DCIT(CENTRAL CIRCLE)-1(2), MUMBAI, MUMBAI vs. LOHITKA PROPERTIES LLP, MUMBAI

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

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI ANIKESH BANERJEE (JUDICIAL MEMBER)

ITA No. 6925 and 6926/MUM/2025 Assessment Years: 2019-20 and 2020-21

Deputy Commissioner of Lohitka Properties LLP, Ground Income Tax (Central Circle) – and Third Floor, Pirus Infinity Vs. 1(2), Prathistha Bhavan, M.K. Pranjape B Scheme, Shubhash Road, Mumbai – 400020, Road, Vile Parle (E), Mumbai – Maharashtra. 400057, Maharashtra. PAN NO. AAFFL 4502 R Appellant Respondent

Assessee by : Shri Dr. K. Shivaram & Shri Rahul Hakani Revenue by : Shri Surendra Mohan, (SR. DR) (Virtually Appeared)

Date of Hearing : 08/04/2026 : 19/05/2026 Date of pronouncement ORDER PER OM PRAKASH KANT, AM

These two appeals by the Revenue are directed against a common order dated 18.08.2025, passed by the learned Commissioner of Income-Tax (Appeals) - 47, Mumbai [in short ‘the Ld. CIT(A)’], for the Assessment Years (in short ‘A.Y’) 2019-20 and 2020-21 respectively. As identical issue in dispute is involved in

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these appeals, therefore same were heard together therefore same were heard together and disposed off and disposed off by way of this consolidated order for the sake of convenience. by way of this consolidated order for the sake of convenience. by way of this consolidated order for the sake of convenience.

“1. Whether on the facts and in law, the Ld.CIT(A) erred in deleting additions by “1. Whether on the facts and in law, the Ld.CIT(A) erred in deleting additions by “1. Whether on the facts and in law, the Ld.CIT(A) erred in deleting additions by accepting, post-survey, survey, post-year estimate revisions in Construction Cost and year estimate revisions in Construction Cost and TDR/Development Rights without cogent, third TDR/Development Rights without cogent, third-party corroboration, contrary to party corroboration, contrary to the evidentiary value of survey admissions paired with contemporaneous the evidentiary value of survey admissions paired with contemporaneous the evidentiary value of survey admissions paired with contemporaneous workings? 2. Whether the CITIA) was justified in load 2. Whether the CITIA) was justified in loading the impact of the assessee's GST ing the impact of the assessee's GST option exercised on 30.04.2019 (reduced rate/no ITC) into FY 2018-19 POCM option exercised on 30.04.2019 (reduced rate/no ITC) into FY 2018 option exercised on 30.04.2019 (reduced rate/no ITC) into FY 2018 estimates, without granular proof that the pending scope as on 31.03.2019 would estimates, without granular proof that the pending scope as on 31.03.2019 would estimates, without granular proof that the pending scope as on 31.03.2019 would be executed under the no be executed under the no-ITC regime and at the assumed tax rates? ITC regime and at the assumed tax rates? 3. Whether the CIT(A) erred in law in accepting cross 3. Whether the CIT(A) erred in law in accepting cross-phase allocation of TDR and phase allocation of TDR and Development Rights to Phase Development Rights to Phase-1 ("Rosa") on a notional RERA 1 ("Rosa") on a notional RERA-area basis, thereby depressing Phase-1 profits, without verifying phase 1 profits, without verifying phase-wise purchase and utilisation wise purchase and utilisation records, MCGM permissions, and matching with revenue recognition under the permissions, and matching with revenue recognition under the permissions, and matching with revenue recognition under the Percentage-of-Completion Method (POCM)? Completion Method (POCM)? 4. Whether the CIT(A) misapplied the ICAI Guidance Note on Accounting for Real 4. Whether the CIT(A) misapplied the ICAI Guidance Note on Accounting for Real 4. Whether the CIT(A) misapplied the ICAI Guidance Note on Accounting for Real Estate Transactions (2012) by treating unsubstantiated assertions- such as a flat Estate Transactions (2012) by treating unsubstantiated assertions Estate Transactions (2012) by treating unsubstantiated assertions 18% GST impact and an unquantified 48 to 39 floor change 18% GST impact and an unquantified 48 to 39 floor change- as "reliable estimate changes", contrary to the Guidance Note's requirements of verifiability and cost- changes", contrary to the Guidance Note's requirements of verifiability and cost changes", contrary to the Guidance Note's requirements of verifiability and cost to-revenue matching? revenue matching? 5. Whether in the alternative, the matter requires set aside for de novo verification 5. Whether in the alternative, the matter requires set aside for de 5. Whether in the alternative, the matter requires set aside for de of (1) actual vendor/contract of (1) actual vendor/contract-wise GST impact on construction cost, (ii) TDR wise GST impact on construction cost, (ii) TDR purchase and phase purchase and phase-wise utilisation mapping, (iii) quantified cost effect of floor wise utilisation mapping, (iii) quantified cost effect of floor- plan revision, and (iv) POCM consistency between registered agreements (revenue plan revision, and (iv) POCM consistency between registered agreements (reven plan revision, and (iv) POCM consistency between registered agreements (reven trigger) and the cost base?" trigger) and the cost base?" 3. Briefly stated, the relevant facts are that the assessee, a Briefly stated, the relevant facts are that the assessee, a Briefly stated, the relevant facts are that the assessee, a Limited Liability Partnership, is engaged in the business of real Limited Liability Partnership, is engaged in the business of real Limited Liability Partnership, is engaged in the business of real estate development and construction in Mumbai. During the estate development and construction in Mumbai. During the estate development and construction in Mumbai. During the relevant assessment year, the assess relevant assessment year, the assessee was developing a residential ee was developing a residential

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project titled “Montana” at Mulund (West), Mumbai, in a phased project titled “Montana” at Mulund (West), Mumbai, in a phased project titled “Montana” at Mulund (West), Mumbai, in a phased manner commencing from Financial Year 2014 manner commencing from Financial Year 2014-15. It was the case 15. It was the case of the assessee that during the year under consideration, the of the assessee that during the year under consideration, the of the assessee that during the year under consideration, the project had attained a reasonable st project had attained a reasonable stage of completion warranting age of completion warranting revenue recognition under the Guidance Note on Accounting for revenue recognition under the Guidance Note on Accounting for revenue recognition under the Guidance Note on Accounting for Real Estate Transactions (Revised 2012) issued by the Institute of Real Estate Transactions (Revised 2012) issued by the Institute of Real Estate Transactions (Revised 2012) issued by the Institute of Chartered Chartered Chartered Accountants Accountants Accountants of of of India, India, India, following following following the the the Percentage Percentage Percentage Completion Method (POCM), insofar as Phas Completion Method (POCM), insofar as Phase-I, namely “Montana I, namely “Montana (Rosa Wing A & B)”, was concerned. (Rosa Wing A & B)”, was concerned.

