Case Law Details
Pravin Engineering Pvt. Ltd Vs ACIT (ITAT Ranchi)
The Income Tax Appellate Tribunal (ITAT), Ranchi, has sent the appeal of Pravin Engineering Pvt. Ltd. back to the Assessing Officer (AO) for a fresh examination. The case, related to the assessment year 2018-19, revolves around a ₹11.36 lakh commission paid to the company’s directors, which was initially disallowed by the AO.
During the assessment, the AO noted that the company’s tax audit report had listed the directors’ commission under a section of Form 3CD that relates to sums “otherwise payable as profits or dividends” under Section 36(1)(ii) of the Income Tax Act. The AO, treating this as a reporting admission, proceeded to disallow the commission.
Pravin Engineering Pvt. Ltd. appealed the decision, arguing before the CIT(A) that the entry in Form 3CD was a clerical error. The company claimed the commission was a legitimate business expense and not a disguised dividend. To support this, they submitted a certificate from their tax auditor confirming the mistake during the appellate proceedings. However, the CIT(A) did not consider the new evidence and simply upheld the AO’s order, dismissing the appeal.
In its judgment, the ITAT noted that the assessee’s contention about the incorrect reporting was not adequately addressed by the CIT(A). The Tribunal observed that the company had a valid point regarding the potential error in Form 3CD and that the CIT(A) had failed to provide the company with an opportunity to have the facts verified by the AO. Citing the principle of natural justice and the need for a thorough factual inquiry, the ITAT decided to remand the case.
The Tribunal has directed the AO to re-examine the issue afresh, granting the company a reasonable opportunity to be heard and present its case with the corrected documentation. The final decision on the appeal will be made on the merits of the case after this re-examination. The ruling highlights the importance of addressing substantive claims of clerical errors, especially when supported by a tax auditor’s certificate.
FULL TEXT OF THE ORDER OF ITAT RANCHI
The present appeal has been preferred by the assessee against an order dated 28.02.2024 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
2. Brief facts of the case are that the assessee is a company and filed its return of income for the assessment year 2018-19 declaring total income of Rs.73,21,980/-. The case of the was selected for scrutiny and the Assessing Officer completed the assessment u/s 143(3) of the Act assessing total income of the assessee at Rs.84,67,210/-. During the assessment proceedings, the Assessing Officer pointed out that the tax audit report has identified that the assessee paid its directors a sum of Rs.11,36,000/- as bonus or commission which was otherwise payable as profits or dividend and this amount was covered by section 36(1)(ii) of the Act. The Assessing Officer disallowed the claim of commission as claimed by the assessee.
3. Dissatisfied with the above order, the assessee went in appeal before the ld. CIT(A) wherein the assessee stated that Rs.11,36,000/-was wrongly fed in form no.3CD in serial no.20(1) as regards bonus or commission paid to an employees for serves rendered, where such sum was otherwise payable to him as profits or dividends as per section 36(1)(ii) of the Act and the said sum is not a part of profits or dividends as stated in section 36(1)(ii) of the Act. The assessee also filed certificate from the tax auditor during the appellate proceedings. However, the contention of the assessee was not considered nor remitted back the issue to the file of the Assessing Officer for verification of facts and the ld. CIT(A) dismissed the appeal of the assessee by simply upholding the order of the Assessing Officer.
4. Aggrieved by the above order, the assessee is in appeal before this tribunal raising multiple grounds. However, when the matter came up for hearing, no one appeared before the Bench for arguing the case. Since, no one turned up before us, we cannot keep this appeal pending for inordinate time, therefore, with the assistance of the ld. DR, we heard this matter.
5. The ld. DR relied on the order of the authority below.
6. We, after hearing the ld. DR and perusing the materials available on record, find that the assessee fairly stated that commission to directors of Rs.11,36,000/- was wrongly fed in form no.3CD in serial no.20(1) as regards bonus or commission paid to an employees for serves rendered, such sum was otherwise payable to him as profits or dividends as per section 36(1)(ii) of the Act and the said sum is not a part of profits or dividends as stated in section 36(1)(ii) of the Act. In this regard, the assessee also filed certificate from the tax auditor during the appellate proceedings. However, the contention of the assessee was not considered by the ld. CIT(A). Therefore, considering the facts, we remand the whole issue back to the file of the Assessing Officer with a direction to reexamine the issue afresh after giving reasonable opportunity of being heard to the assessee and to decide the appeal on merits of the case. We direct the assessee to comply all notices during the remand proceedings.
7. In terms of the above, the appeal of the assessee is allowed for statistical purposes.
Kolkata, the 11th September, 2025.
