The assesee revised its return for assessment years in 2011-12 to 2013-14 and declared a lower income. The assessee entered into a development project with a co-operative housing society for construction of residential buildings which was later on cancelled and the power of attorney of the assessee was revoked. According to the orders by the ICAI, the Assessing Officer applied the appropriate percentage of profits for the year to the unaccounted income from deemed sales to determine the total income. He also estimated a profit percentage of 12% rather than 10% on the assessee’s declared gross receipts. He also decreased the assessee’s capital work-in-progress. The Commissioner (Appeals) deleted the addition and asked the AO to apply the completion method to derive profits. In addition to asking for review of the valuation of unsold apartments at cost and the disallowance of the deduction claimed under section 80G, the assessee requested revision of the projected cost of repairs and renovations due to project delay and building damage.

The tribunal, on appeal, held that in order to account for the direct costs spent for the purchase of transferable development rights, stamp duty, Municipal Corporation fees, etc., the assessee was justified in adjusting the anticipated project cost upward. Administrative costs were to be removed from this because they could not be included. The latter had to be taken out of the saleable area because it was the portion that had been demolished. It was necessary to calculate both the project’s net profit and the proportion of construction that had been finished. The cumulative profit might be calculated for the assessment years 2012-2013 and 2013-2014 while taking into account the project’s delay and the rising cost of the renovations. The AO was directed to adopt the percentage completion method to arrive at the net profit. ASST. CIT v. S. S. Enterprises (I. T. A. No. 2649/Mum/2018, dated October 28, 2019) relied on.

The Tribunal observed that the estimated cost of repairs and renovation hasdarisen due to a delay in a period subsequent to the assessment year in consideration and the estimates could only be made in the year subsequent to the year under consideration. The increase in the estimated cost of construction had arisen due to the changed in circumstance which cannot be overlooked. The Tribunal sustained the proposed figure of 22 per cent by the Commisisoner (appeals). (AY.2011-12 to 2013-14)