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Facts
The assessee reported an amount of Rs. 1,95,26,186 in its tax audit report under Section 43B, which was later claimed as an inadvertent error, stating no such provision for gratuity was created. The CPC made an addition based on this initial report, which was upheld by the CIT(A). Additionally, there was a short grant of TDS credit amounting to Rs. 2,34,61,907.
Held
The Tribunal held that the addition made by the CPC on account of the provision for gratuity was unsustainable as it was based on an inadvertent error in the tax audit report, and the assessee had provided evidence to the contrary. For the TDS credit issue, the Tribunal found no infirmity in the direction of the CIT(A) to verify the claim.
Key Issues
Whether the addition made by the CPC on account of an alleged provision for gratuity, due to an inadvertent error in the tax audit report, is sustainable? Whether the assessee is entitled to the full TDS credit claimed?
Sections Cited
43B, 40A(7), 143(1), 244A, 250
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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals) passed under section 250 of the Act dated 29 April 2025.
The assessee in the grounds of appeal has raised three grounds which, for the sake of brevity and convenience, we are not inclined to reproduce here.
3. Ground No. 1 relates to the addition made on account of provision for gratuity, which was erroneously reported in the tax audit report under section 43B of the Act, whereas factually no such provision was created during the relevant year.
The relevant facts are that the assessee, a private limited company, is engaged in the business of providing internet-based services such as VOIP, wireless data and hosting services etc. The assessee filed its return of income for the captioned assessment year declaring a taxable loss of Rs. 17,56,82,947 and claiming a refund of Rs. 11,44,68,440.00 only.
The CPC processed the return of income of the assessee vide intimation under section 143(1) of the Act by making an addition of Rs. 1,95,26,186 on account of gratuity, which was erroneously reported in the tax audit report under section 43B of the Act, whereas factually no such provision was created during the year under consideration.
Aggrieved by the aforesaid intimation passed under section 143(1) of the Act, the assessee preferred an appeal before the Ld. Commissioner of Income-tax (Appeals).
Before the Ld. CIT(A), the assessee submitted that no provision for gratuity was created in the books of account during the year under consideration. However, in the Tax Audit Report (Form 3CD) an amount of Rs. 1,95,26,186 was inadvertently reported under clause 26(i)(B)(b) relating to section 43B of the Act. The assessee explained that the contribution relating to gratuity pertained to an unapproved gratuity fund and therefore the disclosure in the said clause was incorrect.
The assessee therefore revised the Tax Audit Report wherein the said amount was reported under clause 21(e) read with section 40A(7) of the Act. Subsequently, a further revised Tax Audit Report was filed clarifying that no provision for gratuity was created during the year and accordingly the amount was not reported either under clause 26(i)(B)(b) or clause 21(e) of the report. The assessee contended that the earlier disclosure was inadvertent and therefore the adjustment made while processing the return under section 143(1) deserves to be deleted.
On the other hand, the Ld. CIT(A) observed that upon verification of the financial records it was noticed that the assessee had a closing balance of Rs. 2,37,63,255 as on 31 March 2022 under the head “Provision for Gratuity”, which indicates that the same amount represented the opening balance for the year under consideration. It was further observed that the assessee had disclosed an outstanding amount of Rs. 1,95,26,186 under the head “Provision for Gratuity” as on 31 March 2023 in clause 26(i)(B)(b) of the tax audit report filed for the assessment year 2023–24 on 31 October 2023, in accordance with the requirement of section 43B of the Act.
9.1 The Ld. CIT(A) further noted that the assessee subsequently filed a revised tax audit report dated 27 September 2024 in which no amount was reported either in clause 26(i)(B)(b) or in clause 21(e) in relation to gratuity. Since this revised tax audit report was submitted well beyond the end of the assessment year 2023–24, the same was not considered valid. Accordingly, the claim of the assessee that no provision for gratuity existed was not found to be credible. The Ld. CIT(A) also observed that the assessee failed to furnish any documentary evidence to substantiate the assertion that the opening provision was fully utilised during the year and that no closing balance remained. Therefore, the action taken by CPC in making the adjustment was held to be justified.
Being aggrieved by the order of Ld. CIT(A), the assessee preferred an appeal before us.
