Cost of improvement and project profit taxation require cogent evidence; additions based on suspicion or double taxation cannot stand.

A disallowance cannot rest on suspicion where the assessee supports a cost of improvement claim with primary evidence such as an MOU, architect's certificate, invoices, cheque payments and TDS records, and the Revenue does not conduct adequate enquiry to rebut them; the addition on that issue was deleted, subject to limited verification of supporting documents. In relation to real estate project profits, the assessee's use of the percentage completion method and the claim that the same project income had already been offered across relevant years required year-wise verification; if full taxation of the project profit is confirmed, further addition would amount to double taxation. The matter was remitted for such verification.

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Issues: (i) Whether the assessee's claim of cost of improvement incurred on extensive repairs and modifications to the factory building was genuine and allowable; (ii) Whether the addition made on account of booking of sales and profit recognition in the real estate project was sustainable for the year under appeal.

Issue (i): Whether the assessee's claim of cost of improvement incurred on extensive repairs and modifications to the factory building was genuine and allowable.

Analysis: The assessee produced an MOU, an architect's certificate, invoices, cheque payments, and evidence of tax deduction at source to support that the expenditure was incurred for making the existing structure fit for sale. The Revenue relied mainly on an inspector report and alleged discrepancies in some supplier details, but no further enquiry was made with the buyers, banks, VAT authorities, municipal authorities, or technical experts. The Tribunal held that the disallowance rested on conjectures and suspicion rather than cogent material, and that the claim could not be rejected merely because the Revenue doubted some invoices or the permissions obtained.

Conclusion: The disallowance of the cost of improvement could not be sustained; the addition was deleted, subject to limited verification of the supporting invoices and payments.

Issue (ii): Whether the addition made on account of booking of sales and profit recognition in the real estate project was sustainable for the year under appeal.

Analysis: The assessee consistently followed the percentage completion method and had offered profits from the project across multiple years. The project had received an occupancy certificate, but the assessee asserted that finishing work and handing over of possession for some units continued into the next year, and the Revenue had not rejected the books of account. The Tribunal noted the assessee's plea that the project's income was ultimately offered and taxed in the succeeding years, making the exercise revenue neutral, and observed that if the entire project profit had already been offered in the relevant years, the impugned addition would result in double taxation. The matter therefore required verification of whether the full project profit had been brought to tax across the relevant years.

Conclusion: The issue was remitted to the Assessing Officer for verification, with the addition to be deleted if the assessee's claim of full taxation of the project profit in the relevant years is found correct.

Final Conclusion: The appeal succeeded on the first issue and was sent back for verification on the second issue, with consequential relief depending on the Revenue's examination of the assessee's year-wise taxation of project profits.

Ratio Decidendi: A disallowance or revenue addition cannot be sustained on mere suspicion or incomplete enquiry when the assessee has produced primary supporting evidence and the Revenue fails to bring cogent material to rebut it; in project accounting matters, if the same income is already taxed across relevant years, further addition for the same receipts is not justified.

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