DEPUTY COMISSIONER OF INCOME TAX-27(1), MUMBAI, MUMBAI vs. GURUKRUPA REALCON INFRA LLP, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER)

ITA 8646/MUM/2025 AssessmentYear:(2022-23) DEPUTY COMISSIONER OF INCOME GURUKRUPA REALCON INFRA TAX-27(1), MUMBAI LLP OFFICE OF THE DY.COMMISSIONER GURUKRUPA REALCON INFRA LLP OF INCOME TAX-27(1), MUMBAI, C-106 VASHI PLAZA, SECTOR -17 Vs. ROOM NO 408, TOWER NO-6, 4TH VASHI, NAVI, MUMBAI FLOOR, VASHI RAILWAY STATION, MUMBAI-400703, MAHARASHTRA 400703, MUMBAI-400703, MAHARASHTRA Appellant Respondent

PAN No. AAVFG1690D

Appellant represented by: Shri VimalPunmiya, C.A. Shri Basavaraj Hiremath - CIT DR a/w Respondentrepresented by: Shri Rajgopal Parthasarathi - SR DR

Date of hearing: 23/07/2026 Date of pronouncement: 20/08/2026

ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 14.10.2025 passed by the learned Commissioner of Income Tax - National Faceless Appeal Centre, New Delhi [in short the Ld. CIT(A)]for Assessment Year 2022-23, raising following grounds: - “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erredin deleting the addition of Rs.20,18,41,569/- as per percentage completion methodmade by the Assessing Officer without appreciating the facts that above addition wasmade on the basis of accounting standards AS-7, AS9 and the Revised Guidance Noteissued by the ICAI on Accounting for “Real Estate Transactions”?

Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)has erred in holding that the Assessing Officer was not justified in invoking theprovisions of section 145(3) of the Act, despite the assessee having failed to maintainand furnish complete, correct and verifiable books of account, POCM workings, cost to-completion statements and other primary evidences necessary for determination oftrue profits. Whether the Ld. CIT(A) erred in law in ignoring that the assessee’s accounts were not drawn in accordance with the mandatory provisions of Section 43CB read with ICDSIII and ICDSIV, rendering the method of accounting regularly employed by the assessee unreliable and incapable of deducing correct income. Whether on facts and in law, the Ld. CIT(A) has erred in accepting the assessee’s projected total project cost of 160 crore, which was unsubstantiated, inflated andunsupported by any independent evidence such as engineer’s certificate, valuationreport, feasibility study or third-party documentation. Whether the Ld. CIT(A) erred in law and on facts in accepting the assessee’s claim of26.884% project completion solely on the basis of self-generated annexures, withoutappreciating that the same was inconsistent with GST turnover, RERA disclosuresand actual construction activity on record. Whether the Ld. CIT(A) has erred in law in holding purely on the basis of assumptionthat GST turnover cannot be relied upon for determining accrued revenue, withoutappreciating that GST data constitutes contemporaneous statutory evidence reflectingactual sale consideration received or receivable by the assessee. Whether the Ld. CIT(A) failed to appreciate that the assessee repeatedly failed to submit a complete and verifiable POCM statement showing stage-wise completion,estimated total cost, estimated revenue and actual progress, thereby justifyingestimation of income by the Assessing Officer on best- judgment basis. Whether on facts and in law, the Ld. CIT(A) erred in deleting the addition made onbest judgment basis, despite the assessee’s failure to furnish reliable data and in spiteof settled law that estimation is permissible once books are rejected under section145(3). Whether the Ld. CIT(A) erred in law in accepting the assessee’s adoption of a so called “notional profit @ 12%” approach, which is neither prescribed under the Actnor recognized under ICDS or settled jurisprudence for real estate developers. Whether the Ld. CIT(A) failed to appreciate that the Assessing Officer had adopted areasonable and objective method for estimating total project cost and percentagecompletion, based on available material including area-wise cost norms, statutorydisclosures and turnover, and that such estimation could not be brushed aside merelyon conjectures.