4.1 The Assessing Officer noted that during survey proceedings, the The Assessing Officer noted that during survey proceedings, the The Assessing Officer noted that during survey proceedings, the assessee had projected estimated business income of Rs.23.96 assessee had projected estimated business income of Rs.23.96 assessee had projected estimated business income of Rs.23.96

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crores and long-term capita term capital gains of Rs.26.07 crores in relation to l gains of Rs.26.07 crores in relation to the “Rosa” building project. However, in the return of income filed the “Rosa” building project. However, in the return of income filed the “Rosa” building project. However, in the return of income filed subsequently, the business income declared under the POCM subsequently, the business income declared under the POCM subsequently, the business income declared under the POCM method stood substantially reduced, and the long-term capital method stood substantially reduced, and the long method stood substantially reduced, and the long gains disclosed also diffe gains disclosed also differed materially from the figures stated red materially from the figures stated during survey proceedings. The explanation furnished by the during survey proceedings. The explanation furnished by the during survey proceedings. The explanation furnished by the assessee for such variance was broadly founded upon:– (i) revision assessee for such variance was broadly founded upon: assessee for such variance was broadly founded upon: in the development plan from 48 floors to 39 floors resulting in in the development plan from 48 floors to 39 floors resulting in in the development plan from 48 floors to 39 floors resulting in reduction of carpet area; reduction of carpet area; (ii) increase in construction cost due to (ii) increase in construction cost due to denial of input tax credit consequent upon opting for the denial of input tax credit consequent upon opting for the denial of input tax credit consequent upon opting for the concessional GST regime; and (iii) registration of only 95 flats as concessional GST regime; and (iii) registration of only 95 flats as concessional GST regime; and (iii) registration of only 95 flats as against the 176 units anticipated during the course of survey against the 176 units anticipated during the course of survey against the 176 units anticipated during the course of survey proceedings. The relevant The relevant finding of the ld. AO is reproduced as AO is reproduced as under:

“7.1 M/s. Lohitka Properties LLP was formed on 17.09.2014, started developing M/s. Lohitka Properties LLP was formed on 17.09.2014, started developing M/s. Lohitka Properties LLP was formed on 17.09.2014, started developing residential project named 'Montana' located at Mulund (W), Mumbai. The project residential project named 'Montana' located at Mulund (W), Mumbai. The project residential project named 'Montana' located at Mulund (W), Mumbai. The project was developed in a phased manner and Phase was developed in a phased manner and Phase-1 consisted of buildings 'Rosa A ed of buildings 'Rosa A and B Wing', Phase-2 'Sierra', Phase 2 'Sierra', Phase-3 'Giona A and B' and Phase 3 'Giona A and B' and Phase-4 was yet to be launched (details of the project when the survey was executed). During survey, launched (details of the project when the survey was executed). During survey, launched (details of the project when the survey was executed). During survey, statement of Shri Ashwin Natwarlal Seth, one of the partners of the LLP was statement of Shri Ashwin Natwarlal Seth, one of the partners of the LLP statement of Shri Ashwin Natwarlal Seth, one of the partners of the LLP recorded u/s. 131 of the Act confronting the facts regarding Sale of Built up area recorded u/s. 131 of the Act confronting the facts regarding Sale of Built up area recorded u/s. 131 of the Act confronting the facts regarding Sale of Built up area w.r.t the project 'Montana'. The partner deposed that 176 units in 'Rosa' were w.r.t the project 'Montana'. The partner deposed that 176 units in 'Rosa' were w.r.t the project 'Montana'. The partner deposed that 176 units in 'Rosa' were sold, and agreements have been registered for 90 units. In Sierra, 46 units were sold, and agreements have been registered for 90 units. In Sierra, 46 units were sold, and agreements have been registered for 90 units. In Sierra, 46 units were sold, out of which agreement has been registered only for 5 units. In Giona, 118 of which agreement has been registered only for 5 units. In Giona, 118 of which agreement has been registered only for 5 units. In Giona, 118 units have been sold, out of which agreements have been registered only for 4 units have been sold, out of which agreements have been registered only for 4 units have been sold, out of which agreements have been registered only for 4 units. Considering these facts, the partner of the LLP offered revenue on account units. Considering these facts, the partner of the LLP offered revenue on account units. Considering these facts, the partner of the LLP offered revenue on account of sales from the buildi of sales from the building Rosa for the P.Y. relevant to A.Y. 2019 ng Rosa for the P.Y. relevant to A.Y. 2019-20. The partner clarified that the building 'Sierra' and 'Giona' were not completed up to the clarified that the building 'Sierra' and 'Giona' were not completed up to the clarified that the building 'Sierra' and 'Giona' were not completed up to the threshold of 25% for recognizing revenue as per the revised guidance note for threshold of 25% for recognizing revenue as per the revised guidance note for threshold of 25% for recognizing revenue as per the revised guidance note for accounting real estate transactions. As f accounting real estate transactions. As far as building 'Rosa' is concerned, the ar as building 'Rosa' is concerned, the partner confirmed that construction cost incurred was 34.34%, which includes partner confirmed that construction cost incurred was 34.34%, which includes partner confirmed that construction cost incurred was 34.34%, which includes cost to be incurred of Rs. 7.25 cr from 22.02.2019 to 31.03.2019. The partner cost to be incurred of Rs. 7.25 cr from 22.02.2019 to 31.03.2019. The partner cost to be incurred of Rs. 7.25 cr from 22.02.2019 to 31.03.2019. The partner further clarified that from 176 units sold in 'Rosa', constit further clarified that from 176 units sold in 'Rosa', constituting agreement value of uting agreement value of

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Rs. 304.91 Cr, registered sale deeds were executed for 90 units having Rs. 304.91 Cr, registered sale deeds were executed for 90 units having Rs. 304.91 Cr, registered sale deeds were executed for 90 units having agreement value of 158.87 cr. The partner further stated that the balance agreement value of 158.87 cr. The partner further stated that the balance agreement value of 158.87 cr. The partner further stated that the balance agreements for 86 units would also be registered before 31.03.2019 and the agreements for 86 units would also be registered before 31.03.2019 and the agreements for 86 units would also be registered before 31.03.2019 and the corresponding agreement value for these agreements would be 146.05 cr. ng agreement value for these agreements would be 146.05 cr. ng agreement value for these agreements would be 146.05 cr. Considering the Registered sale deeds and balance deeds to be registered for Considering the Registered sale deeds and balance deeds to be registered for Considering the Registered sale deeds and balance deeds to be registered for building 'Rosa', the estimated business income offered for the P.Y. 2018-19 was building 'Rosa', the estimated business income offered for the P.Y. 2018 building 'Rosa', the estimated business income offered for the P.Y. 2018 Rs 23.96 cr. The partner clarified that Rs 23.96 cr. The partner clarified that the LLP will recognize the income for A.Y. the LLP will recognize the income for A.Y. 2019-20 on the basis of actual figures of construction expenditure incurred and 20 on the basis of actual figures of construction expenditure incurred and 20 on the basis of actual figures of construction expenditure incurred and the sale agreement registered up to 31.03.2019 after setting off the carried the sale agreement registered up to 31.03.2019 after setting off the carried the sale agreement registered up to 31.03.2019 after setting off the carried forward losses of Rs. 10.99 cr approximately. It was fu forward losses of Rs. 10.99 cr approximately. It was further clarified that the rther clarified that the land on which the project was developed by the LLP was initially belonging to land on which the project was developed by the LLP was initially belonging to land on which the project was developed by the LLP was initially belonging to M/s. Lohitka Properties Pvt Ltd. which held the land as a capital asset. M/s. Lohitka Properties Pvt Ltd. which held the land as a capital asset. M/s. Lohitka Properties Pvt Ltd. which held the land as a capital asset. Subsequent to conversion of company into LLP, the capital asset was converted Subsequent to conversion of company into LLP, the capital asset was converted Subsequent to conversion of company into LLP, the capital asset was converted into stock-in-trade and hence the LLP would be liable to offer proportionate capital trade and hence the LLP would be liable to offer proportionate capital trade and hence the LLP would be liable to offer proportionate capital gain on sale of built up area. Accordingly, capital gain for the P.Y. relevant to A.Y. gain on sale of built up area. Accordingly, capital gain for the P.Y. relevant to A.Y. gain on sale of built up area. Accordingly, capital gain for the P.Y. relevant to A.Y. 2019-20 was offered at Rs. 26.07 cr. The relevant part of the statement of the 20 was offered at Rs. 26.07 cr. The relevant part of the statement of the 20 was offered at Rs. 26.07 cr. The relevant part of the statement of the partner recorded during the course of survey has been extracted here below for recorded during the course of survey has been extracted here below for recorded during the course of survey has been extracted here below for ready reference. "Q.20. It is seen that, you have sold 340 flats out of total 925 flats. It is "Q.20. It is seen that, you have sold 340 flats out of total 925 flats. It is "Q.20. It is seen that, you have sold 340 flats out of total 925 flats. It is also seen from the details provided by you that you have registered sale also seen from the details provided by you that you have registered sale also seen from the details provided by you that you have registered sale agreement in 98 agreement in 98 flats in all the three buildings. Further, it is seen from the flats in all the three buildings. Further, it is seen from the details available with the department that you have entered into details available with the department that you have entered into details available with the department that you have entered into transactions in respect of sale of the flat of agreement value of Rs. 488 transactions in respect of sale of the flat of agreement value of Rs. 488 transactions in respect of sale of the flat of agreement value of Rs. 488 Crores during F.Y. 2018 Crores during F.Y. 2018-19, however, you have not show 19, however, you have not shown any income from business or profession despite above mentioned transactions. Kindly from business or profession despite above mentioned transactions. Kindly from business or profession despite above mentioned transactions. Kindly Explain?" Ans. Sir, the project 'Montana' has presently three buildings namely Rosa, Ans. Sir, the project 'Montana' has presently three buildings namely Rosa, Ans. Sir, the project 'Montana' has presently three buildings namely Rosa, Sierra and Giona. Till date, we have sold 176 units in building Rosa and Sierra and Giona. Till date, we have sold 176 units in building Rosa and Sierra and Giona. Till date, we have sold 176 units in building Rosa and out of 176 units, agreements have been registered for 90 units. In building nits, agreements have been registered for 90 units. In building nits, agreements have been registered for 90 units. In building Sierra, we have sold 46 units and out of which agreement has been Sierra, we have sold 46 units and out of which agreement has been Sierra, we have sold 46 units and out of which agreement has been registered only for 5 units. In building Giona, we have sold 118 units and registered only for 5 units. In building Giona, we have sold 118 units and registered only for 5 units. In building Giona, we have sold 118 units and out of which agreement have been registered only fo out of which agreement have been registered only for 4 units. With regard r 4 units. With regard to your query for not recognizing the income for the booking made of Rs. to your query for not recognizing the income for the booking made of Rs. to your query for not recognizing the income for the booking made of Rs. 488 crores during F.Y. 2018 488 crores during F.Y. 2018-19, I state that the LLP is following the project 19, I state that the LLP is following the project completion method as per guidance note (Revised 2012) on accounting for completion method as per guidance note (Revised 2012) on accounting for completion method as per guidance note (Revised 2012) on accounting for real estate transactions. As per guidance note, income is to be recognized e transactions. As per guidance note, income is to be recognized e transactions. As per guidance note, income is to be recognized only if following conditions are fulfilled: only if following conditions are fulfilled: (a) All critical approvals necessary for commencement of the project (a) All critical approvals necessary for commencement of the project (a) All critical approvals necessary for commencement of the project have been obtained. These include, wherever applicable: have been obtained. These include, wherever applicable: have been obtained. These include, wherever applicable: (i) Environmental (i) Environmental and other clearances. (ii) Approval of plans, designs, etc. (ii) Approval of plans, designs, etc. (iii) Title to land or other rights to development construction. (iii) Title to land or other rights to development construction. (iii) Title to land or other rights to development construction.

