Tribunal directs AO to estimate profit, reduces CIT(A) enhancement, allows assessee's appeal.

The tribunal concluded that the method proposed by the Ld. CIT(A) was not applicable to the present case. The tribunal directed the AO to estimate the profit of the assessee based on the revised estimation of profit per Sq. ft. Accordingly, the enhancement proposed by the Ld. CIT(A) was reduced to Rs. 55,64,424/-. The grounds raised by the assessee were allowed, and the appeal filed by the assessee was allowed.

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Issues Involved:
1. Uncalled for Enhancement of Income
2. Percentage of Completion Method not Appreciated
3. Profits Exceeding Revenue

Detailed Analysis:

1. Uncalled for Enhancement of Income:
The assessee challenged the enhancement of income by Rs. 2,58,43,592/- by the Ld. CIT(A). The Ld. CIT(A) had rejected the assessee's contention that the method adopted for working out the profit of a year on the basis of the percentage of completion method of revenue recognition was incorrect. The Ld. CIT(A) argued that the profit for a particular year can exceed the sales made during the year, as illustrated by an example involving projected revenue and cost. The Ld. CIT(A) also rejected the assessee's claim that expenses incurred in respect of the 'NOP' project were not accounted for, stating that the cost incurred during the year of Rs. 80,34,214/- was taken into account while arriving at the projected cost and profit for the year.

2. Percentage of Completion Method not Appreciated:
The assessee argued that the percentage of completion method should be applied on a cumulative basis in each reporting period to the current estimates of the project revenues and costs, as per the ICAI guidance note GN(A) 23 (Revised 2012). The assessee contended that the method used by the Ld. CIT(A) was incorrect and that the balance profit should be estimated based on the revenue recognized and the pending unsold flats. The tribunal noted that the assessee was following the percentage completion method and had two main streams of revenue from the 'NOP' project and another project. The tribunal recognized that the percentage of completion method could be applied only when the economic substance in real estate development and construction contracts is the same.

3. Profits Exceeding Revenue:
The Ld. CIT(A) had argued that the profit for a particular year could exceed the sales made during the year. The assessee, however, contended that the net profit of a year cannot exceed the gross revenue of or attributable to the relevant year. The tribunal agreed with the assessee's contention that the profit should be recognized based on the unsold stock and balance profit to be recognized based on actual sales. The tribunal noted that the prudent method would be to recognize the profit based on the unsold stock and balance profit to be recognized based on actual sales. The tribunal directed the AO to estimate the profit of the assessee to the extent of sales achieved during the year, i.e., 1032 Sq. ft., and to estimate the profit of Rs. 55,64,424/-.

Conclusion:
The tribunal concluded that the method proposed by the Ld. CIT(A) was not applicable to the present case. The tribunal directed the AO to estimate the profit of the assessee based on the revised estimation of profit per Sq. ft. Accordingly, the enhancement proposed by the Ld. CIT(A) was reduced to Rs. 55,64,424/-. The grounds raised by the assessee were allowed, and the appeal filed by the assessee was allowed.

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