Whether the Ld. CIT(A) erred in law in applying the doctrine of real income in amisplaced manner, without appreciating that under the POCM, income accrues withactual progress of construction and corresponding sales activity, and cannot bedeferred indefinitely based on speculative future projections. Whether the Ld. CIT(A) has erred in ignoring discrepancies between the assessee’sclaimed project cost and completion and the information available in statutorydisclosures under GST and RERA, which clearly indicated higher level of projectadvancement and revenue accrual. Whether on facts and in law, the Ld. CIT(A) erred in deleting the addition of20,18,41,569/-, despite overwhelming material on record demonstrating underrecognition of revenue and distortion of profits by the assessee.Without prejudice to the foregoing grounds, whether the Ld. CIT(A) erred in law innot directing a reasonable re-computation of profits based on correct project cost andverified percentage completion, even assuming some infirmity in the AssessingOfficer’s computation.” 2. Briefly stated, facts of the case are that the assessee is a limited liability partnership engaged in the business of real estate development and redevelopment. Its business consists of redevelopment of old residential buildings and societies after obtaining necessary approvals from the competent authorities, including MHADA, wherever applicable. In redevelopment projects, the existing members of the society are first rehabilitated by constructing and handing over their permanent alternate accommodation. Only thereafter, the developer acquires the right to sell the free-sale component available in the project. Thus, unlike a conventional builder, the assessee's projects involve substantial rehabilitation obligations, phased construction, regulatory approvals, and continuous monitoring of the project cost.

2.1 The assessee filed its return of income on 31st October 2022 declaring total income at Rs. 3,70,39,370/-. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income Tax Act, 1961 (in short, 'the Act') were issued and complied with.

2.2 The Assessing Officer observed that during the year under consideration, the assessee was engaged in redevelopment of the two projects, namely Gurukrupa-Ghanshyam and Gurukrupa- Jayantam. The Assessing Officer noted that the assessee claimed to have declared profit from the projects following Percentage of Completion Method (POCM) prescribed by the Institute of Chartered Accountants of India (ICAI) guidelines, but observed that the assessee had declared notional profit at the rate of 12% amounting to Rs. 5,16,18,069/- on both projects. The assessee, in its books of accounts, furnished the calculation of the project- wise notional profit as under:

“i. GurukrupaJayantam: The assessee in this project has furnished the detail calculation of the profit working and declared profit of Rs.1,32,48,977/- and declared notional profit @ 12% i.e. Rs.2,89,95,602/- on cost till March, 2022. ii. GurukrupaGhayshyam: The assessee in this project has furnished the detail calculation of the profit working and declared profit of Rs.14,56,88,512/- and declared notional profit @ 12% i.e. Rs.2,26,22,467/- on cost till March, 2022.” 2.3 According to the Assessing Officer, therefore, profit was not computed properly under the Percentage of Completion Method. The main dispute was in respect of the estimated cost of the project, which according to the assessee was Rs. 75 crore in respect of GurukrupaGhanshyam, whereas Rs. 85 crore was in respect of GurukrupaJayantam, aggregating to Rs. 160 crores. There was dispute in respect of the revenue recognized also.

2.4 The Assessing Officer, after examination of the books of accounts and other details of cost as well as revenue on sale of the flats, recomputed the profit following the guidelines for computation of profit under the Project Completion Method / Percentage Completion Method. The learned Assessing Officer computed profit from both the projects at Rs. 25,34,59,637.67 and accordingly made the difference between the notional profit declared by the assessee and profit computed by him, which was worked out to Rs. 20,18,41,569/-. In this manner, he assessed the total income of the assessee at Rs. 23,88,80,939/- in his order dated 29th March 2024 passed under Section 143(3) of the Act.

