Advances against flat sales and arbitrary project expense disallowance were deleted where books and vouchers supported the assessee's claims.

Advances received against sale of flats were held unsupported for addition where the receipts were backed by construction and sale records, the flats were reflected in the books in later years, and tax had been paid on the corresponding sales; unserved notices under section 133(6) were not enough to treat the advances as bogus, so the addition was deleted. An ad hoc disallowance of project expenses was also deleted because the expenditure was supported by bills and vouchers, related to the construction project, and had largely been carried forward to work-in-progress; an arbitrary percentage disallowance without proper basis was unsustainable.

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Issues: (i) Whether the addition of Rs. 14,71,000 on account of advances received against sale of flats was sustainable. (ii) Whether the ad hoc disallowance of Rs. 16,75,860 out of project expenses was sustainable.

Issue (i): Whether the addition of Rs. 14,71,000 on account of advances received against sale of flats was sustainable.

Analysis: The advances were supported by the construction and sale of flats, including details of receipts and adjustment against sale in the books. The sales were reflected in the accounts in subsequent years and tax had been paid thereon. The material did not justify treating the advances as bogus merely because some notices under section 133(6) were returned unserved.

Conclusion: The addition of Rs. 14,71,000 was not sustainable and was directed to be deleted, in favour of the assessee.

Issue (ii): Whether the ad hoc disallowance of Rs. 16,75,860 out of project expenses was sustainable.

Analysis: The project expenses were supported by bills and vouchers and were incurred in connection with the construction project. A substantial part of the expenditure stood carried forward to work-in-progress, and the disallowance was made on an arbitrary percentage basis without a proper foundation.

Conclusion: The ad hoc disallowance of Rs. 16,75,860 was not sustainable and was directed to be deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded on the two substantive grounds and remained dismissed for the grounds not pressed or requiring no adjudication, resulting in partial relief to the assessee.

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