Facts of the Case

The assessee, a partnership firm engaged in automobile dealership (purchase and sale of tractors), filed its return along with audited financial statements and tax audit report declaring income of ₹3,54,460. The Central Processing Centre (CPC), Bangalore processed the return under section 143(1) and determined income at ₹57,72,455, making an addition of ₹54,17,992 based on figures reported in the tax audit report.

The first appellate authority dismissed the appeal solely on the ground of delay in filing Form 35, which had been filed approximately 440 days late. The assessee explained that the delay occurred due to professional negligence of the engaged advocate, who failed to inform the assessee after receiving the intimation order.

Issues Involved

  1. Whether delay caused by counsel’s negligence constitutes sufficient cause for condonation.
  2. Whether CPC can add income already credited in the profit and loss account based solely on entries in Form 3CD.
  3. Whether incorrect reporting in the tax audit report can result in double taxation during automated processing.
  4. Whether such additions require verification of books of account.

Petitioner’s Arguments

The assessee contended that the amounts added by CPC—comprising commission, interest income, and other income aggregating to ₹54,17,993—were already credited in the audited profit and loss account and considered while computing taxable income.

It was argued that the tax auditor mistakenly reported these amounts in Clause 16(d) of Form 3CD, which is meant for “amounts not credited to the profit and loss account.” Because CPC processing is system-driven, the incorrect reporting resulted in the same income being taxed twice.

Respondent’s Arguments

The Revenue relied on the order of the appellate authority but acknowledged that the addition appeared to have arisen due to incorrect reporting in the audit report.

Court Order / Findings (ITAT Allahabad)

The Tribunal condoned the delay, holding that litigants should not suffer due to the negligence of their counsel. Reliance was placed on the Supreme Court decision in Rafiq & Anr. vs. Munshilal & Anr., emphasizing that justice should not be denied because of an advocate’s default.

On CPC Addition Based on Tax Audit Report

The Tribunal observed that the disputed amounts were already credited to the profit and loss account and included in the returned income. The addition arose because of incorrect reporting in Form 3CD, which the CPC system automatically processed.

  • The assessee had digitally approved the audit report
  • No revised audit report had been filed to correct the error
  • Proper verification of books and accounts was necessary

Direction for Fresh Adjudication

Considering the technical defects and need for factual verification, the Tribunal remanded the matter to the Assessing Officer to examine:

  • Audited financial statements
  • Books of account
  • Figures reported in ITR-5
  • Contents of the tax audit report on record

The Assessing Officer was directed to pass a fresh order on merits after granting adequate opportunity of hearing to the assessee.

Important Clarification

The Tribunal emphasized that automated adjustments under section 143(1) based on audit report data must reflect actual income. Where incorrect reporting leads to apparent double taxation, verification at the assessment level is necessary to determine the correct taxable income.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771066245_S.P.S.AUTOMOBILESPRAYAGRAJVS.ITOWARD15PRAYAGRAJ.pdf

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