6.1 The appellant in this case has returned income during the year underconsideration i.e., AY 2022-23, following the percentage of completion method(PoCM) as prescribed vide AS-9. The AO has also completed the assessment in thecase by recomputing the appellant’s income based on the PoCM but by adoptingdifferent base figures as per his own understanding and calculation on the issue, asper the detailed discussion in the assessment order. Thus, as far as the method ofrevenue realization is concerned in the case of the appellant, there is no duality oropposition between the stakeholders, as both are following PoCM. However, the onlydifference in income determination arises on account of the different base figuresadopted by both i.e., the appellant and the AO. 6.2 The AO stated on Page 4 of the assessment order that a table-wise formatrelating to the booking of flats has also not been furnished. However, Annexure-C tothe reply dated 11.03.2024 is seen to contain the details asked for in a tablecomprising 12 columns. The same details are submitted again during the currentproceeding. 6.3 The AO further stated on Page 4 of the order that vide notice u/s 142(1) dated13.03.2024 and 20.03.2024, the appellant was requested to file details in tabulatedformat for computing the profit applying the percentage completion method, but thesame has also not been furnished to date as requested. It is seen that vide Annexure– C of the submission dated 16.03.2024, the working has been provided in respect ofboth the projects, namely Ghanshyam and Jayantam. The appellant vide submissiondated 31.03.2024 has further submitted the specific detailed breakdown till GPworking in respect of both the projects, and also of cumulative figures of both theprojects as well. These details are submitted again during the current proceeding. 6.4 The AO in the assessment order has discussed in detail the academic theoryof the various provisions of the Act, such as Sec. 43CB, 145, Sec. 4, and Sec. 5. TheAO has also reproduced and /or discussed various accounting principles like ICDSIII, ICDS-IV, Accounting Standards (AS) -7 and AS-9, 'Guidance Note on accountingfor real estate transactions' (Revised 2012), the academic scope of a real estatedeveloper as per Wikipedia, and Collins dictionary, in the assessment order. It ispertinent to state that these discussions are merely academic paradigms unless theyare linked to the figures either returned by the appellant or the figures adopted by theAO while determining the income based on the PoCM. It is noted that the AO hasneither linked these theoretical constructs with the appellant’s data nor with his owndata adopted for re-computation. 6.5 It is also noted from Para 5 of SCN (Page 12 of the assessment order) issuedby the AO that a proposal to reject the percentage completion methods of theappellant as per the provisions of Section 145(3) of the I.T. Act, 1961, has beenmade in the following terms” “5. During the year under consideration, you have followed the percentagecompletion methods, which is liable to be rejected as per the provisions ofSection 145(3) of the I.T. Act, 1961.” However, before proceeding with his own figures for the re-computation of theincome of the appellant as per PoCM, the basis for invoking the provisions of Sec.145(3) of the Act has not been specifically discussed in the assessment order.Section 145 of the Act is not a provision dealing directly with the assessment butrather a computation section. It instructs the AO as to the method to be adopted incomputing the profits and gains. Section 145 does not confer a mere discretionarypower. It imposes a statutory duty on the Income- tax Officer to examine in every casethe method of accounting employed by the assessee and to see whether or not it hasbeen regularly used and to determine whether the income, profits, and gains of theassessee could correctly be deduced therefrom. The AO can reject the accountsmaintained by the assessee if he is not satisfied with their correctness orcompleteness. The AO can also reject the method of accounting followed by theassessee if the same is not as per the provisions of section 145. However, in bothsituations, the AO is required to assess in the manner provided under section 144.Meaning thereby that AO is authorised to determine the assessee’s total incomebased on ‘best judgment’ and, at the same time, disregard the income declared in thereturn.

Therefore, the existence of infirmities and discrepancies in the accountsmaintained by the assessee is sine qua non for invoking the provisions of section145(3). Unless and until the AO expressly notices the infirmities and discrepancies inthe accounts maintained by the assessee, section 145(3) cannot be invoked. In thecase of the appellant, the AO has summarily rejected the figures provided by theappellant from their audited Books and substituted them with his own figures basedon ad-hoc assumptions, which is not permissible in law. The AO’s invocation ofsection 145(3) is, therefore, without justification. It is well settled that rejection ofbooks can only be done where specific defects, inconsistencies, or non- compliancewith accounting standards are demonstrated. Mere suspicion or subjectivedissatisfaction does not empower the AO to disregard regularly maintained accounts.This principle has been affirmed in CIT v. A. KrishnaswamiMudaliar (53 ITR 122,SC) and CIT v. Paradise Holidays (325 ITR 13, Mad). To that extent, the order of theAO suffers from legal infirmities and therefore must be rejected, and the argument ofthe appellant should be upheld. 6.6 It is also noted from the SCN (Page 13 of the assessment order) issued by theAO that a proposal for the addition of Rs. 9,25,08,848/- was made, in the followingterms: “The assessee has declared notional profit of Rs. 5,16,18,069/-, therefore, theprofits calculated for the A.Y.2022-23 is Rs. 14,41,26,917/- (-) Rs. 5,16,18,069= Rs. 9,25,08,848/- for variation/addition and proposed for additionaccordingly.” However, the assessment has been completed for Rs. 23,88,80,939/-, making anaddition of Rs. 20,18,41,569/- (Page 47 & 48 of the assessment order). The reasonfor the variation in the final order vis-à-vis SCN figures has not been duly discussedin the assessment order by the AO. 6.7 On Page 28 of the assessment order, the AO has drawn an inference that theworking of profit based on PoCM by the appellant is not correct, based on the GSTSales figures in the following terms: ‘However, the assessee has himself shown GST sale of Rs.1,42,19,44,160/-[total consideration of two projects excluding GST] but failed to disclose theactual profit on percentage completion basis. Assessee has deliberately notfiled a complete reply. Here, it is important to note that the assessee is notfollowing any fixed accounting policies, and submission cannot be provided informat which creates doubts. The AO, failed to understand that the GST sale only means the amount receivedagainst the booking of flats/execution of the agreement from the buyers based on theagreement value. It does not conclusively mean that the sum mentioned in theagreement has been received by the appellant. And as such, the GST figures on salecannot give the actual sale revenue. It is therefore pertinent to note that the GSTSales figures cannot be the correct figures to compute the profit on PoCM. Usually, inthe case of under-construction flat sales, the GST is linked to the stages ofcompletion of the building. There could be many buyers of the flats who pay up theentire GST and also TDS payable in one instalment while entering into theAgreement for Sale with the developer or builder, rather than opting for paying thesame in instalments linked to the construction, to make things simple. In view of this,I am of the considered view that the AO has erred in drawing an inference that theappellant’s sales figure returned is incorrect, based on GST sales figures. 6.8 Without prejudice to the above, since the only variation in Total Incomereturned is on account of different base figures adopted by the AO than those of thefigures adopted by the appellant for the calculation of income based on PoCM, let usexamine the same in detail, to arrive at a just and fair conclusion. 6.9 In view of the foregoing discussion, it is amply clear that the only issue that isnow left to be deliberated is the quantification of the taxable profit based on PoCM. Itis therefore considered necessary to have a close look at the comparative figuresadopted by the AO and the appellant. The same is tabulated hereunder: Description of Items forProject As per FAO As per Completion Method CalculationAmount Appellant’sCalculation in Rs. / % Amountin Rs. / % X Estimated cost of the project 115,41,96,164.16 160,00,00,000 A Estimated revenue 176,14,21,536 179,21,95,937 B Receipts up to 31.03.2022 65,44,14,514 65,44,14,514 C Cost incurred till 31.03.2022 48,17,68,640 43,01,50,571 D % of Project Completed 41.740 26.884 [C/X*100] E Estimated Revenue to be 73,52,28,278 48,17,68,640 Recognized [D*A/100] F Proportionate Cost 48,17,68,640 43,01,50,571 Profit (E – F) 25,34,59,638 5,16,18,069

