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Facts
The revenue appealed against the CIT(A)'s order deleting additions made by the CPC. The assessee filed its return and opted for concessional tax u/s. 115BAA. The CPC processed the return u/s. 143(1) and proposed adjustments due to inconsistency in profit chargeable u/s. 41 and other issues.
Held
The Tribunal held that the CPC/AO violated principles of natural justice by not providing proper intimation before making adjustments u/s. 143(1)(a). The Tribunal also noted that the assessee had filed a revised tax audit report to correct a typographical error regarding GST inclusion, which was accepted by the CIT(A).
Key Issues
Whether the CPC/AO violated principles of natural justice by not issuing proper intimation before making adjustments u/s. 143(1)(a)? Whether a revised tax audit report can be filed to correct a typographical error?
Sections Cited
115BAA, 143(1), 143(1)(a), 40, 43B, 234B, 234C, 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE, 26AS, 16A, 16, 139, 142
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
(Assessment Year: 2022-23) DCIT-CC-7(1), Mumbai Kopran Ltd. Room No. 653, 6th Floor, Aaykar 1076, Parijat House, Dr E Mosses Vs. Bhavan, M. K. Road, Mumbai – Road, Worli, Mumbai – 400018. 400020. PAN/GIR No. AAACK3202D (Assessee) : (Respondent) Assessee by : Shri. Bhupendra Karkhanis a/w. Shri. Jay Dharod Respondent by : Shri. Biswanath Das-CIT DR Date of Hearing : 22.01.2025 Date of Pronouncement : 17.04.2025 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the revenue, challenging the order of the learned Commissioner of Income Tax (Appeals)-49, Mumbai (‘ld. CIT(A)’ for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2022-23.
The revenue has challenged the deletion of addition made by the CPC amounting to Rs. 23,41,32,000/- as without considering the provisions of Section 40 and Section 43B of the Act through Notification No. 28/2021, dated 01.04.2021.
Briefly stated that the assessee had filed its return of income declaring total income at Rs. 16,36,39,380/- for the year under consideration and had computed tax @22% by (A.Y. 2022-23) Kopran Limited, Mumbai exercising the above concessional tax u/s. 115BAA of the Act by duly filing form 10IC on 30.09.2022, the same was processed u/s. 143(1) of the Act and the AO/CPC issued intimation u/s. 143(1)(a) dated 14.12.2022, proposing an adjustment due to inconsistency in the amount of profit chargeable to tax u/s. 41 of the Act as per the return of income and the audit report. The assessee filed its reply for the same dated 13.01.2023 and the return was processed u/s. 143(1) of the Act, where the CPC/ld. AO determined total income at Rs. 40,45,91,800/- thereby raising a demand of Rs. 7,68,80,950/- after making the following adjustments which are tabulated herein as under: Particulars Amount (in Rs.) Non Consideration of response to notice to propose NA adjustments u/s. 143(1)(a) filed vide letter dated 13.01.2023 Wrong addition u/s. 41 of the Act (which being Rs. 68,20,418/- already credited to P&L Account, was considered and offered to tax in return of income). Wrong addition on account of increase in profit or Rs. 34,56,43,410/- decrease in loss of ICDS adjustments and deviation in method of valuation of stock. Wrong adjustments on account of decrease in profit Rs. 11,77,61,410/- or increase in loss of ICDS adjustments and deviation in method of valuation of stock. Higher interest u/s. 234B of the Act charged (Rs. Rs. 1,31,75,579/- 1,40,09,036/- as per 143(1) less Rs. 8,33,457/- as per return of income) Higher interest u/s. 234C of the Act charged (Rs. Rs. 30,62,467/- 41,48,357/- as per 143(1) less Rs. 10,85,890/- as per return of income) 4. Aggrieved the assessee was in appeal before the first appellate authority, challenging the intimation passed u/s. 143(1) of the Act on the ground of violation of principles of natural justice stating that the CPC/AO has issued intimation only to the proposed adjustment u/s. 41 of the Act but proceeded to make the other additions mentioned (A.Y. 2022-23) Kopran Limited, Mumbai above without giving notice to the assessee. The assessee also challenged the addition on the merits. The ld. CIT(A) vide order dated 10.07.2024, allowed the appeal filed by the assessee on various grounds.
