SURESH RAMACHANDRAN,TISAIYANVILAI V. ASSISTANT COMMMISSIONER OF INCOME TAX, CIRCLE 1, TIRUNELVELI

ITA 3463/CHNY/2025

AI Insights

The case involves Suresh Ramachandran, an individual engaged in retail hardware sales and real estate development, who appealed against the order of the Learned Commissioner of Income Tax (Appeals) which confirmed the addition of Rs.57,00,918 to his income for the Assessment Year 2017-18. This addition was initially made by the Assistant Commissioner of Income Tax following a survey that revealed discrepancies in the documentation of development expenses. The Tribunal's decision to partly allow the appeal was based on the recognition that while some deficiencies in documentation existed, the complete disallowance of the claimed expenditures was not justified, given the nature of the business and the use of self-made vouchers.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 834155 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Appeal Filed On: 25-11-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUMAR CHANDAN
• Assessee Lawyers: R.S. LAKSHMI NARAYANA
• Keywords: Set aside; Business income; Reassessment proceedings; Business expenditure; Corroborative evidences; Retraction; Bogus
• Section: 263

Judgement Text

" आयकर अपील य अ धकरण, ‘सी’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI \u0015ी एबी ट वक\u001a, \u000eया\u001bयक सद य एवं \u0015ी एस. आर. रघुनाथा, लेखा सद य क े सम$ BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:3463/Chny/2025 \u001bनधा%रण वष% / Assessment Year: 2017-18 Suresh Ramachandran, No.1/18, East Street, Appuvilai Village, Tisaiyanvilai, Tirunelveli – 627 657. vs. Assistant Commissioner of Income Tax, Circle -1, Tirunelveli – 627 011. [PAN:ATRPS-6591-C] (अपीलाथ'/Appellant) (()यथ'/Respondent) अपीलाथ' क* ओर से/Appellant by : Shri. R. S. Lakshmi Narayana, Advocate ()यथ' क* ओर से/Respondent by : Shri. Kumar Chandan, JCIT सुनवाई क* तार ख/Date of Hearing : 21.01.2026 घोषणा क* तार ख/Date of Pronouncement : 02.02.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : The present appeal of the assessee is directed against the order dated 17.06.2025 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”], arising out of the assessment order dated 24.03.2023 passed u/s.147 r.w.s 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] by the Assistant Commissioner of Income Tax, Circle-1, Tirunelveli [hereinafter referred to as “the AO”], for the Assessment Year 2017-18. Printed from counselvise.com :-2-: ITA. No:3463/Chny/2025 2. At the outset, it is observed that there is a delay of 86 days in filing the present appeal by the assessee. In support thereof, the assessee has filed an affidavit explaining the reasons for such delay along with an application seeking condonation thereof. The Ld.DR did not raise any serious objection to the prayer for condonation. Having considered the submissions and the reasons stated in the affidavit, we are satisfied that sufficient cause has been shown. Accordingly, the delay of 86 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits. 3. The brief facts of the case are that the assessee is an individual carrying on business in retail sale of hardware items through his proprietary concern, M/s.V.S.R. Hardwares, and also engaged in real estate development under the proprietary concern M/s.V.S.R. Real Estates. The assessee filed his return of income for the assessment year under consideration on 27.11.2017 declaring total income of Rs.9,65,250/-. 4. A survey u/s.133A of the Act was conducted at the business premises of the assessee on 01.02.2018, during the course of which certain books of account and documents were impounded. Simultaneously, a sworn statement u/s.131 of the Act was recorded from the assessee. On account of deficiencies noticed in the maintenance of vouchers and supporting evidences relating to land development expenses, the assessee, during survey proceedings, voluntarily offered an additional income of Rs.65,00,000/- for A.Y.2017-18. 5. Subsequently, the assessment was reopened by issuance of notice u/s.148 of the Act dated 28.12.2018, which was duly served on 01.01.2019. In response thereto, the assessee filed return of income on 27.03.2019 declaring the same income of Rs.9,65,250/- as originally returned. 