6.10 The AO while adopting the estimated cost of the project has arbitrarily adoptedthe rate of Rs. 8000/- psf, holding that the per sqft rate for construction, going by theappellant’s data, would be Rs. 11,090/- is exorbitantly high. There is no objectiveworking provided by the AO behind these figures. It is purely an estimate without anysound logic or technical basis. These estimations are ad hoc and contrary to marketrealities as well as documentary evidence placed on record by the appellant. TheDelhi High Court in CIT v. Manish Buildwell (P) Ltd. (245 CTR 397) has categoricallyheld that where PoCM is consistently applied, the AO cannot substitute arbitraryfigures of cost or revenue without a valid basis. The AO, on Page 47 of theassessment order, has observed as under: “Assessee has given an estimated cost of Rs. 160 Crs for both the projects puttogether, however no supporting documents were furnished. If the same wouldbe accepted then the per sqft rate for construction would be Rs. 11,090 whichis exorbitantly high. Assessee has also furnished Expected Construction Costper square feet for each of its project i. GurukrupaGhanshyamRs. 5,000/- ii.GurukrupaJayantamRs. 4,700/- Hence a reasonable per sqft rate of Rs.8000 (including rents paid to the old residents, interest components and allother expenses) on the total carpet area of 144274 Sqft is adopted.”

6.11 The appellant, on the other hand, has provided the project-wise as well ascumulative working in their submission to lend support to their argument. Theappellant’s workings are supported by cogent material. The appellant’s estimate ofthe construction cost is worked out after considering the cost of civil works of thebuilding at Rs. 4500/- and Rs. 5000/- in respect of the two projects. After adding thefinance cost, charges for alternate accommodation to existing inhabitants, societycorpus, MHADA premium, BMC fees, selling expenses etc. and additionally,providing for the cost of external walls, common lobby, service shafts, balcony,verandahs, passages, terrace area, staircase, lifts and other areas required toprovide necessary amenities such as play grounds, water tank, electricity meterrooms, gardens, drainage, sewerage system etc. for the project, the cost accordinglygoes up to Rs. 7,200/- psf. However, it is noted that the AO has totally overlookedthis fact and estimated the cost on the saleable carpet area of the flats alone in theorder. Accordingly, the estimated cost of the entire project at Rs. 160 Crore has beenworked out as under: Project Area of Cost Total Construction Rs. In Estimated Cost in Sq. Ft. Rs. Ghanshyam 103558 7200 74,56,17,600 Jayantam 119188 7200 85,81,53,600 TOTAL: 160,37,71,200 This has been consistently shown by the appellant till AY 2024-25 as could be notedfrom the data tabulated hereunder:- 6.12 The estimate of revenue of Rs.179,21,95,937/- by the appellant is worked outafter duly factoring in the inflation at the rate of 10% for future sales. Thus, theseestimates are more reliable and accurate than the estimates adopted by the AO. Thesame has been worked out by the appellant as under: Project Rate for Revenue i.e. Area Expected Expected Average sold Area Agreement available Rate Revenue on up to value of for with Balance 31.03.2022 area sold selling 10% Area Rs. up to in Sq. Ft. increase 31.03.2022 (Rs.) Ghanshyam 16,712 62,14,19,898 10,932 18,383 20,09,65,430 Jayantam 17,162 87,16,21,470 5,201 18,879 9,81,89,139 TOTAL 149,30,41,368 29,91,54,569

