered view that the ends of justice would be met if the disallowance is restricted to 10% of the amount disallowed by the AO u/s.69C of the Act.

With regard to the addition of Rs.10,000/- made u/s.69A of the Act towards unexplained cash deposit, we find merit in the contention of the assessee that the same represents a negligible amount when compared to the regular cash withdrawals and business transactions carried out during the year. The assessee had already explained that substantial cash withdrawals were made from disclosed bank accounts during the course of business operations and the Revenue has not brought any adverse material on record to establish that the impugned cash deposit represented undisclosed income from independent sources.

In our considered opinion, once substantial cash availability from disclosed bank withdrawals is not disputed, a small cash deposit of Rs.10,000/- could reasonably be telescoped against such available cash balance. The authorities below have made the addition merely on technical grounds without disproving the availability of cash with the assessee. Therefore, considering the facts and circumstances of the case, we are inclined to delete the addition of Rs.10,000/- made u/s.69A of the Act.

Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to restrict the disallowance u/s.69C of the Act to 10% of Rs.5,41,80,510/- and delete the balance addition. Further, the addition of Rs.10,000/- made u/s.69A of the Act is also directed to be deleted.

In the result, the appeal filed by the assessee is partly allowed.