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Income Tax Appellate Tribunal, DELHI BENCH “SMC” DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
PER PRADIP KUMAR KEDIA, A.M.:
The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) NFAC, Delhi (‘CIT(A)’ in short) dated 04.12.2022 arising from the assessment order dated 17.11.2022 passed by the Assessing Officer (AO) under Section 154 of the Income Tax Act, 1961 (the Act) concerning AY 2020-21.
Briefly stated, the assessee filed return of income declaring income at ‘Nil’ along with the tax audit report. The return filed by the assessee was processed under Section 143(1) of the Act dated 25.11.2021 wherein addition/disallowance of partners remuneration amounting to Rs.10,50,000/- was made while
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processing the return. Against the adjustment so made, the assessee e-filed application under Section 154 dated 17.11.2022 seeking rectification of mistake while processing intimation under Section 143(1) and reversal of the disallowance. The rectification under Section 154 was however passed by the AO (CPC) reiterating the adjustments and without any relief.
Aggrieved by the denial of rectification, the assessee preferred appeal before the CIT(A). The CIT(A), in turn, passed order dated 04.12.2022 against the impugned rectification order passed by the Assessing Officer under Section 154 of the Act for the Assessment Year 2020-21 in question. The CIT(A) broadly observed that as per clause no.21(c) to Form 3CD, i.e., the Tax Audit Report states that amount admissible under Section 40(b) stands at Rs.1,50,000/- only as against the remuneration actually paid to the assessee partner at Rs.12 lakh. The CIT(A) thus observed that the intimation has been drawn in tune with tax audit report and therefore, the rectification application has been rightly rejected by the CPC. The CIT(A) thus declined to interfere with the rectification order in question.
Aggrieved, the assessee preferred appeal before the Tribunal.
We have heard the rival submissions on the issue and also perused the submissions made before the CIT(A), rectification application before Assessing Officer and other documents as placed in the paper book and referred to in the course of hearing by the assessee under Rule 18(6) of the Income Tax (Appellate Tribunal) Rules, 1963. The assessee has raised following objections/submissions;
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(i) the disallowance of partnership remuneration was carried out under Section 143(1) without issuing any notice to the Assessing Officer in this regard and without obtaining response of the assessee thereon while making such adjustments and therefore, the adjustments so made by the Assessing Officer under Section 143(1) without any opportunity is impermissible in law. (ii) without prejudice to the aforesaid contention, the AO CPC indulged in making adjustment without appreciating the correct facts of the case and summarily rejected the rectification application emanating from the apparent error in the action of the AO (CPC) while processing the return. On facts, the assessee firm filed its return of income declaring the income at Rs.1,66,50,276/- before set off of earlier years business losses and depreciation loss to the extent of taxable income of Rs.1,66,50,276/- for the year under consideration. After setting of the losses of earlier years, balance depreciation loss of Rs.3,49,998/- remained to be carried forward for set off in subsequent years. As contended, the impugned adjustment under Section 40b(v) towards deductibility of partners remuneration has been made by CPC owing to gross misreporting of facts in the tax audit report wherein the tax auditor has inadvertently copied the figures of the preceding assessment year in respect of subject matter of rectification in place of current year figures. A certificate to this effect was obtained from the tax auditor modifying the admissible partner remuneration and bringing correct picture to the fore having regard to the accounts of assessee. Notwithstanding the error in tax audit report, the assessee has correctly claimed the admissible deduction under Section 40(b)(v). 6. The ld. counsel thus essentially contends that the determination of total income is required to be done in accordance with law as done by the assessee in its ROI. The admissibility of claim of expenditure is thus not solely dependent upon the observations of the tax auditor. In the absence of opportunity to the assessee at the time of processing the return, the correct facts could not be brought to the knowledge of the Revenue Authorities and the rectification proceedings have been decided adverse to the
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assessee on technical grounds despite clear facts available on record in this regard. The assessee further contends that audited balance-sheet and profit and loss account annexed with the return are the primary documents and depicts that the correct figure remuneration paid to the partners at Rs.24 lakh and not Rs.12 lakh as wrongly reported by the auditor in point no.21 of the tax audit report which was the figure of earlier year. The incorrect assumption of facts contrary to accounts of assessee has resulted in error in the tax audit report and assessee should not be penalized for such inadvertent mistake in tax audit report. A reference was made the decision of co-ordinate Bench of ITAT in the case of Kalpesh Synthetics (P) Ltd. vs. DCIT (Mum) 137 Taxmann.com 475. Thus, the clerical and bona fide mistake of apparent nature deserves to be rectified to shun miscarriage of justice.
We find force in the plea of the assessee. Admittedly, the figures entered towards partner remuneration in the P&L account are inconsistent with the tax audit report due to human error while making report under Section 44AB of the Act. The certificate of the tax auditor presenting correct position was also made available to the lower authorities. On the face of inaccuracy in adopting the correct figure of remuneration from audited financial statement, an apparent mistake has been committed. In the absence of opportunity to the assessee contemplated in proviso to Section 143(1)(a) of the Act the difficulty has been compounded. The mistake could have been avoided while processing the return itself. The mistake in adopting incorrect figure without opportunity mandated in law despite availability of correct position is a mistake of apparent nature and espouses the purpose
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rectification proceedings under Section 154 of the Act. The pedantic approach adopted by the CIT(A) does not take into account the denial of opportunity to assessee in this regard and thus cannot be countenanced.
We thus set aside the impugned order passed by the CIT(A) in question and restore the matter back to the file of the Assessing Officer for redetermination of the issue after taking note of correct facts. This will advance the principles of natural justice explicit in Section 143(1) of the Act. Needless to say, opportunity shall be given to the assessee to present correct factual position on the admissible partner remuneration eligible for deduction under Section 40(b) of the Act.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 26/04/2023.
Sd/- Sd/- [KUL BHARAT] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /04/2023 Prabhat