6. The reassessment was completed u/s.143(3) r.w.s 147 of the Act on 27.12.2019, wherein the AO disallowed a sum of Rs.7,99,082/- being part of surface levelling expenses and determined the total income at Rs.17,64,332/-. Printed from counselvise.com :-3-: ITA. No:3463/Chny/2025 However, the balance amount of Rs.65,00,000/- offered during survey was not brought to tax. 7. Thereafter, the Principal Commissioner of Income Tax, Madurai-1, invoking revisionary jurisdiction u/s.263 of the Act vide order dated 25.03.2022, held that the reassessment order was erroneous insofar as it was prejudicial to the interests of the Revenue, on the ground that the AO had failed to consider the admission made by the assessee during survey and had also not properly examined the allowability of the remaining development expenditure. Accordingly, the assessment was partly set aside with a direction to the AO to conduct necessary enquiries and pass a fresh order. 8. Pursuant thereto, the AO initiated set-aside proceedings and issued notice dated 24.01.2023 calling upon the assessee to produce books of account, bank statements, vouchers, invoices and explanation in respect of the balance amount of Rs.57,00,918/-, being the difference between Rs.65,00,000/- admitted during survey and Rs.7,99,082/- disallowed earlier. 9. In response, the assessee filed reply dated 13.02.2023 stating, inter alia, that the real estate business involved sale of small plots through instalment schemes; that during the relevant period the State Government imposed restrictions on sale of unapproved plots resulting in virtual suspension of business activities; that instalments collected from customers represented refundable advances and not income; that development expenditure was incurred out of such collections; that several customers had lodged complaints due to inability to register plots; and that the admission made during survey was under a mistaken understanding and without appreciating the legal implications. It was further submitted that all relevant particulars had already been examined during the reassessment proceedings and that taxes arising therefrom had been duly paid. Printed from counselvise.com :-4-: ITA. No:3463/Chny/2025 10. The AO, however, rejected the explanation and observed that the assessee had claimed substantial development expenses in respect of five layouts, namely VSR Nagar, Tambaram City, Iyyan Thiruvalluvar Nagar, Chendur City and Central City, aggregating to Rs.77,15,067/- towards surface levelling, road formation and stone fixing. It was noted that these expenses were supported predominantly by self-made vouchers and that no independent documentary evidence was produced during the set-aside proceedings. 11. The AO further placed reliance on the sworn statement recorded on 01.02.2018, wherein the assessee had admitted his inability to substantiate the development expenses and had voluntarily offered Rs.65,00,000/- as additional income. Holding that a mere retraction without corroborative evidence is not acceptable and that statements recorded on oath carry evidentiary value, the AO concluded that the assessee had failed to discharge the onus cast upon him to establish the genuineness of the balance expenditure. 12. Accordingly, the AO disallowed the balance sum of Rs.57,00,918/- u/s.37 of the Act and brought the same to tax. The total income was thus recomputed at Rs.74,65,250/- vide order dated 24.03.2023 passed u/s.147 r.w.s 263 of the Act. 13. Being aggrieved by the assessment order whereby an addition of Rs.57,00,918/- was made u/s.37 of the Act, the assessee preferred an appeal before the Ld.CIT(A). However, the Ld.CIT(A), vide impugned appellate order dated 17.06.2025, dismissed the assessee’s appeal and confirmed the addition so made by the AO u/s.37 of the Act. 14. Aggrieved, assessee is in appeal before us challenging the action of the Ld.CIT(A) in sustaining the addition made by the AO. 15. We have carefully considered the rival submissions, perused the material available on record and gone through the orders of the lower authorities. The Printed from counselvise.com :-5-: ITA. No:3463/Chny/2025 core issue for adjudication before us is the sustainability of disallowance of Rs.57,00,918/- made by the AO u/s.37 of the Act, being the balance land development expenditure, primarily on the basis of sworn statement recorded during survey and alleged inadequacy of supporting evidences. 