The order, delivered on January 23, 2026, by Judicial Member Shri Sandeep Gosain and Accountant Member Shri Om Prakash Kant (ITA Nos. 3895 to 3897/MUM/2025), covered Assessment Years 2014-15 to 2016-17. It dismissed three appeals filed by the Deputy Commissioner of Income Tax (DCIT), Central Circle-2(3), Mumbai, against relief granted earlier by the Commissioner of Income Tax (Appeals)-48, Mumbai.

How the Suspicion Arose

F A Construction (PAN: AAAFF0282D), a partnership firm specializing in civil construction projects — including government and semi-government contracts — regularly withdrew large sums of cash from its declared bank accounts. For AY 2014-15 alone, the figure was ₹35,87,16,800 (with comparable amounts in the following two years).

The Income Tax Department spotted these high-value withdrawals through its internal INSIGHT portal. Suspecting the cash might be unexplained or linked to undisclosed income, the Assessing Officer reopened the assessments under Sections 147/148. When the firm initially failed to respond fully, the reassessment was finalized ex-parte under Section 144.

The tax officer added:

• The full ₹35.87 crore (and equivalents in other years) as unexplained money under Section 69A of the Income Tax Act — essentially treating it as potential black money.
• An additional ad-hoc disallowance of ₹12,09,21,303 (5% of ₹2,41,84,26,074 in claimed business expenses), arguing that verifiable details were lacking.

This created a significant extra tax demand on the firm.

The Turnaround: Full Proofs Submitted

On appeal, the firm — represented by advocate Mr. Vijay Mehta — provided comprehensive evidence during the CIT(Appeals) stage. The appellate authority called for a remand report from the Assessing Officer, who reviewed the documents but could not identify any specific irregularities.

Key submissions included:

• Bank statements showing withdrawals from the firm’s own disclosed accounts.
• Main cash book and site-wise petty cash books.
• Detailed summaries of cash utilization (by project site and expense head).
• Sample vouchers, bills, creditor ledgers, and Running Account (RA) bills signed by government engineers for public projects.

The firm explained that its operations are inherently cash-intensive:

• Labourers, many migrants from other states, demand daily or weekly cash wages.
• Urgent purchases of materials, repairs, and on-site needs (food, transport) often require immediate cash.
• Many project sites are remote with limited banking access.

All cash payments complied with Section 40A(3) restrictions (no excessive single cash transactions).

ITAT’s Clear Verdict

The Tribunal examined Section 69A, which applies only to money not recorded in books where the assessee fails to explain the source satisfactorily. Here:

• The source was undisputed — withdrawals from declared bank accounts.
• Once the source is explained, mere doubts about utilization do not justify invoking Section 69A.
• If any expense was unverifiable, it should have been scrutinized under normal provisions (e.g., Section 37 for business deductions), not reclassified as unexplained income.

The ITAT noted:

• No specific discrepancies, fake bills, or adverse material were found by the Assessing Officer in the remand report.
• The construction sector’s realities (labour-oriented, site-based, remote locations) make cash usage normal and necessary.
• Precedents from various ITAT benches (Raipur, Ahmedabad, Mumbai, Surat) support that documented cash withdrawals from disclosed accounts cannot be taxed as unexplained under Section 69A without contrary evidence.

On the 5% ad-hoc disallowance of expenses:

• Blanket percentage cuts are not allowed without rejecting the books of account (under Section 145(3)) or pinpointing specific bogus items.
• Full details were later furnished; no defects were highlighted.
• Deletion upheld.

Final Outcome

All three Revenue appeals were dismissed. The CIT(Appeals)’ orders — deleting the ₹35+ crore Section 69A addition and the ad-hoc disallowance — were confirmed. F A Construction faces no additional tax liability on these grounds for the three years.

This decision highlights a recurring theme in tax disputes involving construction firms: what initially appears as “black money” often stems from legitimate cash needs for labour payments, especially when full records eventually prove the case.

Also Read: ITAT Mumbai Clears Real Estate Developer of Fraud Allegations, Allows ₹1.79 Crore Tax Deduction

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