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(iv) Change in land use. (iv) Change in land use. (b) When the stage of completion of the project reaches a reasonable (b) When the stage of completion of the project reaches a reasonable (b) When the stage of completion of the project reaches a reasonable level of development. A reasona level of development. A reasonable level of development is not ble level of development is not achieved achieved achieved if if if the the the expenditure expenditure expenditure incurred incurred incurred on on on construction construction construction and and and development costs is less than 25% of the construction and development costs is less than 25% of the construction and development costs is less than 25% of the construction and development costs as defined in paragraph 2.2 (c) read with development costs as defined in paragraph 2.2 (c) read with development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. paragraphs 2.3 to 2.5. (c) Atleast 25% of the sa (c) Atleast 25% of the saleable project area is secured by contracts leable project area is secured by contracts or agreements with buyers. or agreements with buyers. (d) Atleast 10 % of the total revenue as per the agreements of sale or (d) Atleast 10 % of the total revenue as per the agreements of sale or (d) Atleast 10 % of the total revenue as per the agreements of sale or any other legally enforceable documents are realised at the any other legally enforceable documents are realised any other legally enforceable documents are realised reporting date in respect of each of the contracts and it is reporting date in respect of each of the contracts and it is reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply reasonable to expect that the parties to such contracts will comply reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. with the payment terms as defined in the contracts. with the payment terms as defined in the contracts. In building Sierra and Giona construction work is not completed upt In building Sierra and Giona construction work is not completed upt In building Sierra and Giona construction work is not completed upto 25%, therefore, income cannot be recognised even on percentage completion therefore, income cannot be recognised even on percentage completion therefore, income cannot be recognised even on percentage completion method basis. As far as building Rosa is concerned, construction cost has method basis. As far as building Rosa is concerned, construction cost has method basis. As far as building Rosa is concerned, construction cost has been incurred upto 34.34% including construction expenditure to be been incurred upto 34.34% including construction expenditure to be been incurred upto 34.34% including construction expenditure to be incurred of Rs. 7.25 crores from 22.02. incurred of Rs. 7.25 crores from 22.02.2019 to 31.03.2019. The total 2019 to 31.03.2019. The total agreement value of 176 units sold is of Rs. 304.91 crores out of which agreement value of 176 units sold is of Rs. 304.91 crores out of which agreement value of 176 units sold is of Rs. 304.91 crores out of which agreement has been registered for 90 units for an agreement value of Rs. agreement has been registered for 90 units for an agreement value of Rs. agreement has been registered for 90 units for an agreement value of Rs. 158.87 crores and agreement for 86 units for which agreement value is of 158.87 crores and agreement for 86 units for which agreement value is of 158.87 crores and agreement for 86 units for which agreement value is of Rs. 146.05 crores have not been registered. This is the first year in which 5 crores have not been registered. This is the first year in which 5 crores have not been registered. This is the first year in which the LLP will decide the method to be followed i.e. project completion the LLP will decide the method to be followed i.e. project completion the LLP will decide the method to be followed i.e. project completion method or percentage completion method to recognise the revenue on method or percentage completion method to recognise the revenue on method or percentage completion method to recognise the revenue on project 'Rosa'. As per guidance note, LLP is to reco project 'Rosa'. As per guidance note, LLP is to reco project 'Rosa'. As per guidance note, LLP is to recognise income on percentage completion method for registered agreement only. While percentage completion method for registered agreement only. While percentage completion method for registered agreement only. While recognising the revenue, I expect that, the balance unregistered agreement recognising the revenue, I expect that, the balance unregistered agreement recognising the revenue, I expect that, the balance unregistered agreement will also be registered before the end of current financial year i.e. will also be registered before the end of current financial year i.e. will also be registered before the end of current financial year i.e. 31.03.2019 and accordingly, t 31.03.2019 and accordingly, the estimated income is of Rs. 23.96 crores he estimated income is of Rs. 23.96 crores for current financial year. In this regard, I am submitting the computation for current financial year. In this regard, I am submitting the computation for current financial year. In this regard, I am submitting the computation of aforesaid profit as Annexure I. Therefore, LLP will recognise the income of aforesaid profit as Annexure I. Therefore, LLP will recognise the income of aforesaid profit as Annexure I. Therefore, LLP will recognise the income for A.Y. 2019 for A.Y. 2019-20 on the basis of the actual figures of constr 20 on the basis of the actual figures of construction expenditure incurred and sale agreement registered upto 31.03.2019 and expenditure incurred and sale agreement registered upto 31.03.2019 and expenditure incurred and sale agreement registered upto 31.03.2019 and after setting off the carry forward losses of Rs. 10.99 crores after setting off the carry forward losses of Rs. 10.99 crores after setting off the carry forward losses of Rs. 10.99 crores approximately. Apart from the above, I would like to submit that the piece approximately. Apart from the above, I would like to submit that the piece approximately. Apart from the above, I would like to submit that the piece of land on which the entire project of M of land on which the entire project of Montana was the capital asset of the ontana was the capital asset of the LLP and subsequently, it has been converted into stock LLP and subsequently, it has been converted into stock LLP and subsequently, it has been converted into stock-in-trade. Accordingly, the capital gain on proportionate basis will also arise on sale Accordingly, the capital gain on proportionate basis will also arise on sale Accordingly, the capital gain on proportionate basis will also arise on sale of flats either in the hands of partners or the LLP. As per working of flats either in the hands of partners or the LLP. As per working of flats either in the hands of partners or the LLP. As per working submitted, the component of capital gain in the current financial year the component of capital gain in the current financial year the component of capital gain in the current financial year 2018-19 would be Rs. 26.07 crores. Considering the fact that initially the 19 would be Rs. 26.07 crores. Considering the fact that initially the 19 would be Rs. 26.07 crores. Considering the fact that initially the land was belonging to M/s Lohitka Properties Pvt. Ltd. as capital asset land was belonging to M/s Lohitka Properties Pvt. Ltd. as capital asset land was belonging to M/s Lohitka Properties Pvt. Ltd. as capital asset and subsequently, this company has been converte and subsequently, this company has been converte and subsequently, this company has been converted into M/s Lohitka

