Disclosure in tax Audit Report in Form 3CD in Part B at Serial No. 21a does not automatically results in disallowance.
ABCAUS Case Law Citation
ABCAUS 3559 (2021) (10) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the disallowance made by CPC Bangalore in intimation u/s 143(1) of the Income Tax Act, 1961 (the Act).
While processing the return of income filed by the assessee, the CPC Bangalore, relying upon the information given by the auditor in Tax Audit Report u/s 44AB in Form 3CD, made adjustment u/s 143(1)(a) on account of inconsistency in total amount of disallowance under section 37 of the Act on account of payments to clubs.
The CIT(A) observed that as per the provisions of section 143(1)(a)(iv) the adjustment can be made by the CPC for disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return.
The CIT(A) observed that disallowances had been reported by the Auditor who had audited the accounts of the appellant in Form 3CD.
The CIT(A) confirmed the addition made by CPC and dismissed ground of appeal.
Before the Tribunal, the assessee inter alia contended that disclosure in tax Audit Report Form 3CD at Serial No. 21a does not automatically results in disallowance
The Tribunal observed that in Tax Audit Report (Form 3CD), in Part B under clause 21 the auditor has to furnish the details of amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure etc. including expenditure incurred at clubs being entrance fees and subscriptions.
The Tribunal noted that under the said clause 21(a), the auditor had reported particulars of expenditure towards club entrance fees and subscriptions.
The Tribunal further noted that the reasons given by CPC for making adjustment was “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return u/s 143 (1)(a)(iv).
The Tribunal pointed out that the relevant part of the audit report nowhere showed that the auditors had reported the disallowance of expenditure and, therefore, invoking provisions of section 143 (1)(a)(iv) was unwarranted.
Accordingly, the Tribunal directed the Assessing Officer (AO) to delete the addition and allowed the appeal in favour of the assessee.
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