Case Law Details
Eastman Exports Private Limited Vs DCIT (ITAT Chandigarh)
Introduction: The case of Eastman Exports Private Limited Vs DCIT saw the Income Tax Appellate Tribunal (ITAT) in Chandigarh tackling a dispute on tax audit report’s date and its corresponding implications on tax deductions. Misinterpretation of these dates led to a disagreement over disallowed deductions worth Rs. 17,53,799/-, which had reportedly been paid before filing the return.
Analysis: Eastman Exports challenged an order passed by the Commissioner of Income Tax (Appeals), asserting the incorrect reading of the audit report date and an unjust disallowance of sums paid as bonuses, leave with wages, and leave encashment. The date of the audit report was crucial, with Eastman Exports claiming it was 09/10/2017, not 19/10/2017 as read by the CIT(A). This discrepancy resulted in a conflict over whether these sums were eligible for deduction, given they had been paid before the return’s due filing date.
The ITAT, acknowledging these disputes, decided to set aside the matter to the Assessing Officer (AO) for re-evaluation. The tribunal instructed the AO to examine the actual date of the sum’s deposit and verify the actual date of the audit report.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. This is an appeal filed by the Assessee against the order of the Ld. CIT(A), NFAC, Delhi dt. 13/10/2022 pertaining to Assessment Year 201 7-18 wherein the Assessee has taken the following grounds of appeal:
1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi is against law and facts on the file in as much as CIT(A) was not justified to uphold the action of the Learned Assessing Officer in disallowing a sum of Rs. 17,53,799/- on account of bonus, leave with wages and leave encashment which had actually been paid before filing the return as per the certificate obtained from the Auditors on 10. 10.2017.
2. That the Learned CIT(A) gravely erred in reading the date of Audit Report as 10.2017 whereas it was actually 09. 10.2017.
3. That the Learned CIT(A) was further not justified to hold that the mistake in making the disallowance by CPC, Ben galuru was not a mistake apparent from record.
2. Briefly the facts of the case are that the assessee filed its return of income declaring total income of Rs. 83,08,230/-, thereafter the return was processed by CRC, Bangalore and intimation under section 143(1) dt. 16/07/2019 was issued to the assessee wherein an amount of Rs. 17,53,799/- was disallowed. As per the intimation issued by the CRC, Bangalore, there is inconsistency in amount debited to the R&L Account of the previous year and which is disallowable under section 43B wherein the assessee in the return of income has disallowed a sum of Rs. 1,19,214/- as against an amount of Rs. 18,73,013/- as per Tax Audit Report in Form No. 3CD. Subsequently, the assessee moved a rectification application before the AO and the same was rejected by the AO stating that the issue raised in the rectification application is a question of law and the assessee must go in appeal before the higher authority to get the necessary relief and the application so filed by the assessee was rejected vide order passed under section 154 dt. 04/10/2021.
3. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and it was submitted that an amount of Rs. 17,53,799/- was disallowed by the CRC due to inconsistency in disallowance as per the Tax Audit Report an and as per the return of income on account of bonus, leave with wages, casual leave with wages. It was submitted that these payments were paid before the due date of filing of the return of income and given that the Tax Audit Report was issued and signed by the Tax Auditor on 09/10/2017, the necessary effect thereof could not be taken in the Tax Audit Report and accordingly, the Auditors have disallowed the same, however, Section 43B clearly provides that where the liabilities mentioned therein have been paid on or before the due date of filing of the return of income under section 139(1), the same shall be allowed to the assessee as a deduction while computing its income from Profits & Gains from Business / Profession. In support, a copy of the C.A. Certificate dt. 10/10/2017 was also submitted as per the CBDT Circular No. 601 dt. 04/06/1 991 and it was accordingly submitted that the assessee may be allowed the necessary relief in terms of deleting the disallowance so made by the CRC.
4. As per the Ld. CIT(A), NFAC, there is no legal dispute that where the said amount has been paid by the assessee before the due date of filing of the return of income, the assessee become eligible for deduction. However, referring to the C.A certificate dated 10/10/2017 as per the CBDT Circular No. 601 dt. 04/06/1 991, it was stated by the Ld. CIT(A) that if this amount were paid before 10/10/2017, it defies all logic as to how this amount was shown as not been paid till 19/10/2017 by the C.A in Form No. 3CD which is signed on 19/10/2017. It was accordingly held that the C.A. Certificate dt. 10/10/2017 appears to be incorrect and cannot be relied upon where the statutory documents i.e. Form No. 3CD which is part of the assessment record evidence the event of not payment till 19/10/2017. Accordingly, it was held that no intervention is called for in the order so passed by the AO wherein the AO has refused to rectify the alleged mistake of Rs. 17,53,799/-.
5. Against the said findings and direction of the Ld. CIT(A), NFAC the assessee is in appeal before us. Shri Ashwani Kumar, CA has moved an adjournment application, however, on perusal of records, it was observed that no useful purpose would be served in adjourning the matter and basis material available on record, it can be decided.
6. As per the grounds of appeal, the assessee has contended that the Ld. CIT(A) has erred in reading the date of Audit Report as 19/10/2017 where as it was 09/10/201 7. It has also been contended as per the grounds of appeal that the sum of Rs. 17,53,799/- towards bonus, leave with wages and leave encashment has been actually paid before the due date of filing of the return of income as per the Certificate obtained from the Auditor on 10/10/2017.
7. We therefore find that the limited issue under consideration is whether the assessee has paid the sum of Rs. 17,53,799/- before the due date of filing of the return of income even though the same has been shown as outstanding as per the Tax Audit Report submitted by the Auditor as per Form No. 3CD. The Ld. CIT(A) has considered the date of the Audit Report as 19/10/2017 where as the assessee has submitted the date of Audit Report as 09/10/2017. Further, the assessee has also relied on the C.A. Certificate dt. 10/10/2017 which has also been disputed by the Ld. CIT(A) on account of the date of signing of the Tax Audit Report. We therefore deem it appropriate to set aside the matter to the file of the AO to examine the date of actual deposit of sum of Rs. 17,53,799/- after calling for necessary documentation in support of payments of these bonuses, leave with wages and leave encashment liability towards its employees and also to verify the actual date of the Audit Report as well as consider the certificate issued by the Tax Auditor. Where on verification, it is found by the AO that these sums (wholly or in part thereof) has been actually paid on or before the due date of filing of the return of income, the necessary relief be provided to the assessee. With this direction, the matter is set aside to the file of the AO to carry out the necessary verification after providing reasonable opportunity to the assessee.
8. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 17/07/2023
