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2025 (5) TMI 1399 - AT - Income TaxEnhancement income - Addition treating the same as contingent liability debited to the Profit and Loss Account based on disclosure under clause 21(g) of the tax audit report - HELD THAT - The copy of the Auditor s certificate indicating the facts that the amount was inadvertently reported in the original tax audit report and the same is rectified in the revised form 3CD annexure to the tax audit report in form 3CB. The coordinate benches in Dwarkadish Spinners Ltd. 2013 (12) TMI 1768 - ITAT NEW DELHI and Kay Bee Industrial Alloys Pvt. Ltd 2011 (12) TMI 798 - ITAT KOLKATA have held that contingent liabilities which are not debited to the profit and loss account cannot be added merely on the basis of disclosure in the audit report. As u/s 143(1)(a) the scope of adjustment is limited to arithmetical errors incorrect claims apparent from any information in the return or disallowance of loss claimed without required return. The adjustment made in the present case does not fall under any of these categories as it requires verification beyond the return itself. Disallowance on account of late payment of employees contribution to PF which the assessee contended was added twice - once by itself and again by CPC - We have noted from the statement of total income placed on the record that the said amount is added to the total income by the assessee as disallowable u/s 36 of the Act. CPC s duplication of the same disallowance is clearly apparent from the intimation. CIT(A) s finding is based on correct appreciation of facts and supported by the revised tax audit report and auditor s certificate. No infirmity in the order passed by the CIT(A). Both the adjustments made by the CPC under section 143(1)(a) were erroneous and rightly deleted by the first appellate authority. Appeal filed by the Revenue is dismissed.
Issues Presented and Considered
The core legal questions considered by the Tribunal were: (i) Whether the addition of Rs. 4,20,39,630/- made by the Assessing Officer (AO) treating a contingent liability disclosed under clause 21(g) of the tax audit report as an actual debit to the Profit and Loss Account was justified under section 143(1)(a) of the Income-tax Act, 1961. (ii) Whether the disallowance of Rs. 3,16,017/- on account of late payment of employees' contribution to Provident Fund (PF), which was allegedly disallowed twice-once by the assessee and again by the Centralised Processing Centre (CPC)-was valid. Issue-wise Detailed Analysis Issue 1: Addition of Rs. 4,20,39,630/- on account of contingent liability disclosed under clause 21(g) of the tax audit report Relevant Legal Framework and Precedents: Section 143(1)(a) of the Income-tax Act empowers the AO to make adjustments during processing of return limited to arithmetical errors, incorrect claims apparent from the return itself, or disallowance of loss claimed without requisite return. The scope of this section does not extend to detailed verification or addition of contingent liabilities which are not debited to profit and loss account. Judicial precedents such as Dwarkadish Spinners Ltd. and Kay Bee Industrial Alloys Pvt. Ltd. have held that contingent liabilities not debited to profit and loss account cannot be added merely on the basis of their disclosure in the audit report. Court's Interpretation and Reasoning: The Tribunal observed that the addition was made solely on the basis of disclosure under clause 21(g) of the tax audit report without any corresponding debit in the profit and loss account. The assessee filed a revised tax audit report and auditor's certificate clarifying that the original disclosure was inadvertent and the amount was never debited to the profit and loss account. The Tribunal noted that the disclosure under clause 21(g) is for informational purposes only and does not form part of income computation. Key Evidence and Findings: The Tribunal relied on the audited financial statements, revised tax audit report dated 18.02.2022, and auditor's certificate which confirmed that the amount was not an actual expenditure but a contingent liability inadvertently disclosed. The Tribunal also noted that the addition was not within the permissible scope of section 143(1)(a) as it required verification beyond the return. Application of Law to Facts: Since the amount was not debited to the profit and loss account and was merely disclosed for information, the addition was not justified. The Tribunal applied the principles from binding precedents and statutory provisions to conclude that the addition was erroneous. Treatment of Competing Arguments: The Revenue argued that the addition was justified based on the tax audit report disclosure. However, the Tribunal found that the disclosure was inadvertent and corrected in the revised audit report. The Departmental Representative conceded the factual correctness of the assessee's submissions and left the matter to the Tribunal's discretion. Conclusion: The addition of Rs. 4,20,39,630/- was rightly deleted by the CIT(A) and upheld by the Tribunal. Issue 2: Disallowance of Rs. 3,16,017/- on account of late payment of employees' contribution to PF Relevant Legal Framework and Precedents: Section 36 of the Income-tax Act provides for disallowance of certain expenses including late payment of employees' PF contribution. However, where the disallowance is already made by the assessee in the computation of income, duplication of the same disallowance by the AO or CPC is not permissible. Court's Interpretation and Reasoning: The Tribunal noted that the assessee had already disallowed the amount in its return of income. The CPC's addition was a duplication and not supported by any new material. The CIT(A) correctly appreciated the facts and relied on the revised tax audit report and auditor's certificate to confirm the duplication. Key Evidence and Findings: The statement of total income filed by the assessee showed the disallowance of Rs. 3,16,017/- under section 36. The intimation from CPC reflected a duplicate disallowance. The revised tax audit report and auditor's certificate corroborated the assessee's position. Application of Law to Facts: The Tribunal applied the principle that disallowance once made cannot be duplicated. The CPC's double disallowance was an error and rightly corrected by the CIT(A). Treatment of Competing Arguments: The Revenue did not contest the factual correctness of the assessee's submissions and did not provide any substantive argument to justify the duplicate disallowance. Conclusion: The deletion of the disallowance of Rs. 3,16,017/- was justified and upheld. Significant Holdings The Tribunal held that "the addition of Rs. 4,20,39,630/- was made solely on the basis of disclosure under clause 21(g) of the tax audit report, without there being any corresponding debit in the profit and loss account." The Tribunal further emphasized that "under section 143(1)(a), the scope of adjustment is limited to arithmetical errors, incorrect claims apparent from any information in the return, or disallowance of loss claimed without required return" and the addition in question "does not fall under any of these categories, as it requires verification beyond the return itself." Regarding the duplicate disallowance, the Tribunal observed that "the assessee had already disallowed the same while computing total income" and that "the CPC's duplication of the same disallowance is clearly apparent from the intimation." The core principles established include:
Final determinations were that both additions made by the CPC were erroneous and rightly deleted by the CIT(A), and the Revenue's appeal was dismissed accordingly.
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