The revenue is in appeal before us, challenging the deletion on addition made on account of increase in profit or decrease in loss of ICDS adjustment and deviation in method of valuation of stock amounting to Rs. 34,56,43,410/- and decrease in profit or increase in loss of ICDS adjustments and deviation in method of valuation of stock amounting to Rs. 11,77,61,410/- which were deleted by the ld. CIT(A) on the ground that the disallowance made by the CPC was due to the typographical error made in reporting the figure of increase in purchase on account of inclusion of GST.
The learned Departmental Representative (‘ld. DR’ for short) for the revenue contended that the assessee has filed revised tax audit report subsequent to the receipt of the intimation order u/s. 143(1) of the Act, where the assessee company has erroneously misreported the amount of increase in purchase on account of inclusion of GST amounting to Rs. 2,60,14,197 instead of 26,01,46,197/-. The ld. DR further stated that the revised tax audit report dated 13.02.2024, rectifying the error on account of inclusion of GST under clause 14(b) in form no. 3CD could not be done in terms of rule 6G of the Income Tax Rules, 1962, where specific provision has been inserted for filing of revised audit report before the end of relevant A.Y. which was only with regard to disallowance u/s. 40 or 43B of the Act. The ld. DR vehemently contended that this provision could not be extended to other disallowance like in the case of the assessee and relied on the notification dated 01.04.2021, for the said contentions. The ld. DR (A.Y. 2022-23) Kopran Limited, Mumbai further without prejudice contended that even otherwise, the assessee is not entitled to file the revised tax audit report after the end of the relevant A.Y. as per the provision of law. The ld. DR prayed that the ld. CIT(A)’s order be set aside and the addition made by the CPC/AO be upheld.
Per contra, the learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee was not given notice of the impugned adjustment made by the CPC/AO in the 143(1) intimation and that the intimation given by the CPC u/s. 143(1) dated 27.11.2023 was only with regard to the adjustment pertaining to Section 41 amounting to Rs. 68,40,418/-. The ld. AR argued that there was a gross violation of principles of natural justice, where the ld. CPC/AO cannot make adjustment/addition without duly giving notice to the assessee. On the merits, the ld. AR contended that the assessee was brought to the notice of discrepancy in the tax audit report only during the Section 143(1) proceeding subsequent to which the assessee had filed its revised tax audit report. The ld. AR further contended that there is no express bar in the provision of law for filing the revised tax audit report in case of the other additions made when there has been a genuine error crept in in the tax audit report. The ld. AR relied on the decisions of the Tribunal in the following cases in support of the assessee’s contentions. a. ‘Hon'ble Mumbai ITAT in the case of ITO vs. Sambhav Shelter [ITA No. 811/Mum/2023] b. Hon'ble Allahabad ITAT in the case of SPS Automobiles vs. ITO [ITA No. 106/Alld/2024] (A.Y. 2022-23) Kopran Limited, Mumbai c. Hon'ble Delhi ITAT in the case of Sai Computers Ltd. vs. ADIT-CPC [ITA Nos. 2862 to 2865/Del/2022]’ 8. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has received intimation u/s. 143(1) pertaining to only the addition made u/s. 41 of the Act, where there was inconsistency in the amount of profit chargeable to tax u/s. 41 specified in the report and in the audit report. In the present case in hand, the CPC/ld. AO has failed to include the adjustment of Rs. 23,41,32,000/- in the proposed adjustment u/s. 143(1)(a) of the Act and has merely mentioned the adjustment of Rs. 68,20,418/- on account of inconsistency in the amount of profit chargeable to tax u/s. 41 of the Act as per the return of income and the audit report. There is no iota of doubt that the CPC/AO has not sought for the assessee’s response either in writing or via mail pertaining to the said adjustment. It is also evident that the CPC/ld. AO has merely stated that the said adjustment is made due to non- compliance/no response from the assessee, which fact is not correct as per the records placed before us. It is trite to extract the provision of Section 143(1)(a) of the Act for ease of reference: “143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; [***] (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; [(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub- section (1) of section 139; (A.Y. 2022-23) Kopran Limited, Mumbai (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80- IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:”
On perusal of the above provision, it is evident that the proviso to Section 143(1)(a) categorically specifies that before making an adjustment it is mandatory for the CPC/AO to provide an intimation to the assessee either in writing or in electronic mode pertaining to the proposed adjustment. In the present case in hand, this exercise has been carried out before processing the return u/s. 143(1) of the Act, thereby violating the principles of natural justice. On the above observation, we do not find any infirmity in the order of the ld. CIT(A) on this issue.