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Properties LLP, no capital gain would arise in the hands of the company as Properties LLP, no capital gain would arise in the hands of the company as Properties LLP, no capital gain would arise in the hands of the company as per the provision of section 47 of the I.T. Act 1961. Therefore, in view of the per the provision of section 47 of the I.T. Act 1961. Therefore, in view of the per the provision of section 47 of the I.T. Act 1961. Therefore, in view of the aforesaid facts right now, I, on behalf of M/s Lohitka Properties LLP, offer aforesaid facts right now, I, on behalf of M/s Lohitka Properties LLP, offer aforesaid facts right now, I, on behalf of M/s Lohitka Properties LLP, offer the capital gain in the hands of partners. However, the taxability of the apital gain in the hands of partners. However, the taxability of the apital gain in the hands of partners. However, the taxability of the capital gain in the hands of the partners or LLP would be clarified on capital gain in the hands of the partners or LLP would be clarified on capital gain in the hands of the partners or LLP would be clarified on 25.02.2019 after consulting the senior counsel. 25.02.2019 after consulting the senior counsel. 7.1.1 On perusal of the return of income filed for A.Y. 2019 On perusal of the return of income filed for A.Y. 2019 On perusal of the return of income filed for A.Y. 2019-20, the AO noticed that business income on account of sale of units of building 'Rosa' was declared that business income on account of sale of units of building 'Rosa' was declared that business income on account of sale of units of building 'Rosa' was declared on percentage completion basis and taxable income offered was Rs. 2.81 Cr. on percentage completion basis and taxable income offered was Rs. 2.81 Cr. on percentage completion basis and taxable income offered was Rs. 2.81 Cr. Further, long term capital gain offered was Rs. 15.28 cr. Therefore, there was a Further, long term capital gain offered was Rs. 15.28 cr. Therefore, there was a Further, long term capital gain offered was Rs. 15.28 cr. Therefore, there was a deviation from the quantum of income offered during the course of survey wherein on from the quantum of income offered during the course of survey wherein on from the quantum of income offered during the course of survey wherein business income offered was Rs. 23.96 Cr and long term capital gain offered was business income offered was Rs. 23.96 Cr and long term capital gain offered was business income offered was Rs. 23.96 Cr and long term capital gain offered was 26.07 cr. The AO issued show cause notice calling for explanation regarding the 26.07 cr. The AO issued show cause notice calling for explanation regarding the 26.07 cr. The AO issued show cause notice calling for explanation regarding the reason for the differe reason for the difference in the income offered along with supporting documents. nce in the income offered along with supporting documents. The assessee justified the deviation in the income offered in the return of income The assessee justified the deviation in the income offered in the return of income The assessee justified the deviation in the income offered in the return of income relying on the following arguments (further details can be gathered from Pg 3-8 of relying on the following arguments (further details can be gathered from Pg 3 relying on the following arguments (further details can be gathered from Pg 3 the Assessment order, details o the Assessment order, details of which are avoided for the sake of brevity). f which are avoided for the sake of brevity). (i) Change in the development plan of the project 'Rosa' from original 48 (i) Change in the development plan of the project 'Rosa' from original 48 (i) Change in the development plan of the project 'Rosa' from original 48 floors to 39 floors resulting in reduction of carpet area from 29727 sq mtr floors to 39 floors resulting in reduction of carpet area from 29727 sq mtr floors to 39 floors resulting in reduction of carpet area from 29727 sq mtr to 24139 sq mtr. to 24139 sq mtr. (ii) Increase in the estimated construction (ii) Increase in the estimated construction cost due to input cost of GST on cost due to input cost of GST on account of opting for new scheme of ITC for indirect taxes. account of opting for new scheme of ITC for indirect taxes. account of opting for new scheme of ITC for indirect taxes. (iii) Registration of only 95 flats as against 176 flats envisaged at the time (iii) Registration of only 95 flats as against 176 flats envisaged at the time (iii) Registration of only 95 flats as against 176 flats envisaged at the time of survey. 7.1.2 The LLP justified the revenue offered to tax stating that revenue The LLP justified the revenue offered to tax stating that revenue has been The LLP justified the revenue offered to tax stating that revenue recognised following the percentage completion method as per the guidance note recognised following the percentage completion method as per the guidance note recognised following the percentage completion method as per the guidance note on accounting for real estate transaction (revised 2012), wherein actual cost on accounting for real estate transaction (revised 2012), wherein actual cost on accounting for real estate transaction (revised 2012), wherein actual cost incurred till 31.03.2019 as per the audited financials along with appropriate incurred till 31.03.2019 as per the audited financials along with appropriate incurred till 31.03.2019 as per the audited financials along with appropriate estimated cost for completing 'Rosa' have been considered for declaring business st for completing 'Rosa' have been considered for declaring business st for completing 'Rosa' have been considered for declaring business income. Accordingly there is change in the income offered from long term capital income. Accordingly there is change in the income offered from long term capital income. Accordingly there is change in the income offered from long term capital gain(LTCG). The Assessing Officer rejected the submission made by the appellant gain(LTCG). The Assessing Officer rejected the submission made by the appellant gain(LTCG). The Assessing Officer rejected the submission made by the appellant on the ground that estimat on the ground that estimated cost given during the course of survey and ed cost given during the course of survey and considered in the return of income filed is not correctly reconciled. The AO re- considered in the return of income filed is not correctly reconciled. The AO re considered in the return of income filed is not correctly reconciled. The AO re casted the business profits and income from long term capital gain, the facts in casted the business profits and income from long term capital gain, the facts in casted the business profits and income from long term capital gain, the facts in comparison with what is disclosed by the appellan comparison with what is disclosed by the appellant in the return of income filed is t in the return of income filed is given below : Particulars (A) (B) (C) (D) Estimates Estimates as Actual Estimates as Estimates as Comparison given during given during per the Incurred as on per Assessment per Assessment between (B) the course of the course of Audited March 2019 Order for AY Order for AY and (D) [B-D] Survey Financials for 2019 2019-20 March 2019

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Land Cost 1,12,69,03,365 1,12,69,03,365 98,67,48,367 98,78,88,527 98,78,88,527 (11,40,160) TDR/Developme 88,81,56,523 88,81,56,523 1,03,00,00,000 9,30,33,348 88,81,56,523 14,18,43,77 nt Rights Construction 1,96,13,63,638 1,96,13,63,638 2,13,16,88,634 85,12,34,078 1,96,13,63,638 1,96,13,63,638 17,03,24,996 Cost Finance Cost 1,27,48,08,355 1,27,48,08,355 85,45,65,163 47,48,56,735 85,45,65,163 - Sales Promotion 30,73,24,525 30,73,24,525 25,00,00,000 16,68,71,986 25,00,00,000 - and Marketing Cost Total 5,55,85,56,406 5,55,85,56,406 5,25,30,02,164 2,57,38,84,674 4,94,19,73,851 4,94,19,73,851 31,10,28,313

