Ad hoc profit additions need objective support; unsupported WIP estimates and partner interest disallowance were rejected.

An ad hoc profit addition on work-in-progress was held unsustainable where the 10% completion estimate had no objective material, comparative data, or project-specific benchmark; the addition was deleted. Interest paid to a partner on capital introduced in the firm was also deleted because the payment was supported by the books and explanations, and no reliable basis showed the rate to be excessive or otherwise inadmissible. The stated principle is that estimated additions and disallowances cannot rest on conjecture and must be backed by rational, record-based support.

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Issues: (i) Whether the addition made by estimating profit on work-in-progress by applying an ad hoc percentage completion method was sustainable. (ii) Whether the disallowance of interest paid to the partner on capital introduced in the firm was justified.

Issue (i): Whether the addition made by estimating profit on work-in-progress by applying an ad hoc percentage completion method was sustainable.

Analysis: The assessee followed the project completion method and had capitalised project and interest into work-in-progress. The appellate order had reduced the addition to 10% of the incremental work-in-progress, but that percentage was not founded on any objective material, comparative data, or project-specific benchmark. An ad hoc estimate without a factual basis could not be sustained.

Conclusion: The addition based on the estimated 10% profit on work-in-progress was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance of interest paid to the partner on capital introduced in the firm was justified.

Analysis: The interest was paid on funds introduced by the partner and was supported by the books and the assessee's explanations. No comparable material or other reliable basis was brought to show that the rate of interest was excessive or otherwise inadmissible. The interest formed part of the financial cost of the project, and no infirmity was found in the appellate order allowing the claim.

Conclusion: The disallowance of interest was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The revenue's appeal failed, the assessee's appeal on the estimated profit issue succeeded, and the remaining appeal was restored for fresh verification, leaving the overall outcome partly in favour of the assessee.

Ratio Decidendi: An ad hoc profit addition or disallowance cannot be sustained unless it is supported by objective material, comparative analysis, or other rational basis; admitted project costs and interest expenses supported by the record cannot be rejected merely on conjecture.

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