6.13 In view of the detailed objective working of the estimated cost and revenue ofthe project provided by the appellant in its submission, I am of the considered viewthat the same is plausible and must be accepted as against the arbitrary estimatesadopted by the AO. Accordingly, the working of the profit following PoCM by theappellant is also found to be in proper order for the AY 2022-23. I find merit in theappellant’s contention that the AO’s summary rejection of its Books without anydiscussion and consequent addition of . 20,18,41,569/- is unsustainable.”

4.1 On the other hand, the learned Counsel for the assessee submitted as under:

III. Scrutiny Assessment 1. The return was selected for complete scrutiny under CASS primarily for the following reasons: • high liabilities in comparison to income/receipts; and • substantial increase in unsecured loans during the year. 2. During the course of assessment proceedings, the Assessing Officer issued several notices under sections 143(2) and 142(1). The assessee responded to every notice by furnishing the information called for from time to time. The details furnished included project-wise cost sheets, estimated project cost, saleable area, booking details, architect's certificates, computation of percentage completion, project-wise revenue recognition and other supporting documents. The assessee also participated in video conference proceedings and thereafter filed a detailed written submission dated 27.03.2024 explaining every issue discussed during the hearing.

IV. Basis of the Assessment Order 1. Despite the extensive details furnished by the assessee, the Assessing Officer was not satisfied with the assessee's computation of profits. 2. According to the Assessing Officer, the assessee had failed to furnish adequate evidence regarding the actual stage of completion of the projects and had not properly established the percentage of work completed as on 31.03.2022. He also alleged that complete details relating to booking of flats, work-in-progress and project-wise profitability had not been furnished in the format required by him. 3. On the basis of these observations, the Assessing Officer invoked the provisions of section 145(3) and rejected the assessee's books of account. Having rejected the books, the Assessing Officer proceeded to recompute the profits by adopting his own assumptions regarding the estimated project cost, expected project revenue and percentage completion. Instead of accepting the figures supported by the assessee's books and Architect's Certificates, the Assessing Officer substituted his own estimates and worked out substantially higher project profits. 4. Consequently, an addition of Rs.20,18,41,569/- was made to the returned income, resulting in assessment of total income at Rs.23,88,80,939/- as against the returned income of Rs.3,70,39,370/-. Penalty proceedings under section 270A were also initiated.

V. Detailed Submissions of the Assessee before the CIT(A) The assessee challenged the assessment order on both factual and legal grounds and demonstrated that the entire addition of Rs.20,18,41,569/- was founded on incorrect factual assumptions, non-consideration of the material already available on record, and an erroneous invocation of section 145(3). A. The Assessing Officer failed to appreciate the nature of the assessee's business 1. At the outset, the assessee explained that it is not an ordinary builder but a redevelopment developer engaged in reconstruction of old housing societies after obtaining approvals from the competent authorities including MHADA and other regulatory bodies. In redevelopment projects, the first obligation of the developer is to rehabilitate the existing occupants by providing permanent alternate accommodation. Only thereafter can the developer commercially exploit the free-sale component of the project. Consequently, project execution, cost estimation, revenue recognition and profitability are governed not merely by redevelopment regulations, RERA and GST. 2. According to the assessee, the Assessing Officer failed to appreciate these commercial realities and proceeded to assess the project as though it were a conventional real estate project. The assessee submitted that the assessment order reflected a fundamental misunderstanding of the business model itself, which resulted in erroneous conclusions regarding project cost, project revenue and percentage completion.

B. Every allegation regarding non-furnishing of information was factually incorrect 1. A major plank of the assessment order was that the assessee had failed to furnish the details called for during assessment. The assessee demonstrated before the CIT(A) that this allegation was contrary to the assessment records themselves. 2. The assessee furnished a chronological chart showing every notice issued by the Assessing Officer and the corresponding replies filed. It pointed out that replies had been filed on 25.12.2023, 11.03.2024, 16.03.2024, 21.03.2024, 23.03.2024 and finally on 27.03.2024 after the video conference. Along with these replies, the assessee had furnished detailed project-wise workings, Architect's Certificates, booking details, cost estimates, percentage completion calculations and supporting annexures. 3. According to the assessee, the Assessing Officer repeatedly recorded in the assessment order that the information had not been furnished, despite the fact that the same information already formed part of the assessment records. This demonstrated that the assessment order had been passed without properly considering the material placed before the Assessing Officer.

