No addition can be made in respect of contract income in absence of any real income:

AO made addition in respect of advance received by the assessee for construction of a bungalow which came to be confirmed by Ld. CIT(A). On further appeal, the Hon’ble ITAT observed that the advance received by the assessee was shown on liability side under the head “Unsecured loans” whereas expenditure incurred on such construction work was shown on the asset side under the head “Receivable against construction work”. AO made the impugned addition to the extent of difference between such advance received and expenditure incurred by treating the same as contract income. It was also observed that the assessee had received further sum towards such construction work in subsequent year. However, since the assessee couldn’t complete the given work, the said project was abandoned and the assessee returned the advance received in excess of expenditure incurred by it on such project. Thus, the assessee had earned no real income on the said project. In light of the above, the said addition was deleted.

[N.G. Patel & Associates vs. DCIT – ITA No.223/Ahd/2010]