16. At the outset, it is an undisputed fact that the assessee is engaged in real estate development and sale of plots, wherein incurrence of expenditure towards surface levelling, road formation and stone fixing constitutes an integral and unavoidable part of the business activity. The AO himself has accepted the existence of layouts and the factum of development work having been carried out. Thus, the incurrence of expenditure per se is not in dispute; only the extent of allowability has been questioned. 17. The primary basis for the impugned addition is the sworn statement recorded during survey proceedings, wherein the assessee had offered a sum of Rs.65,00,000/- as additional income on account of inability to substantiate development expenses. It is well settled law that a statement recorded during survey, though relevant, cannot by itself be the sole basis for making an addition unless the same is supported by independent corroborative material. In the present case, no incriminating material was brought on record either during survey or during the subsequent proceedings to demonstrate that the development expenditure claimed by the assessee was fictitious or inflated. The AO has merely proceeded on presumptions arising out of self-made vouchers. It is also pertinent to note that the assessee has consistently maintained books of account and the same have not been rejected u/s.145 of the Act. Once the books are not rejected, wholesale disallowance of expenditure is not legally sustainable. The AO has neither pointed out any specific instance of bogus payment nor identified any particular voucher as false. The disallowance has been made in a lump sum manner purely on general observations. 18. As regards reliance placed on the sworn statement, we find merit in the assessee’s contention that the admission was made under survey Printed from counselvise.com :-6-: ITA. No:3463/Chny/2025 circumstances without full appreciation of legal consequences and in the backdrop of business disruption owing to regulatory restrictions on sale of unapproved plots. It is trite law that an admission, though a relevant piece of evidence, is not conclusive and can be explained or rebutted by surrounding facts and circumstances. The assessee has furnished a plausible explanation supported by business realities, namely collection of instalments as refundable advances and utilization thereof for development activities, which has not been effectively controverted by the Revenue. 19. Further, the nature of expenditure involved such as earth work, levelling and stone fixing particularly in semi-urban layouts, is often incurred through petty contractors and daily labour, where third-party bills may not always be available, and self-made vouchers are a common commercial practice. Merely because vouchers are self-prepared, the entire expenditure cannot be disallowed, especially when the Revenue has accepted the corresponding business receipts and existence of layouts. 20. At the same time, we also cannot lose sight of the fact that complete documentary substantiation has not been produced and certain deficiencies in vouchers do exist. Therefore, to meet the ends of justice, an element of estimation is warranted. 21. Considering the peculiar facts and circumstances of the case, we are of the considered view that disallowance of the entire balance expenditure of Rs.57,00,918/- is excessive and arbitrary. In our opinion, a reasonable disallowance of 10% of the total development expenditure would adequately take care of possible inflation or unverifiable portion of expenses. 22. Accordingly, we direct the AO to restrict the disallowance to 10% of the impugned development expenditure. Consequently, the addition made by the AO shall stand confined to Rs.5,71,000/-, and the remaining 90% shall be allowed as deductible business expenditure u/s.37 of the Act. The AO is, Printed from counselvise.com :-7-: ITA. No:3463/Chny/2025 therefore, directed to delete the balance addition of Rs.51,22,918/-. In the result, the ground raised by the assessee is partly allowed. 23. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 02nd February, 2026 at Chennai. Sd/- Sd/- (एबी ट वक\u001a ) (ABY T VARKEY) \u000eया\u001bयक सद य/Judicial Member (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखा सद य/Accountant Member चे\u000eनई/Chennai, /दनांक/Dated, the 02nd February, 2026 SP आदेश क* (\u001bत1ल2प अ3े2षत/Copy to: 1. अपीलाथ'/Appellant 2. ()यथ'/Respondent 3.आयकर आयु4त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 2वभागीय (\u001bत\u001bन ध/DR 5. गाड% फाईल/GF Printed from counselvise.com "