C. The Architect's Certificate conclusively established the stage of completion 1. One of the principal allegations of the Assessing Officer was that the percentage of project completion had not been substantiated. 2. The assessee specifically pointed out that an Architect's Certificate had been filed on 27.03.2024 certifying that the stage of completion was 25% in the GurukrupaGhanshyam project and 28% in the GurukrupaJayantam project. These figures were not arbitrary estimates but were certified by an independent professional and were fully supported by the project cost incurred up to the relevant date. 3. The assessee therefore submitted that the very foundation of the assessment order, namely that no evidence regarding project completion had been furnished, was factually incorrect.

For both the projects combined: Project Completion Method As per FAO As per Appellant's Calculation Calculation Amount Amount in Rs. / % in Rs. / % X Estimated cost of project 115,41,96,164.16 160,00,00,000 (See Note (i) below) (See Note (ii) below) A Estimated revenue 176,14,21,536 179,21,95,937 (See Note (iii) below) (See Note (iv) below) B Receipts upto 31.03.2022 65,44,14,514 65,44,14,514 C % of Project Completed 41.740 26.8815 (See Note (v) below) (See Note (vi) below) D Revenue to be Recognised 73,52,28,278 48,17,68,640 (See Note (vii) below) E Cost incurred till 31.03.2022 48,17,68,640 43,01,50,571 (includes profit of of (See Note (viii) 5,16,18,069, same is below) capitalized in WIP) (481768640-51618069) F Proportionate Cost 25,34,59,637.67 43,01,50,571 (See Note (ix) below) (See Note (x) below) Profit 43,01,50,571 D - F 481768640

Notes i) The calculations made by FAO are absolutely wrong & beyond any logic. The construction area, as considered by him, for calculation purpose was 144274 sq. ft. (Ghanshyam 67267 + Jayantam 77007 = 144274 from Pg 11 of Assessment Order) which is carpet area as per norms prescribed by the RERA (Real Estate Regulatory Authority). The carpet area means net usable floor area of the apartment. (Kindly refer Circular no. 4/2017 dated 14.06.2017 issued by the said Authority). The FAO failed to understand that the Builder has, in addition of the same, must also needs to construct / develop external walls, common lobby, service shafts, balcony, verandahs, passages, terrace area, staircase, lifts and areas required to provide necessary amenities such as play grounds, water tank, electricity meter rooms, gardens, drainage, sewerage system etc. So, the cost calculated Rs. 1154196164 (144274 x 8000) by considering carpet area is not correct. The appellant request your kindself not to consider the same. (Rs. 8000 from Pg 47 of Assessment Order) ii) The cost of the project, as estimated by the Appellant, of Rs. 160,00,00,000.00 is based on experience and sound logic. It is calculated as follows: The construction cost, as informed to FAO vide submission dated 27.03.2024, was Rs. 5000 for project namely Ghanshyam&Rs. 4700 is for Jayantam. The said cost is only pure construction cost so Rs. 2200 &Rs. 2500 respectively were added for payment of interest, charges for alternate accommodation to existing inhabitants, society corpus, MHADA premium, BMC fees, selling expenses etc. So, the total cost comes to Rs. 7200, The final calculations are as under: Project Cost Rs. Total Estimated Cost Rs. Area of Construction in Sq. Ft. Ghanshyam 103558 745617600 7200 (5000+2200) Jayantam 119188 858153600 7200 (4700+2500) TOTAL 222746 ApproxRs. 160 Crores 160,37,71,200 The same was informed to FAO vide submission dated 31.03.2024 The FAO has made further error in calculations of per sq. ft. rate. Thought he has claimed that the same was made by considering the assessee's submission (Refer page 47 of Assessment Order) The correct calculations for calculation of average rate are as under: Project Average Rate Rs. Consideration The Area sold by these as per Agreements upto 31.03.2022 Agreements executed Rs. Ghanshyam 621419898 37184 Sq. Ft. 16712 (Pg 19 of Asst. Order) Total Consideration / Total Area Sold (Pg 19 of Asst. Order) Jayantam 871621470 50786 Sq. Ft. 17162 (Pg 21 of Asst. Order) Total Consideration / Total Area Sold (Pg 21 of Asst. Order) Kindly refer the submission dated 11.03.2024; whereas, The FAO has wrongly calculated with Rs. 17162 and Rs. 16712 respectively. Further, FAO, on Pg 47 of Asst. Order, has considered Total Saleable Area where as the above table depicts area sold upto 31-03-2022 iii) Rate Average Revenue Project Average Revenue for Area available Expected Expected Total Area sold Rate Rs. Rate for Consideration for selling Sq. Revenue on Saleable upto Ft. Area Sq. Ft. sold area i.e. Agreement Balance 31.03.2022 Area Rs. Sq. Ft. upto value of area 31.03.2022 sold upto Rs. 31.03.2022 Rs. Ghanshyam 16712 621419898 20,09,65,430 10932 18383 48116 37184 (Refer Note 'A' (16712+10%) (Pg 19 of Asst. (Pg 19 of Asst. below) Order) Order) (Refer Note 'B' below) Jayantam 17162 871621470 9,81,89,139 5201 18879 55987 50786 (Refer Note 'A' (17162+10%) (Pg 21 of Asst. (Pg 21 of Asst. below) Order) Order) (Refer Note 'B' below) TOTAL: 149,30,41,368 29,91,54,569 104103 87940 Note 'A': Total area for sale i.e. 104103 Sq. Ft. was informed to FAO on 23.03.2024. Balance Area for future sale Sq. Ft.: 16133 Note 'B' Project Present Average Rate Expected increase by % Expected Rate Rs. Ghanshyam 16712 10 18383 Jayantam 17162 10 18879 The expected revenue accordingly comes to Rs. 149,30,41,368 + 22,91,54,569 = Rs. 179,21,95,937. The Appellant wish to draw your kind attention towards the fact that the inflation benefit will also available to the Appellant while selling balance area in the future. Whereas, the FAO has ignored this basic facts. v) The % of project completion, as calculated by FAO is 41.740 is totally wrong as it was based on wrong assumptions & calculations. Hence appellant request your kindself not to consider the same and oblige. vi) The % of project completion i.e. 26.8815% calculated by the Appellant is based on proper calculations, workings & considering the future situation. Hence appellant request to accept the same. The calculations are as under: Cost incurred till 31.03.2022: Rs. 43,01,50,571 Estimated total cost: Rs. 160,00,00,000 = 26.8815% vii) Appellant, accordingly, calculate the revenue of Rs. 481768640 (26.8815% of Rs. 1792195937) viii) Cost incurred till 31.03.2022 was Rs. 43,01,50571; which is as per the audited accounts & the same was informed to FAO on 21.03.2024

