Pursuant to search proceedings, the Assessing Officer noted from trial balances and loose sheets that certain site-wise murrum expenses (earth work filling material) were incurred in cash outside the regular books of accounts. The AO made a total addition of ₹6,42,71,657 under section 69C, holding that the entire expenditure was unaccounted and unexplained. The assessee submitted that the murrum expenses were part of routine site-level working, that corresponding income was offered to tax, and that even if not fully recorded in the regular books, the expenses were incurred wholly and exclusively for business purposes.The CIT(A), agreeing partially with the assessee, deleted the full addition and estimated income at 5% of the murrum expenses, treating that as income embedded in the alleged out-of-books expenditure. The issue before the Tribunal was ,  whether the entire out-of-books expenditure (murrum expenses) can be added under section 69C as unexplained expenditure, or whether only a reasonable profit element should be brought to tax when the source and business purpose are not in doubt. On appeal the Tribunal held that  the AO was not justified in treating the entire amount of cash murrum expenses as unexplained under section 69C. Key observations were, the murrum expenses were incurred during execution of civil contracts at specific project sites and were not in the nature of capital or personal expenses. The Department failed to show that the said cash expenditure was diverted for any purpose other than business. The AO relied merely on trial balances and loose papers seized, without corroborating the actual nature or quantum of cash outflows. Section 69C allows addition only when the source of expenditure is unexplained, not merely because it is outside the books. The Tribunal upheld the CIT(A)’s estimate of 5% of the alleged cash expenditure as reasonable in the context of the nature of business and cash-intensive operations. It also agreed with the finding that a contractor cannot be denied deduction for business expenditure merely because of procedural lapses in accounting. The Tribunal held that where cash expenditure relates to business operations and its incurrence is not disputed, addition under section 69C cannot be made for the entire amount. Estimation of profit element is justified. Addition restricted to 5% of such expenses. ( ITA Nos. 4147 to 4153 & 4585 to 4593/Mum/2024 dt. 3-07 -2025 ) ( AY. 2016 -17 to 2022 -23 )