Shivani Enterprises Vs ITO (ITAT Pune)
Tax Audit Report Error Cannot Trigger Disallowance – ITAT Deletes Section 40(a)(ia) Addition Based on Copied Audit Figures
The Pune ITAT deleted a disallowance of ₹12.66 lakh under section 40(a)(ia) after finding that the addition arose solely due to an inadvertent error in the tax audit report, where figures relating to a sister concern had been wrongly replicated in the assessee’s audit report.
The assessee, a partnership firm engaged in fabric trading, was subjected to limited scrutiny. Based on remarks in the tax audit report, the Assessing Officer concluded that tax had not been deducted on certain rent payments and consequently disallowed ₹12,66,080 under section 40(a)(ia). The CIT(A) upheld the addition.
Before the Tribunal, the assessee demonstrated that the impugned figures actually pertained to its sister concern, M/s Prime Accessories, whose tax audit report contained details of rent payments on which tax had not been deducted. The sister concern had already made a suo motu disallowance of the same amount in its own return of income. Due to a clerical mistake by the auditor, the very same figures were reproduced in the assessee’s tax audit report even though the assessee had not incurred such rent expenditure.
After examining the audit reports, profit and loss account, and supporting records, the Tribunal found merit in the assessee’s contention. It observed that the alleged rent payments were never made by the assessee and that the figures had merely been copied from the audit report of the sister concern. Since there was no actual rent expenditure on which tax was required to be deducted, the provisions of section 40(a)(ia) could not be invoked.
The ITAT therefore reversed the findings of the lower authorities and deleted the entire disallowance. The Tribunal also condoned a delay of 401 days in filing the appeal, accepting the assessee’s explanation relating to health issues, missed communications and lack of awareness of appellate procedures.
FULL TEXT OF THE ORDER OF ITAT PUNE
