Suresh Ramachandran Vs ACIT (ITAT Chennai)
The Chennai Bench of the ITAT partly allowed the assessee’s appeal for AY 2017-18 and substantially reduced the disallowance of land development expenditure made under Section 37 pursuant to survey and revision proceedings. The assessee, engaged in retail hardware business and real estate development, had during a survey under Section 133A voluntarily offered ₹65 lakh as additional income due to inability to immediately substantiate certain development expenses. Although the original reassessment disallowed only ₹7.99 lakh, the PCIT invoked Section 263, leading to a fresh assessment wherein the AO disallowed the entire balance amount of ₹57.01 lakh, relying heavily on the survey statement and the presence of self-made vouchers. The CIT(A) confirmed the addition.
The Tribunal held that while the incurrence of land development expenditure (surface levelling, road formation, stone fixing) was integral to the real estate business and not disputed by the Revenue, a sworn statement recorded during survey cannot, by itself, be the sole basis for a full disallowance without corroborative evidence. The ITAT noted that the books of account were not rejected under Section 145, no specific bogus vouchers or inflated payments were identified, and the disallowance was made on a lump-sum and presumptive basis. It further accepted that in semi-urban real estate projects, self-made vouchers are a common commercial reality and that admissions made during survey are rebuttable.
Balancing business realities with evidentiary shortcomings, the ITAT held the disallowance of the entire ₹57.01 lakh to be excessive and arbitrary. To meet the ends of justice, it restricted the disallowance to 10% of the impugned development expenditure, directing deletion of the remaining 90%. Accordingly, the appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
