Mistake in Tax audit report-taxes can not be collected without authority of law. It is bounden duty of authorities to consider submission on merits – ITAT
ABCAUS Case Law Citation:
ABCAUS 1178 (2017) (03) ITAT
The appellant assessee was aggrieved by the order of the CIT(A) confirming the order passed by the Assessing Officer (‘AO’) u/s 154 of the Income tax Act, 1961 (‘the Act’).
Assessment Year : 2008-09
Date/Month of Pronouncement: March, 2017
Brief Facts of the Case:
The assessment u/s 143(3) was completed accepting the returned income of the assessee. However, on verification of records, the AO observed from the Tax Audit Report in Form No. 3CD that assessee had not added back disallowed expenditure;
(a) Interest on escrow; and
(b) amount inadmissible under section 40(A)(3)
Thus, as per AO , it resulted in understatement of income. Accordingly, nNotice u/s 154 was issued to the assessee asking for reply with respect to said mistakes in the assessment order, however, the assessee did not submit any reply. Holding that the mistake was apparent from record, the AO computed revised total income and added back such disallowed expenditure vide rectification order passed u/s 154 of 1961 Act.
Aggrieved by rectification order, the assessee carried the matter before the CIT(A) and submitted that sufficient opportunity was not granted to the assessee by the AO and, hence, one more opportunity may be granted through remand proceedings. It was submitted that while preparing Form 3CD tax-audit report, certain errors had crept in which was committed by tax-auditor. It was submitted that instead of mentioning interest paid to Canara Bank on secured loan, the same has been typed as “interest on Escrow account. In support, the assessee produced photocopy of bank statement of the relevant period showing that interest has been debited. As regards disallowance of u/s 40(A)(3) of the Act, it was submitted that the payment was made for acquiring furniture and fixtures and was not an expenditure of revenue nature and, hence, the said provision was not applicable.
However, the CIT(A) after considering submissions of the assessee held that tax audit report was certified and signed by the auditors which was based on the audited accounts , which report clearly stated that the amounts as mentioned were inadmissible and not having added back the same in the computation of income which certainly constitutes a mistake apparent from record. As such, the AO was not at all in fault having rectified the assessment order u/s 154. Accordingly CIT(A) confirmed the rectification order.
Aggrieved by the appellate order passed by the CIT(A) the assessee was in appeal before the tribunal (‘ITAT’).
Observations made by the Tribunal:
The Tribunal observed that the AO as well as CIT(A) while passing orders had relied upon the tax audit report issued by qualified chartered accountant. The assessee had contended that while preparing the Form 3CD audit report, certain errors had crept in the audit report committed by chartered accountant. The assessee had claimed that reply was duly filed before the AO in rectification proceedings u/s 154, which was brushed aside and not considered by AO before passing rectification orders. The assessee also produced detailed reply on merits before the CIT(A) in the appellate proceedings and requested for remanding the matter before the AO for consideration of its reply on merits, which again was not considered by CIT(A) on merits and order of the AO was merely confirmed.
The Tribunal observed that the taxes can only be collected as per authority of law and if any mistake has crept in the tax-audit report and the assessee comes forward with a bonafide reply, it is the bounden duty of the authorities to consider such reply on merits so that correct taxes can be collected from assessee. It cannot be simply brushed aside at threshold itself without considering the same on merits.
The matter was set aside and restored back to the file of the AO for de-novo determination of the issues on merits after considering the explanations and evidences submitted by the assessee on merits.