The Ld. AR before us has filed a compilation running from page 1 to 120 of the paper book, along with a synopsis of four pages and the case laws relied upon by the assessee. The Ld. AR, referring to page 110 of the paper book, submitted that in the first tax audit report filed on 31.10.2023 the impugned amount of Rs. 1,95,26,186 was inadvertently reported under clause 26(i)(B)(b) of the tax audit report. It was further submitted that in the return of income no disallowance or addition was made in respect of the said amount as no provision for gratuity was created during the year under consideration. In support of this contention, the Ld. AR referred to Note 18 and Note 30 of the Balance Sheet.
11.1 The Ld. AR further referred to page 9 of the paper book and submitted that the assessee again revised the tax audit report on 13.12.2023, wherein the impugned amount was removed from clause 26(i)(B)(b) and reported under clause 21(e) on the understanding that the gratuity contribution related to an unapproved gratuity fund.
11.2 It was further submitted that the return of income was processed under section 143(1) of the Act on 27.05.2024, wherein the CPC made a disallowance of Rs. 1,95,26,186 on account of inconsistency between the tax audit report and the return of income. The Ld. AR submitted that the assessee thereafter once again revised the tax audit report on 27.09.2024 by removing the said amount from clause 21(e) as well and submitted that the said tax audit report represents the final and correct position and is free from errors. The ld. AR for the assessee also furnished the movement of the gratuity account as appearing in the audited financial statements for the year ended 31 March 2023.
11.3 In view of the above submissions and the documents placed on record, the ld. AR prayed that the addition made on account of alleged provision for gratuity, arising due to an inadvertent reporting in the tax audit report, may kindly be deleted.
The Ld. DR, on the other hand, supported the orders of the lower authorities. It was submitted that the assessee itself had disclosed the impugned amount of Rs. 1,95,26,186 under clause 26(i)(B)(b) of the tax audit report filed on 31.10.2023 in accordance with the provisions of section 43B of the Act. Therefore, the CPC was justified in relying upon the information furnished in the tax audit report while processing the return of income under section 143(1) of the Act.
12.1 The Ld. DR further submitted that the assessee subsequently filed revised tax audit reports wherein the disclosure relating to gratuity was changed from time to time. It was contended that such subsequent revisions cannot dilute the correctness of the original disclosure made by the assessee in the tax audit report. The Ld. DR also submitted that the revised tax audit report dated 27.09.2024 was filed much after the end of the relevant assessment year and therefore cannot be relied upon. Accordingly, it was contended that the action of the CPC in making the adjustment and the confirmation thereof by the Ld. CIT(A) are justified and do not call for any interference.
We have heard the rival submissions and perused the materials available on record. The limited issue arising for consideration is whether the addition of Rs. 1,95,26,186 made while processing the return of income under section 143(1) of the Act on account of alleged provision for gratuity is sustainable in the facts of the present case.
13.1 The undisputed facts emerging from the record are that the amount of Rs. 1,95,26,186 was initially reported in the tax audit report under clause 26(i)(B)(b) relating to disallowance under section 43B of the Act. The assessee has consistently maintained that the said reporting was inadvertent and that no provision for gratuity was actually created in the books of account during the year under consideration. In support of this contention, the assessee has referred to the audited financial statements and the movement of the gratuity account appearing therein. The assessee has also demonstrated that the return of income filed did not contain any disallowance in respect of the said amount, as no such provision existed in the books.
13.2 From the material placed before us, the chronology of the tax audit reports and the processing of return under section 143(1) is as under:
Date Event Particulars 31.10.2023 First Tax Audit Amount of Rs. 1,95,26,186 reported under Report Filed clause 26(i)(B)(b) relating to section 43B (provision for gratuity) due to inadvertent reporting 13.12.2023 Revised Tax Amount removed from clause 26(i)(B)(b) and Audit Report reported under clause 21(e) considering Filed gratuity as unapproved fund 27.05.2024 Return processed CPC made disallowance of Rs. 1,95,26,186 on under section account of inconsistency between TAR and 143(1) ROI 27.09.2024 Further revised Amount removed from clause 21(e) as well, Tax Audit Report clarifying that no provision for gratuity existed filed during the year 13.3 Thus, it is evident that the disclosure in the original tax audit report underwent corrections by way of subsequent revisions explaining the correct factual position. The assessee has also placed reliance on the audited financial statements to demonstrate that the reporting in the original tax audit report was an inadvertent error.
