DARSHIT GUNWANTBHAI SHAH,AHMEDABAD vs. THE ITO, WARD-1(2)(1), AHMEDABAD

2.3 On a perusal of the affidavit and in light of the facts explained therein, we find the reasons furnished for the delay to be bona fide. It is well settled that technical lapses should not come in the way of substantial justice. Reliance is placed on the decision of the Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Others [(1987) 167 ITR 471 (SC)], wherein it was held that liberal approach should be adopted while considering applications for condonation of delay, provided the explanation is not mala fide or a device to delay the proceedings. Moreover, the learned Departmental Representative has not raised any serious objection to the condonation of delay. Accordingly, in the interest of justice, the delay of 717 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits.

3.2 The CPC adjustment summary recorded the following:

Sl. Particulars Amount in Amount in Proposed No. ITR Form 3CD Adjustment 1 There is inconsistency in Rs. Rs. Rs. any amount debited to 4,67,802/- 4,67,802/- 4,67,802/- profit and loss account of the previous year but disallowable under section 43B claimed in return and audit report 3.3 The adjustment was thus made under section 143(1)(a)(iv) for "disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return".

3.4 The assessee filed a rectification application under section 154 on 01.08.2022, contending that the amount of Rs.4,67,802/- had in fact been paid through various challans before the due date of filing return under section 139(1), but due to inadvertent clerical error, the same was reported in clause 26(B)(b) instead of 26(B)(a). It was submitted that no disallowance under section 43B was warranted. However, the AO passed a rectification order on 01.08.2022 rejecting the explanation, stating that the Tax Audit Report had not been revised and hence, no rectification could be allowed.

3.5 The assessee filed appeal before the CIT(A), NFAC, on 29.08.2022. The appeal was disposed of ex parte by the CIT(A) on 25.01.2023 on the ground that the assessee failed to respond to notices issued on 16.12.2022, 10.01.2023, and 17.01.2023. On merits, the CIT(A) held that in the absence of a revised Form 3CD, the claim of deduction under section 43B could not be accepted and upheld the adjustment made by CPC.

1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-Tax (Appeals) has erred in passing order without providing enough opportunities to represent the case of the assessee.

2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-Tax (Appeals) has erred in passing order without considering that assessee was unaware about the hearing notices.

3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming ex-parte rectification order passed by the Assessing Officer without providing any opportunities of being heard.

4. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 4,67,802/- u/s 43B of the Act.

5. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 4,67,802/- u/s 43B of the Act without considering that it was inadvertently stated in under clause 26(B)(b) of 3CD Report (i.e. taxes not paid before due date) instead of clause 26(B)(a) (i.e. taxes paid on or before the due date).

6. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 4,67,802/- u/s 43B of the Act without considering that TDS payments were made before the due date of fling of Income Tax Return.

7. It is therefore prayed that the above addition/disallowance made by the assessing officer may please be deleted.

8. Appellant craves leave to add, alter or delete any grounds) either before or in the course of hearing of the appeal.

7.1 Section 43B of the Act allows deduction of certain statutory liabilities, including taxes and duties, only on actual payment basis, irrespective of the method of accounting. However, the proviso to section 43B provides relief to the assessee by allowing deduction in the year of accrual itself, if such payments are made before the due date of filing the return of income under section 139(1).

7.2 It is the consistent judicial view that if statutory dues are actually paid before the due date of filing return, then the deduction under section 43B cannot be denied. In the present case, the CPC, while processing the return under section 143(1)(a)(iv), made an adjustment on the basis of the Tax Audit Report, wherein the TDS of Rs.4,67,802/- was disclosed under clause 26(B)(b), which is meant for taxes not paid before due date. This triggered the default adjustment under the Centralised Processing Scheme logic as a "disallowance indicated in audit report but not taken into account in return." In our opinion mere reporting inconsistency by the tax auditor in Form 3CD cannot override actual compliance with the statute.

7.3 It is settled law that substantive rights should not be defeated by procedural lapses, especially when the assessee has made the payments in accordance with law but suffered adverse adjustment due to technical misreporting. However, we also note that the Tax Audit Report has not been formally revised, which is a factual aspect relied upon by the lower authorities. In the absence of a revised report, and in view of the consistent line taken by CPC and CIT(A), we are not inclined to straightaway allow the claim at this stage. Nonetheless, the genuineness of payment is supported by primary evidence and auditor’s acknowledgment, and therefore deserves to be verified afresh by the Assessing Officer. We are thus inclined to restore the matter for a limited purpose of verifying the actual dates of payment of the TDS amount disallowed under section 43B.

7.4 We also find that the disallowance in this case is not based on any incriminating finding or substantive doubt on the genuineness of payment, but merely on a clerical tagging error. Disallowance under section 43B is not automatic if the assessee has actually fulfilled the statutory conditions. In fact, such a disallowance, if continued without verification of facts, would lead to taxation of income which never accrued, thereby offending the principles of real income doctrine and causing unjust enrichment to the Revenue.

7.5 In view of the foregoing, we set aside the order of the CIT(A), NFAC and restore the matter to the file of the Jurisdictional Assessing Officer with a direction to verify the correctness of the assessee’s claim that TDS of Rs.4,67,802/- was paid before the due date of filing return under section 139(1) of the Act for A.Y. 2021–22. The Assessing Officer shall take into consideration the challans, ledger extracts, and the certificate issued by the tax auditor acknowledging the clerical misreporting, and re-adjudicate the allowability under section 43B in accordance with law. The assessee shall be granted reasonable opportunity to furnish necessary evidence in support of his claim.

Order pronounced in the Court on 29th July, 2025 at Ahmedabad.