D. The invocation of section 145(3) was legally unsustainable 1. The assessee devoted substantial submissions to demonstrate that the conditions prescribed under section 145(3) were completely absent. 2. It was submitted that: • the books of account were regularly maintained; • the accounts had been duly audited; • the same accounting policy had been consistently followed from inception; • no discrepancy in the books was pointed out by the Assessing Officer;

• no accounting entry was found to be false; • no suppression of receipts or inflation of expenditure was established; • there was no finding that the notified accounting standards had been violated. 3. The assessee argued that section 145(3) can be invoked only when the Assessing Officer records a categorical finding that the books are either incorrect, incomplete or not maintained in accordance with the prescribed accounting standards. Mere disagreement with the assessee's estimates or dissatisfaction with the quantum of profit does not authorise rejection of the books. 4. Accordingly, the rejection of the books was without jurisdiction and the entire computation based thereon deserved to be deleted.

E. Percentage Completion Method had been correctly applied 1. The assessee clarified that there was never any dispute regarding the method of accounting. It had consistently followed the Percentage Completion Method in accordance with AS-9, the ICAI Guidance Note on Accounting for Real Estate Transactions (Revised 2012) and the applicable provisions of the Act. 2. Detailed project-wise calculations showing estimated cost, cost incurred, percentage completion, expected revenue, work-in-progress and recognised profits were furnished. The assessee submitted that its figures were based upon audited accounts and realistic estimates prepared in the ordinary course of business. 3. The Assessing Officer, instead of identifying any computational error in these workings, merely substituted his own estimates without any technical or documentary basis. Such substitution of commercial estimates by the Assessing Officer was wholly arbitrary.

F. The Assessing Officer misunderstood GST turnover 1. The assessee specifically addressed the Assessing Officer's reliance on GST turnover. It was explained that GST liability arises upon receipt of booking amounts or execution of agreements and does not determine the timing of revenue recognition for income-tax purposes. 2. GST collections cannot be equated with taxable business income. Revenue recognition under the Income-tax Act must be determined by the applicable accounting standards and the Percentage Completion Method, and not by the timing of GST liability. 3. The assessee therefore submitted that the Assessing Officer had incorrectly equated GST turnover with recognised project revenue.

G. The Assessing Officer adopted arbitrary estimates 1. The assessee highlighted that the entire addition rested upon figures invented by the Assessing Officer regarding estimated project cost, estimated project revenue and percentage completion.

5.1 Under the POCM, the profit attributable to a project for a particular year is required to be determined with reference to the extent of work performance achieved during that year. This necessarily requires a reliable determination of the estimated total project revenue, estimated total project cost, cost incurred up to the year-end and the resultant stage of completion. The applicable guidance issued by the ICAI may be taken into consideration for examining the consistency and reliability of the method adopted by the assessee; however, such accounting guidance does not, by itself, determine the chargeability or quantum of taxable income. The taxable income has ultimately to be determined in accordance with the provisions of the Act and the income accrued during the relevant previous year.

