ITAT Slashes Tax Demand: Pune Developer’s Rs.1.1 Cr Cash Deposits Partly Accepted as Business Income [Read Order]
The 10% estimation standard may influence similar cases involving cash-heavy micro-developers, though the tribunal carefully limited its ruling to the specific facts of this decade-old assessment.
![ITAT Slashes Tax Demand: Pune Developer’s Rs.1.1 Cr Cash Deposits Partly Accepted as Business Income [Read Order]](https://images.taxscan.in/h-upload/2025/07/31/2071290-cash-deposit-taxscan.webp "ITAT Slashes Tax Demand: Pune Developer’s Rs.1.1 Cr Cash Deposits Partly Accepted as Business Income [Read Order]")
The Pune Bench of Income Tax Appellate Tribunal (ITAT) reduced a tax demand on a plot seller by 77%, ruling that cash deposits in rural land transactions can't be entirely treated as unexplained income when supported by business records. The tribunal adopted a pragmatic approach by estimating income at 10% of turnover instead of upholding the department's...
The Pune Bench of Income Tax Appellate Tribunal (ITAT) reduced a tax demand on a plot seller by 77%, ruling that cash deposits in rural land transactions can't be entirely treated as unexplained income when supported by business records. The tribunal adopted a pragmatic approach by estimating income at 10% of turnover instead of upholding the department's blanket additions.
Tanaji Parilal Gawade, proprietor of Hindavi Developers, who faced additions of ₹1.13 crore for cash deposits and ₹62.29 lakh for unverified creditors during AY 2013-14. The ITO had originally assessed his income at ₹1.97 crore against declared ₹12.82 lakh, citing non-compliance with documentation requests. Gawade argued his cash deposits represented legitimate plot sales to rural customers, with his audited books showing ₹2.23 crore turnover.
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Vice President R.K. Panda and Judicial Member Vinay Bhamore observed that while Gawade failed to provide complete details in the format demanded by the tax office, he had submitted purchase agreements, ledger copies, and expense vouchers during assessment. The bench noted the inherent nature of Gawade's rural plotting business involved cash transactions, and crucially, the total bank deposits didn't exceed his declared turnover - indicating possible oversight rather than concealment.
The tribunal rejected the tax department's all-or-nothing approach, stating: "When an assessee engages in plotting business with primarily cash transactions, wholesale additions without considering submitted evidence become unsustainable." The 10% estimation aligns with Gawade's declared net profit ratio of 6.8%, providing what the ITAT called a "balanced midpoint" between the department's skepticism and the developer's claims.
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Additionally, the bench allowed Gawade's Section 80C deduction for housing loan interest after verifying a belatedly submitted bank certificate, demonstrating the tribunal's willingness to consider material submitted at appellate stages for older assessments. This pragmatic stance contrasts with the CIT(A)'s earlier dismissal of the appeal for non-prosecution.
The ruling acknowledges practical challenges small developers face in maintaining urban-standard documentation for rural transactions while upholding the tax department's right to seek verification. By directing partial allowances rather than complete exoneration, the ITAT struck a middle ground - accepting that Gawade's compliance was imperfect but not fraudulent.
For Gawade, the decision converts a potentially crippling tax demand into a manageable liability. For the department, it serves as a reminder that non-compliance with procedural formalities doesn't automatically justify maximum additions, especially when basic business records exist. The 10% estimation standard may influence similar cases involving cash-heavy micro-developers, though the tribunal carefully limited its ruling to the specific facts of this decade-old assessment.
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