4.2 The Assessing Officer, however, rejected the explanations The Assessing Officer, however, rejected the explanations The Assessing Officer, however, rejected the explanations furnished by the assessee and proceeded to recompute the business furnished by the assessee and proceeded to recompute furnished by the assessee and proceeded to recompute profits as well as long profits as well as long-term capital gains by adopting revised term capital gains by adopting revised estimates and recalculating the percentage of completion under the estimates and recalculating the percentage of completion under the estimates and recalculating the percentage of completion under the POCM method as under: as under:

Particulars Re calculation of Actual Cost incurred till Actual Cost in Estimated Cost of entire 31st March 2019 for 31st March 2019 for project - Rosa Bldg. Rosa Bldg (As per Rosa Bldg (As per Audited 31 March 2019 Audited 31 March 2019 Financial) Financial) Land Cost 987,888,527 987,888,527 987,888,527 TDR and Development TDR and Development 888,156,523 93,033,348 93,033,348 Rights Construction Cost 1,961,363,638 851,234,078 851,234,078 Finance Cost 854,565,163 474,856,735 474,856,735 Sales, Promotion & 250,000,000 166,871,986 166,871,986 Marketing Cost Total 4,941,973,851 2,573,884,674 2,573,884,674

Actual work completed % as on 31st Actual work completed % as on 31st 52% March 2019 (Construction cost actual March 2019 (Construction cost actual incurred / Recalculated Estimated incurred / Recalculated Estimated cost of project) Total RERA Area in square meter of Total RERA Area in square meter 24,139 Project Montana- Rosa

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Actual RERA area agreement Actual RERA area agreement 7,619 registered till 31st March 2019 (in registered till 31st March 2019 (in square meter) Actual Value of RERA area agreement Actual Value of RERA area agreement 1,715,712,985 registered till 31st March 2019 registered till 31st March 2019 Recalculated revenue for FY 2018-19 Recalculated revenue for FY 2018 893,579,669 (Registered agreement value * % of t value * % of work completed)

Recalculated proportionate cost for FY Recalculated proportionate cost for FY 812,348,090 2018-19 (Actual cost incurred * 19 (Actual cost incurred * Registered Area / Total Area of Registered Area / Total Area of project) Recalculated Business Profit Recalculated Business Profit 81,231,579 Business Profit Offered by Assessee Business Profit Offered by Assessee 28,022,286 Addition - Difference of Business Profit Difference of Business Profit 53,209,293 Recalculated LTCG for FY 2018-19 Recalculated LTCG for FY 2018 162,386,403 (Land Cost * % of work completed * (Land Cost * % of work completed * Registered Area / Total Area of Registered Area / Total Area of project) LTCG Offered by Assessee LTCG Offered by Assessee 152,464,112 Addition - Difference of LTCG Difference of LTCG 9,922,291

4.3 Consequently, additions on account of differential business Consequently, additions on account of differential business Consequently, additions on account of differential business profits and long-term capital gains came to be made in the term capital gains came to be made in the term capital gains came to be made in the assessment order as under:

( in Rs.) Profit & Gains from Business and Profession Business and Profession (As per computation of (As per computation of 3,91,92,647/- income) Add/Disallowances: 5,32,09,293/- (i) Difference of Business (i) Difference of Business Profit

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(as discussed in para 4 (as discussed in para 4 above) Less: 3,88,10,808/- 5,35,91,132/- (i) Set-off of b/f losses (as per computation of (as per computation of income) Long Term Capital Gain (As per computation of computation of 15,24,64,112/- income) 16,23,86,403/- Add/Disallowances: 99,22,291/- (i) Difference of LTCG (as discussed in para 4 (as discussed in para 4 above) Total Income (rounded off u/s 288A) Total Income (rounded off u/s 288A) 21,59,77,540/-

“7.1.3 During the appellate proceedings, the appellant has submitted ground wise “7.1.3 During the appellate proceedings, the appellant has submitted ground wise “7.1.3 During the appellate proceedings, the appellant has submitted ground wise written arguments which is already extracted written arguments which is already extracted in the pre paragraphs. In summary, in the pre paragraphs. In summary, the appellant has stated that the difference in the computation of taxable revenue the appellant has stated that the difference in the computation of taxable revenue the appellant has stated that the difference in the computation of taxable revenue computed by the AO is on account of difference in the estimated ‘construction computed by the AO is on account of difference in the estimated ‘construction computed by the AO is on account of difference in the estimated ‘construction cost’ and estimated ‘TDR and development rights’. The comparison of estimated cost’ and estimated ‘TDR and development rights’. The compar cost’ and estimated ‘TDR and development rights’. The compar cost on the two parameters as returned by the assessee and computed by the AO cost on the two parameters as returned by the assessee and computed by the AO cost on the two parameters as returned by the assessee and computed by the AO is given below:

Particulars Estimated cost considered Estimated cost considered Estimated cost considered Estimated cost considered while filing the Income tax while filing the Income tax by AO while passing the by AO while passing the return return order u/s.143(3) order u/s.143(3 Estimated 213,16,88,634 213,16,88,634 196,13,63,638 196,13,63,638 Construction Cost Estimated TDR and 103,00,00,000 103,00,00,000 88,81,56,523 88,81,56,523 Development rights

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7.1.4 The appellant has justified increase in the estimated construction cost on 7.1.4 The appellant has justified increase in the estimated construction cost on 7.1.4 The appellant has justified increase in the estimated construction cost on account of its decision to opt for new scheme to account of its decision to opt for new scheme to discharge outward GST liability at discharge outward GST liability at reduced rate with the condition of non reduced rate with the condition of non-eligibility of Input tax credit on all the eligibility of Input tax credit on all the purchases of goods as well as services. Regarding the change in the estimation of purchases of goods as well as services. Regarding the change in the estimation of purchases of goods as well as services. Regarding the change in the estimation of TDR cost the appellant has stated that the working of cost for TDR submitted TDR cost the appellant has stated that the working of cos TDR cost the appellant has stated that the working of cos during the survey, was not bifurcated to all the buildings of ‘Montana’ on area during the survey, was not bifurcated to all the buildings of ‘Montana’ on area during the survey, was not bifurcated to all the buildings of ‘Montana’ on area basis and all freely available TDR was allocated to first phase of the project basis and all freely available TDR was allocated to first phase of the project basis and all freely available TDR was allocated to first phase of the project namely ‘Rosa’ building. Subsequently, while filing the return of income the cost of namely ‘Rosa’ building. Subsequently, while filing the return of income the c namely ‘Rosa’ building. Subsequently, while filing the return of income the c TDR was bifurcated for the whole project on carpet area, due to which the cost TDR was bifurcated for the whole project on carpet area, due to which the cost TDR was bifurcated for the whole project on carpet area, due to which the cost has increased compared to the initial estimates during the course of survey.” has increased compared to the initial estimates during the course of survey. has increased compared to the initial estimates during the course of survey.

5.1 After considering the submissions advanced by the assessee, After considering the submissions advanced by the assessee, After considering the submissions advanced by the assessee, the ld. CIT(A) accepted the accepted the revised estimates furnished by the revised estimates furnished by the assessee and deleted the additions made by the Assessing Officer. assessee and deleted the additions made by the Assessing Officer. assessee and deleted the additions made by the Assessing Officer. The learned CIT(A) was of the view that the revision in estimated The learned CIT(A) was of the view that the revision in estimated The learned CIT(A) was of the view that the revision in estimated construction cost and TDR/development rights stood sufficiently construction cost and TDR/development rights stood sufficiently construction cost and TDR/development rights stood sufficiently explained on account of explained on account of post-survey developments, including the survey developments, including the revised revised revised GST GST GST regime, regime, change regime, change change in in in project project project configuration, and configuration, configuration, and and redistribution of TDR costs across various phases of the “Montana” redistribution of TDR costs across various phases of the “Montana” redistribution of TDR costs across various phases of the “Montana” project. The learned CIT(A) further observed that the Assessing project. The learned CIT(A) further observed that the Assessing project. The learned CIT(A) further observed that the Assessing Officer had failed to specif Officer had failed to specifically rebut or dislodge the factual basis ically rebut or dislodge the factual basis underlying the revised estimates furnished by the assessee. The underlying the revised estimates furnished by the assessee. underlying the revised estimates furnished by the assessee. relevant finding of ld CIT(A) is reproduced relevant finding of ld CIT(A) is reproduced as under: as under:

