The PIL filed by social worker Uttamrao Ghatule sought appointment of a judicial commission to probe the scam or a direction to be issued to the CBI to investigate.
Advocate Machhindra Patil, appearing for the petitioner, argued that the SIT led by renowned water expert Madhav Chitale comprises several IAS officers.
"The SIT will not be able to conduct an impartial inquiry against their own officers. Hence, a judicial commission should be set up or the probe should be handed over to the CBI," he argued.
A division bench of Chief Justice Mohit Shah and Justice A V Mohta today directed the state government to file their affidavit within four weeks.
According to the petition, the commission should find out the exact cost of dam projects, expenditure incurred by state departments and the amount of funds misused.
"Since 2000-2001 around Rs 70,000 crore were spent by the state irrigation department on various projects. However, till date the Irrigation Department has deliberately and intentionally not completed the projects," the petition alleges.
Additional government pleader Molina Thakur informed the court that the state government has already come out with a white paper on irrigation.