With regard to the merits of the case, it is observed that the assessee has received the intimation order u/s. 143(1) of the Act dated 27.11.2023, where the CPC/AO has made an addition of Rs. 34,56,43,410/- at serial no. 25 on ‘Increase in profit or decrease in loss on account of ICDS adjustments and deviation in the method of valuation of stock’ and at serial no. 34 on ‘Decrease in profit or increase in loss on account of ICDS adjustment and deviation in method of valuation of stock’ for an adjustment of Rs. 11,77,61,410/- instead of Rs. 62,50,000/- as per the return of income filed by the assessee. It is observed that the assessee company is said to have misreported Rs. 2,60,14,197/- instead of Rs. 26,01,46,197/- which is a typographical error pertaining to the increase in purchase on account of inclusion of GST under clause 14(b) of the (A.Y. 2022-23) Kopran Limited, Mumbai original form no. 3CD dated 29.09.2022. Pursuant to the same, the assessee had filed revised tax audit report in form 3CD dated 13.02.2024, where the assessee has reported Rs. 26,01,46,197/- on account of increase in purchase on account of inclusion of GST under clause 14(b) of form no. 3CD, thereby rectifying the error on specifying the amount of Rs. 2,60,14,197/- instead of Rs.26,01,46,197/-. The revenue contended that as per notification no. 28/2021, dated 01.04.2021, revised audit tax report could be filed only when it pertains to recalculation of disallowance u/s. 40 or Section 43B and not for any other disallowances. The said notification is extracted herein under for ease of reference: “G.S.R. 246(E).––In exercise of the powers conferred by section 44AB read with section 295 of the Incometax Act (43 of 1961), the Central Board of Direct Taxes, hereby, makes the following rules further to amend the Income-tax Rules, 1962, namely:-
1. 1. Short title and commencement. – (1) These rules may be called the Income-tax (eighth Amendment) Rules, 2021. (2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962,- (a) in rule 6G, after sub-rule (2), the following sub-rule shall be inserted, namely:- ― (3) The report of audit furnished under this rule may be revised by the person by getting revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing of report under subrule (1) and (2) which necessitates recalculation of disallowance under section 40 or section 43B.;”
11. The above notification is to insert sub rule 3 of Rule 6G of Income Tax Rules, 1962 for the purpose of recalculation of disallowance u/s. 40 or 43B of the Act by way of Income Tax (Eight Amendment) Rules, 2021 w.e.f. 01.04.2021. The ld. AR’s contention is though it pertains to disallowance under Section 40 or Section 43B, the same is not (A.Y. 2022-23) Kopran Limited, Mumbai exhaustive and does not expressly bar the revision of the tax audit report in case of any arithmetical error or incorrect claim. The decisions relied upon by the ld. AR has dealt with identical issues, where the coordinate benches have decided the issue based on the revised tax audit report in case of inadvertent error and the same has not been restricted to the disallowance under Section 40 or Section 43B of the Act. We are conscious of the fact that a tax audit report could be amended strictly only as per the method recommended in Statement on Auditing Standards - SA-560 on ‘Subsequent Events’, there is no bar on the Tribunal to decide on an issue based on the revised tax audit report especially in cases where there has been inadvertent error crept in in the original tax audit report. Even otherwise, there has to be a recourse to the assessee in case of any inadvertent error which are not malafide, where the assessee should not be put to unnecessary hardships due to mere technicalities. We therefore deem it fit to uphold the order of ld. CIT(A) on this issue where it has been held that the same is a typographical error with no malafide intention, thereby directing the ld. AO to delete the impugned adjustment after duly verifying that the said adjustment is merely due to the typographical error in the figures in the original tax audit report. On the above observation, the grounds of appeal filed by the revenue holds no merit and is hereby dismissed.