“7.1.5 I have considered the facts of the case and the submission made by the 7.1.5 I have considered the facts of the case and the submission made by the 7.1.5 I have considered the facts of the case and the submission made by the appellant. On comparison of estimated cost for 'Rosa' projected during the course mparison of estimated cost for 'Rosa' projected during the course mparison of estimated cost for 'Rosa' projected during the course of survey and as per re of survey and as per re-casted estimates in the Assessment order, there is a casted estimates in the Assessment order, there is a difference in the estimated 'construction cost' and estimated cost for 'TDR and difference in the estimated 'construction cost' and estimated cost for 'TDR and difference in the estimated 'construction cost' and estimated cost for 'TDR and Development Rights'. The appellan Development Rights'. The appellant has justified the increase in the estimated t has justified the increase in the estimated cost of construction on account of change in the input tax credit against purchase cost of construction on account of change in the input tax credit against purchase cost of construction on account of change in the input tax credit against purchase of goods and services. At the time of survey, the appellant was eligible to claim of goods and services. At the time of survey, the appellant was eligible to claim of goods and services. At the time of survey, the appellant was eligible to claim ITC on all the purchases of goods as well as ITC on all the purchases of goods as well as services against its output GST services against its output GST liability. However, the appellant has opted for new scheme of central tax(GST) liability. However, the appellant has opted for new scheme of central tax(GST) liability. However, the appellant has opted for new scheme of central tax(GST) which was notified vide Notification No.3 of 2019 according to which the which was notified vide Notification No.3 of 2019 according to which the which was notified vide Notification No.3 of 2019 according to which the

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beneficiaries who opt for the scheme would discharge outward GST liability at a beneficiaries who opt for the scheme would discharge outward GST liabili beneficiaries who opt for the scheme would discharge outward GST liabili reduced rate with the condition of non reduced rate with the condition of non-eligibility of input tax credit on all its eligibility of input tax credit on all its purchases as well as services. The appellant has submitted before the AO that, it purchases as well as services. The appellant has submitted before the AO that, it purchases as well as services. The appellant has submitted before the AO that, it has opted for the new concession scheme vide letter dated 30.4.2019 submitted has opted for the new concession scheme vide letter dated 30.4.2019 submitted has opted for the new concession scheme vide letter dated 30.4.2019 submitted to the GST department. The appellant has submitted that the total construction GST department. The appellant has submitted that the total construction GST department. The appellant has submitted that the total construction cost projected at the time of survey was Rs.196,13,63,638/ cost projected at the time of survey was Rs.196,13,63,638/- as against which the as against which the projected cost in the return of income filed was Rs.213,16,88,634/-. The projected cost in the return of income filed was Rs.213,16,88,634/ projected cost in the return of income filed was Rs.213,16,88,634/ difference of Rs.17,03,24,996 difference of Rs.17,03,24,996/- has been attributed to the additional cost on has been attributed to the additional cost on account of GST on all purchases including services @18%. The detailed working account of GST on all purchases including services @18%. The detailed working account of GST on all purchases including services @18%. The detailed working explaining the impact of change in the ITC on the project cost is give by the explaining the impact of change in the ITC on the project cost is give by the explaining the impact of change in the ITC on the project cost is give by the appellant. From the working the appellant is able t appellant. From the working the appellant is able to explain the additional cost o explain the additional cost loaded on the estimated cost for completing 'Rosa'. loaded on the estimated cost for completing 'Rosa'. 7.1.6. Regarding change in the estimated cost of TDR & Development rights, the 7.1.6. Regarding change in the estimated cost of TDR & Development rights, the 7.1.6. Regarding change in the estimated cost of TDR & Development rights, the appellant has stated that the working given during the survey, had considered appellant has stated that the working given during the survey, had considered appellant has stated that the working given during the survey, had considered cost of all freely available TDR to 'Rosa'. Subsequently, at the time of finalisation ely available TDR to 'Rosa'. Subsequently, at the time of finalisation ely available TDR to 'Rosa'. Subsequently, at the time of finalisation of the return for FY 2018 of the return for FY 2018-19, the estimated cost for TDR including freely available 19, the estimated cost for TDR including freely available TDR and Purchased TDR was allocated to all the buildings of project 'Montana' in TDR and Purchased TDR was allocated to all the buildings of project 'Montana' in TDR and Purchased TDR was allocated to all the buildings of project 'Montana' in the proportion of their proposed Built up Area. This has lead to the increase in the eir proposed Built up Area. This has lead to the increase in the eir proposed Built up Area. This has lead to the increase in the estimated cost of TDR for 'Rosa'. The appellant has submitted that, at the time estimated cost of TDR for 'Rosa'. The appellant has submitted that, at the time estimated cost of TDR for 'Rosa'. The appellant has submitted that, at the time finalisation of accounts for the FY ending on 31.03.2019, the proposed RERA built finalisation of accounts for the FY ending on 31.03.2019, the proposed RERA built finalisation of accounts for the FY ending on 31.03.2019, the proposed RERA built up area of the all the Buildi up area of the all the Buildings (Rosa, Sierra, Giona & Blissberg) has been ngs (Rosa, Sierra, Giona & Blissberg) has been considered to estimate the TDR & Development rights. The appellant has considered to estimate the TDR & Development rights. The appellant has considered to estimate the TDR & Development rights. The appellant has submitted that without considering the estimated cost for the entire project, the submitted that without considering the estimated cost for the entire project, the submitted that without considering the estimated cost for the entire project, the projection of cost for 'Rosa' alone would result in dist projection of cost for 'Rosa' alone would result in distorted profits. orted profits. 7.1.7. The survey under section 133A of the Act in this case established the 7.1.7. The survey under section 133A of the Act in this case established the 7.1.7. The survey under section 133A of the Act in this case established the factual details regarding the project 'Montana' developed by the appellant. The factual details regarding the project 'Montana' developed by the appellant. The factual details regarding the project 'Montana' developed by the appellant. The appellant had documented customer intent and sold 340 units across the appellant had documented customer intent and sold 340 units across the appellant had documented customer intent and sold 340 units across the buildings Rosa, Sierra, and Giona; however, only 99 units had registered sale a, Sierra, and Giona; however, only 99 units had registered sale a, Sierra, and Giona; however, only 99 units had registered sale deeds at the time of the survey. The appellant clarified that the costs incurred for deeds at the time of the survey. The appellant clarified that the costs incurred for deeds at the time of the survey. The appellant clarified that the costs incurred for Sierra and Giona were below the threshold required, resulting in only the 'Rosa' Sierra and Giona were below the threshold required, resulting in only the 'Rosa' Sierra and Giona were below the threshold required, resulting in only the 'Rosa' building meeting the crit building meeting the criteria for revenue recognition under the percentage eria for revenue recognition under the percentage completion method according to the revised 2012 guidance note for real estate completion method according to the revised 2012 guidance note for real estate completion method according to the revised 2012 guidance note for real estate transactions. As of the survey date (21.02.2019), the appellant had executed 90 transactions. As of the survey date (21.02.2019), the appellant had executed 90 transactions. As of the survey date (21.02.2019), the appellant had executed 90 registered sale deeds for Rosa and anticipated t registered sale deeds for Rosa and anticipated that the remaining 86 sold units hat the remaining 86 sold units would have registered sale deeds completed by 31.03.2019. The estimated would have registered sale deeds completed by 31.03.2019. The estimated would have registered sale deeds completed by 31.03.2019. The estimated business income of Rs 23.96 crore was contingent on securing legally enforceable business income of Rs 23.96 crore was contingent on securing legally enforceable business income of Rs 23.96 crore was contingent on securing legally enforceable sale deeds for these units. Contrary to initial expectations, registered sale deeds sale deeds for these units. Contrary to initial expectations, registere sale deeds for these units. Contrary to initial expectations, registere were ultimately executed for only 5 additional units, bringing the total to 95 units were ultimately executed for only 5 additional units, bringing the total to 95 units were ultimately executed for only 5 additional units, bringing the total to 95 units with registered sale deeds. with registered sale deeds. 7.1.8. Subsequent to the survey, there are two important events which have 7.1.8. Subsequent to the survey, there are two important events which have 7.1.8. Subsequent to the survey, there are two important events which have impacted the projections of revenue from 'Rosa'. The or impacted the projections of revenue from 'Rosa'. The original plan was to develop iginal plan was to develop Rosa up to 48 Floors with carpet area of 29727 square meters which was Rosa up to 48 Floors with carpet area of 29727 square meters which was Rosa up to 48 Floors with carpet area of 29727 square meters which was subsequently revised to the 39 floors with RERA carpet area of 24139 square subsequently revised to the 39 floors with RERA carpet area of 24139 square subsequently revised to the 39 floors with RERA carpet area of 24139 square meters. The appellant had to incur the cost for reinforcement for 48 floors which meters. The appellant had to incur the cost for reinforcement for 48 floors which meters. The appellant had to incur the cost for reinforcement for 48 floors which

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was subsequently revised to 39 floors, hence resulting in excess cost attributable was subsequently revised to 39 floors, hence resulting in excess cost attributable was subsequently revised to 39 floors, hence resulting in excess cost attributable to 'Rosa'. The appellant has further opted for opted for a new concessional to 'Rosa'. The appellant has further opted for opted for a new concessional to 'Rosa'. The appellant has further opted for opted for a new concessional scheme of Central tax wherein it would be pay output GST at a reduced rate but scheme of Central tax wherein it would be pay output GST at a reduced rate but scheme of Central tax wherein it would be pay output GST at a reduced rate but forego the claim of ITC on all its purchases of goods and services. This has f ITC on all its purchases of goods and services. This has f ITC on all its purchases of goods and services. This has resulted in increased cost for 'Rosa'. During Survey, the estimated cost of TDR & resulted in increased cost for 'Rosa'. During Survey, the estimated cost of TDR & resulted in increased cost for 'Rosa'. During Survey, the estimated cost of TDR & Developments were on the basis of carpet area (Original) for 'Rosa' alone, Developments were on the basis of carpet area (Original) for 'Rosa' alone, Developments were on the basis of carpet area (Original) for 'Rosa' alone, whereas at the time of filing the return whereas at the time of filing the return of income the appellant has considered the of income the appellant has considered the revised carpet area of 'Rosa' as well as carpet area of other buildings namely revised carpet area of 'Rosa' as well as carpet area of other buildings namely revised carpet area of 'Rosa' as well as carpet area of other buildings namely Sierra, Giona & Blissberg, which has resulted in upward revision of the Sierra, Giona & Blissberg, which has resulted in upward revision of the Sierra, Giona & Blissberg, which has resulted in upward revision of the estimation of the cost of TDR & Development Rights. estimation of the cost of TDR & Development Rights. 7.1.9. Upon review of the case facts, it is evident that the circumstances outlined 7.1.9. Upon review of the case facts, it is evident that the circumstances outlined 7.1.9. Upon review of the case facts, it is evident that the circumstances outlined above—occurring after the survey and prior to filing the Income Tax Return for AY occurring after the survey and prior to filing the Income Tax Return for AY occurring after the survey and prior to filing the Income Tax Return for AY 2019-20 on 10.08.2020 20 on 10.08.2020—resulted in an upward revision of the estimated resulted in an upward revision of the estimated construction cost as well as the TDR and development costs. Factors contributing well as the TDR and development costs. Factors contributing to these revised estimates include the modification of floor count from 48 to 39, to these revised estimates include the modification of floor count from 48 to 39, to these revised estimates include the modification of floor count from 48 to 39, adoption of a concessional tax scheme for output GST, and allocation of TDR cost adoption of a concessional tax scheme for output GST, and allocation of TDR cost adoption of a concessional tax scheme for output GST, and allocation of TDR cost across all 'Montana' buildings b across all 'Montana' buildings based on their respective RERA carpet areas. ased on their respective RERA carpet areas. Additionally, the audited financial statements confirm that only 95 units of 'Rosa' Additionally, the audited financial statements confirm that only 95 units of 'Rosa' Additionally, the audited financial statements confirm that only 95 units of 'Rosa' were secured through legally enforceable registered sale deeds, which were secured through legally enforceable registered sale deeds, which were secured through legally enforceable registered sale deeds, which substantially decreased business income from the sale of Rosa units reported substantially decreased business income from the sale of R substantially decreased business income from the sale of R during the survey versus that declared in the return. All relevant information was during the survey versus that declared in the return. All relevant information was during the survey versus that declared in the return. All relevant information was duly communicated to the Assessing Officer (AO) during the assessment duly communicated to the Assessing Officer (AO) during the assessment duly communicated to the Assessing Officer (AO) during the assessment proceedings. Nevertheless, the AO dismissed the appellant's arguments without proceedings. Nevertheless, the AO dismissed the appellant's arguments without proceedings. Nevertheless, the AO dismissed the appellant's arguments without identifying any deficiencies in the factual submissions provided. The AO also did fying any deficiencies in the factual submissions provided. The AO also did fying any deficiencies in the factual submissions provided. The AO also did not address or disprove the appellant's rationale for the upward revision of the not address or disprove the appellant's rationale for the upward revision of the not address or disprove the appellant's rationale for the upward revision of the estimated costs. Instead, the AO rejected the appellant's claims regarding TDR estimated costs. Instead, the AO rejected the appellant's claims regarding TDR estimated costs. Instead, the AO rejected the appellant's claims regarding TDR and development righ and development rights as well as construction costs, while adopting figures from ts as well as construction costs, while adopting figures from audited financials relating to land, finance, and marketing costs—without audited financials relating to land, finance, and marketing costs audited financials relating to land, finance, and marketing costs providing justifications for such rejections. This approach, involving the dismissal providing justifications for such rejections. This approach, involving the dismissal providing justifications for such rejections. This approach, involving the dismissal of an appellant's claims without ad of an appellant's claims without addressing the underlying facts, is unwarranted. dressing the underlying facts, is unwarranted. Accordingly, the business income offered by the appellant under the percentage Accordingly, the business income offered by the appellant under the percentage Accordingly, the business income offered by the appellant under the percentage completion method for 'Rosa' for PY 2018 completion method for 'Rosa' for PY 2018-19, using the estimated costs reflected 19, using the estimated costs reflected in the filed return, is upheld as justified. Simi in the filed return, is upheld as justified. Similarly, the associated long larly, the associated long-term capital gains (LTCG) taxed on the basis of the total area. capital gains (LTCG) taxed on the basis of the total area.” 6. Before us, the learned Departmental Representative assailed the Before us, the learned Departmental Representative assailed the Before us, the learned Departmental Representative assailed the findings of the learned CIT(A) primarily on the ground that the findings of the learned CIT(A) primarily on the ground that the findings of the learned CIT(A) primarily on the ground that the revised estimates accepted by the revised estimates accepted by the first appellate authority lacked first appellate authority lacked proper third-party corroboration and had been accepted without party corroboration and had been accepted without party corroboration and had been accepted without adequate factual verification. It was contended that neither the adequate factual verification. It was contended that neither the adequate factual verification. It was contended that neither the actual GST impact on vendor actual GST impact on vendor-wise invoices nor the phase wise invoices nor the phase-wise

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utilisation and allocation of TDR utilisation and allocation of TDR/development rights had been /development rights had been independently verified. It was further submitted that the learned independently verified. It was further submitted that the learned independently verified. It was further submitted that the learned CIT(A) accepted the revised projections merely on the basis of broad CIT(A) accepted the revised projections merely on the basis of broad CIT(A) accepted the revised projections merely on the basis of broad estimations and assertions advanced by the assessee without estimations and assertions advanced by the assessee without estimations and assertions advanced by the assessee without undertaking the requisite scruti undertaking the requisite scrutiny mandated under the law. ny mandated under the law.

6.1 the ld DR specifically referred to the ld DR specifically referred to the ground No.5 of the appeal the ground No.5 of the appeal, wherein the Revenue has prayed that matter may be set the Revenue has prayed that matter may be set the Revenue has prayed that matter may be set-aside for de novo verification of (i) actual vendor/contract de novo verification of (i) actual vendor/contract-wise GST impact wise GST impact on construction cost, (ii) on construction cost, (ii) TDR purchase and phase- -wise utilization mapping, (iii) quantified cost effect of floor mapping, (iii) quantified cost effect of floor-plan revision, and (iv) plan revision, and (iv) POCM consistency between registered agreements (revenue trigger) POCM consistency between registered agreements (revenue trigger) POCM consistency between registered agreements (revenue trigger) and the cost base.

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7.1 It is an undisputed position that during the survey proceedings, It is an undisputed position that during the survey proceedings, It is an undisputed position that during the survey proceedings, the assessee had furnished certain projected figures based upon the assessee had furnished certain projected figures based upon the assessee had furnished certain projected figures based upon anticipated registrations of flats and estimated project costs. anticipated registrations of flats and estimated project costs. anticipated registrations of flats and estimated project costs. Subsequently, at the stage of filing the return of income, the , at the stage of filing the return of income, the , at the stage of filing the return of income, the assessee revised such projections citing intervening developments, assessee revised such projections citing intervening developments, assessee revised such projections citing intervening developments, including revision in floor plans, change in GST regime, and revised including revision in floor plans, change in GST regime, and revised including revision in floor plans, change in GST regime, and revised allocation of TDR cost across phases of the project. While the allocation of TDR cost across phases of the project. While the allocation of TDR cost across phases of the project. While the assessee has broadly explained the reasons for such variation, the ee has broadly explained the reasons for such variation, the ee has broadly explained the reasons for such variation, the factual substratum supporting these revised estimates has factual substratum supporting these revised estimates has factual substratum supporting these revised estimates has admittedly not been subjected to comprehensive verification at the admittedly not been subjected to comprehensive verification at the admittedly not been subjected to comprehensive verification at the assessment stage. In particular, we find merit in the contention of assessment stage. In particular, we find merit in the contention of assessment stage. In particular, we find merit in the contention of the Revenue that the impact of denial of input tax credit under the he Revenue that the impact of denial of input tax credit under the he Revenue that the impact of denial of input tax credit under the revised GST scheme requires proper verification on the basis of revised GST scheme requires proper verification on the basis of revised GST scheme requires proper verification on the basis of vendor-wise and invoice wise and invoice-wise details rather than broad estimations. wise details rather than broad estimations. Similarly, allocation of TDR/development rights across various Similarly, allocation of TDR/development rights across va Similarly, allocation of TDR/development rights across va phases of the project, the actual impact of reduction in number of phases of the project, the actual impact of reduction in number of phases of the project, the actual impact of reduction in number of floors, and consistency of revenue recognition with registered floors, and consistency of revenue recognition with registered floors, and consistency of revenue recognition with registered agreements and corresponding project costs also require detailed agreements and corresponding project costs also require detailed agreements and corresponding project costs also require detailed factual examination. These matters are intrinsically factual in factual examination. These matters are intrinsically fa factual examination. These matters are intrinsically fa nature and cannot be conclusively adjudicated merely on the basis nature and cannot be conclusively adjudicated merely on the basis nature and cannot be conclusively adjudicated merely on the basis of generalized explanations or estimated workings. of generalized explanations or estimated workings. 7.2 Another issue is regarding Another issue is regarding the Revenue recognition from the Revenue recognition from the project. The assessee reported assessee reported a certain figure during the course certain figure during the course of survey proceedings. However . However, in the return of income filed in the return of income filed, another

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figure has been reported figure has been reported, though the assessee has provided basic the assessee has provided basic reasons as due to change of the as due to change of the floors, cost of the construction cost of the construction as well as the TDR cost has varied. Similarly, well as the TDR cost has varied. Similarly, regarding the Revenue regarding the Revenue recognition, the assessee the assessee contended that those certain flats certain flats were to be registered before 31/03/2019, before 31/03/2019, while declaring Revenue from the while declaring Revenue from the flats during the survey. However, survey. However, the same were not registered same were not registered before 31/03/2019 a before 31/03/2019 and not considered for computing for computing profit under POCM while filing return of income POCM while filing return of income. 7.3 In our considered opinion, neither the approach adopted by In our considered opinion, neither the approach adopted by In our considered opinion, neither the approach adopted by the Assessing Officer in outrightly rejecting the revised estimates the Assessing Officer in outrightly rejecting the revised estimates the Assessing Officer in outrightly rejecting the revised estimates nor the acceptance thereof by the learned CIT(A) without exhaustive nor the acceptance thereof by the learned CIT(A) without ex nor the acceptance thereof by the learned CIT(A) without ex verification fully sub verification fully sub-serves the ends of justice. The matter, serves the ends of justice. The matter, therefore, warrants comprehensive factual verification so as to therefore, warrants comprehensive factual verification so as to therefore, warrants comprehensive factual verification so as to ascertain the correctness of the computation of profits under the ascertain the correctness of the computation of profits under the ascertain the correctness of the computation of profits under the POCM method adopted by the assessee. POCM method adopted by the assessee.

in the facts and circumstances of the case, we 7.4 Accordingly, in the facts and circumstances of the case, we in the facts and circumstances of the case, we deem it appropriate to set aside the impugned order of the learned deem it appropriate to set aside the impugned order of the learned deem it appropriate to set aside the impugned order of the learned CIT(A) on the issue in dispute and restore the matter to the file of CIT(A) on the issue in dispute and restore the matter to the file of CIT(A) on the issue in dispute and restore the matter to the file of the Assessing Officer for de novo adjudication. The Assessing Officer the Assessing Officer for de novo adjudication. The Assessing Officer the Assessing Officer for de novo adjudication. The Assessing Officer shall carry out proper verification of the components forming part of ll carry out proper verification of the components forming part of ll carry out proper verification of the components forming part of the computation of profits under the POCM method, including but the computation of profits under the POCM method, including but the computation of profits under the POCM method, including but not limited to:–

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(i) actual vendor-wise wise and and contract-wise contract wise GST GST impact impact on on construction cost;

(ii) purchase, allocation, and uti (ii) purchase, allocation, and utilisation of TDR/development rights lisation of TDR/development rights phase-wise;

(iii) quantified cost implications arising from revision of floor plans; (iii) quantified cost implications arising from revision of floor plans; (iii) quantified cost implications arising from revision of floor plans; and

(iv) consistency between revenue recognition under the POCM (iv) consistency between revenue recognition under the POCM (iv) consistency between revenue recognition under the POCM method and registered agreements along with the corresponding method and registered agreements along with the corresponding method and registered agreements along with the corresponding cost base.

7.5 The assessee shall extend full cooperation and furnish all The assessee shall extend full cooperation and furnish all The assessee shall extend full cooperation and furnish all requisite documentary evidences and reconciliations before the requisite documentary evidences and reconciliations before the requisite documentary evidences and reconciliations before the Assessing Officer. Needless to observe, the Assessing Officer shall Assessing Officer. Needless to observe, the Assessing Officer shall Assessing Officer. Needless to observe, the Assessing Officer shall afford adequate opportunity of hearing to the assessee and afford adequate opportunity of hearing to the assessee and afford adequate opportunity of hearing to the assessee and thereafter pass a speaking order in accordance with law. ereafter pass a speaking order in accordance with law. ereafter pass a speaking order in accordance with law. The grounds of the appeal of the Revenue are accordingly allowed for grounds of the appeal of the Revenue are accordingly allowed for grounds of the appeal of the Revenue are accordingly allowed for statistical purposes.

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Order pronounced in the open Court on ounced in the open Court on 19/0 /05/2026.

Sd/- Sd/ Sd/- (ANIKESH BANERJEE ANIKESH BANERJEE) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 19/05/2026 M. Ranganath Vittal , Sr. P.S. M. Ranganath Vittal , Sr. P.S.

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