13.4 At this juncture, it is relevant to refer to the decision of the Mumbai Bench of the Tribunal in the case of Deputy Commissioner of Income-tax vs. Kopran Ltd. reported in [2025] 179 taxmann.com 230 (Mumbai - Trib.) dated 17.04.2025, wherein the Tribunal held that where an adjustment arises merely due to a typographical or inadvertent error in the tax audit report, the same cannot be the basis for making an addition while processing the return under section 143(1) of the Act. The Tribunal further held that Rule 6G(3) of the Income-tax Rules does not restrict acceptance of a revised tax audit report only to disallowances under sections 40 and 43B, and therefore the Tribunal can decide the issue on the basis of a revised tax audit report where the correction is made to rectify an inadvertent error. The relevant para is reproduced below: “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 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”
13.5 Applying the above principle to the facts of the present case, we find that the addition made by the CPC is solely based on the disclosure made in the original tax audit report, which the assessee has subsequently clarified to be an inadvertent reporting error. The assessee has supported its contention by referring to the audited financial statements and by filing revised tax audit reports correcting the disclosure. In such circumstances, the mechanical reliance placed on the original tax audit report without examining the underlying books of accounts and the corrected audit reports cannot be sustained.
13.6 In our considered view, the adjustment made under section 143(1) of the Act on account of the alleged provision for gratuity is not justified when the assessee demonstrated that no such provision was created in the books of account and the reporting in the tax audit report was merely an error. Accordingly, following the ratio laid down by the Mumbai Bench of the Tribunal in DCIT vs. Kopran Ltd. (supra), we hold that the addition of Rs. 1,95,26,186 made while processing the return under section 143(1) of the Act is unsustainable. The Assessing Officer is therefore directed to delete the said addition but after necessary verification as per law. Hence, the ground of appeal of the assessee is allowed for statistical purposes.
14. Ground No. 2 relates to the short grant of credit of tax deducted at source.
The relevant facts are that the intimation issued under section 143(1) of the Act resulted in short grant of TDS credit amounting to Rs. 2,34,61,907.00 only.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A).
Before the Ld. CIT(A), the assessee raised the issue of short grant of TDS credit and requested that the same be verified from the records and allow in accordance with law.
The Ld. CIT(A), in the appellate order, has directed the AO to verify the claim regarding short grant of TDS credit and allow the same after examining the availability of TDS credit and the corresponding declaration of income in the assessment year under consideration. Accordingly, the ground of appeal was allowed for statistical purposes.
The Ld. AR before us has again requested that suitable directions be issued to the AO to grant the TDS credit that was short granted in the intimation issued under section 143(1) of the Act.
The Ld. DR, on the other hand, supported the order of the Ld. CIT(A). It was submitted that the Ld. CIT(A) has already granted appropriate relief by directing the AO to verify the claim of the assessee with regard to short grant of TDS credit and to allow the same after examining the availability of such credit and the corresponding declaration of income in the return of income. The Ld. DR therefore contended that no further direction is required to be issued by the Tribunal in this regard, as the matter has already been restored to the file of the AO for necessary verification.
We have heard the rival submissions of both the parties and perused the materials available on record. We note that the grievance of the assessee relates to the short grant of credit for tax deducted at source while processing the return of income under section 143(1) of the Act. The Ld. CIT(A) has already directed the AO to verify the claim of the assessee and allow the credit of TDS after examining the availability of such credit and the corresponding declaration of income in the assessment year under consideration.
21.1 Before us, the Ld. AR reiterated that the assessee has duly claimed the TDS credit in the return of income and the same is duly reflected in the relevant statements. In view of the above and because Ld. CIT(A) has already issued appropriate directions to the AO to verify the claim, we find no infirmity in the direction of the Ld. CIT(A). Accordingly, the AO is directed to verify the claim of the assessee regarding short grant of TDS credit and allow the same in accordance with law after due verification of the relevant records. Thus, this ground of appeal is treated as allowed for statistical purposes.
22. Ground No. 3 relates to grant of interest under section 244A of the Act.
We note that the said ground raised by the assessee is consequential in nature. Therefore, no separate adjudication is required on this ground. The AO is directed to grant interest under section 244A, if any, in accordance with law while giving effect to this order. Hence, the ground of appeal of the assessee is dismissed as infructuous.
In the result, the appeal of the assessee is treated as partly allowed for statistical purposes.
Order pronounced in court on 6th day of March, 2026
Sd/- Sd/- (SOUNDARARAJAN K) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 6th March, 2026 / vms /