5.2 In the present case, the assessee estimated the aggregate project cost at approximately Rs.160 crore and stated that expenditure of Rs.43,01,50,571/- had been incurred up to 31.03.2022, resulting in a claimed completion of 26.8815%. Against estimated aggregate project revenue of Rs.179,21,95,937/-, the assessee recognised revenue of Rs.48,17,68,640/-. The Assessing Officer, however, adopted estimated project cost of Rs.115,41,96,164/-, resulting in a completion percentage of 41.74%, and computed revenue of Rs.73,52,28,278/- and profit of Rs.25,34,59,638/-, resulting in an addition of Rs.20,18,41,569/-.

5.3 The essential question, therefore, is not which computation appears higher or lower, but whether the estimated cost, stage of completion and revenue recognised by the assessee correctly represent the income accrued from each project during the relevant year. Since the estimated total cost materially determines the percentage of completion and consequently the revenue and profit attributable to the year, the same has to be supported by reliable project-specific material.We find that the competing computations have not been reconciled on the basis of such project-specific evidence. It would, therefore, not be appropriate for us, as the final fact-finding authority, to uphold either computation without first determining the underlying facts. The matter accordingly requires fresh factual determination. We, therefore, restore the issue to the file of the Assessing Officer with the following directions:

(i) First, the Assessing Officer shall examine project-wise, separately in respect of Gurukrupa Ghanshyam and Gurukrupa Jayantam, the sanctioned plans, development agreements, rehabilitation obligations and other documents defining the scope and obligations of the respective projects.

(ii) Second, the Assessing Officer shall determine the estimated total project cost on the basis of contemporaneous and verifiable material, including construction, rehabilitation, statutory and regulatory expenditure and other project costs, to the extent properly attributable to the respective projects. The assessee's estimate shall be examined with reference to supporting material, like project reports submitted to MHADA or Banks for availing loan etc; it shall neither be accepted nor rejected merely on assertion.

(iii) Third, the Assessing Officer shall verify the actual cost incurred up to 31.03.2022 from the books of account, project ledgers, bills, vouchers and other supporting records and determine the appropriate stage of completion with reference to the cost and other relevant evidence and determine actual cost incurred in respect of salable area per square feet.

(iv) Fourth, the Assessing Officer shall determine project- wise revenue accrued up to 31.03.2022, with reference to the underlying agreements, allotments/bookings, saleable area, consideration agreed, amounts received or receivable and the rights and obligations arising therefrom. The figures appearing in GST returns may be reconciled with the books and underlying documents, but shall not, by themselves, be treated as conclusive of the revenue accrued for income-tax purposes.

(v) Fifth, after determining the revenue attributable to the work performed during the year, the Assessing Officer shall determine the corresponding cost attributable thereto of area sold per square feet and the resultant profit accrued for the year under the POCM.

(vi) Sixth, the Assessing Officer shall reconcile the aforesaid determination with the revenue and cost recognised in the audited financial statements and ensure that income already recognised by the assessee is not taxed again.

5.4 The Assessing Officer shall also examine whether the POCM has been consistently applied by the assessee on a reliable basis and whether any revision in the estimated project cost or revenue is supported by contemporaneous material. The mere fact that an estimate subsequently changes shall not, by itself, establish that the earlier estimate was erroneous; equally, an estimate unsupported by reliable material cannot be accepted merely because it has been incorporated in the books. While undertaking the aforesaid exercise, the Assessing Officer shall apply the provisions of the Act governing accrual and computation of taxable income. The relevant ICAI guidance may be considered 20 only as an aid in examining the accounting method and the reliability of revenue recognition, and not as an independent source for determining the tax liability. Any material proposed to be relied upon adversely to the assessee shall be confronted to it and an appropriate finding shall be recorded.

5.5 The Assessing Officer shall thereafter pass a fresh speaking order, recording, separately for each project, the estimated total cost, actual cost incurred, stage of completion, revenue accrued, corresponding cost and resultant profit attributable to the year. The assessee shall be afforded adequate opportunity of producing supporting evidence and of being heard. We clarify that we have expressed no final opinion on the correctness of either the assessee's computation or that of the Assessing Officer. The entire issue is left open for determination in accordance with law and on the basis of the evidence brought on record pursuant to the above directions. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

In the result, the appeal of the Revenue is allowed for 6. statistical purposes.

Order pronounced in the open Court on 20/08/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 20/08/2026 M. RanganathVittal , Sr. P.S.

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai