Accrual of income on completed flat sales turns on possession and receipt, while profit computation and cash additions need fresh verification.

Income from sale of completed flats was treated as accruing when possession had been handed over and consideration received, even though the overall project remained unfinished and some ancillary bank or utility obligations were pending. The project completion method did not defer tax on units already completed for sale, but the assessee's business-related bank liability had to be verified and factored into the true profit computation. Alleged unaccounted cash receipts over and above sale consideration were not finally established on the existing record, so the additions required fresh examination of the agreements, special audit material, and supporting evidence after giving the assessee an opportunity of hearing.

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Issues: (i) Whether profit from sale of flats was taxable in the relevant years on the basis of possession having been handed over and consideration having been received, notwithstanding the assessee's project completion method and pending bank-related obligations; (ii) Whether the additions for alleged unaccounted cash receipts over and above the sale consideration required fresh adjudication.

Issue (i): Whether profit from sale of flats was taxable in the relevant years on the basis of possession having been handed over and consideration having been received, notwithstanding the assessee's project completion method and pending bank-related obligations.

Analysis: The flats or units in respect of which possession had been handed over were treated as completed sales for tax purposes. The fact that the overall project was not fully complete, or that some ancillary obligations such as water, sewerage, electricity connections, or bank settlements were still pending, did not postpone accrual of income from the completed units. At the same time, the assessee's liability to the bank was business-related and had to be taken into account while determining the true profit. The matter of the exact bank liability and the correct computation of net receipts and cost was therefore required to be verified afresh.

Conclusion: Profit on the units where possession had been handed over was taxable in the relevant years, but the working of net receipts and project cost was remitted for fresh verification and recomputation.

Issue (ii): Whether the additions for alleged unaccounted cash receipts over and above the sale consideration required fresh adjudication.

Analysis: The additions were said to rest on disputed factual assumptions and the record required examination of the agreements, the special audit material, and the supporting evidence. The factual matrix concerning alleged extra cash receipts was not finally resolved on the existing record, and a de novo inquiry was considered necessary.

Conclusion: This issue was remanded to the Assessing Officer for fresh adjudication after verification of the evidence and after giving the assessee an opportunity of hearing.

Final Conclusion: The appeals were partly allowed, with the core principle that income from completed flat sales could not be deferred until the entire project ended, while the computation of profits and the disputed cash-addition issues required fresh examination at the assessment stage.

Ratio Decidendi: In a real estate development business, income from a completed unit accrues when possession is handed over and consideration is realized, even if the larger project is unfinished, but related business liabilities and correct cost computation must be adjusted on the basis of verified evidence.

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