Facts of the Case

The assessee, Concord Fortune Minerals India Pvt. Ltd., filed its return of income for Assessment Year 2017-18 on 29.11.2017 declaring total income of ₹18,74,280. The assessee is engaged in the business of trading in minerals including import and export and also trading in food grains. The return was processed and an addition of ₹40,95,670 was made by the CPC under Section 143(1) on account of alleged inconsistency and disallowance under Section 37 of the Income-tax Act. Subsequently, the case was selected for scrutiny and statutory notices under Sections 143(2) and 142(1) were issued. A show cause notice along with a draft assessment order was issued on 21.04.2021, to which the assessee replied on 23.04.2021. The Assessing Officer sustained the CPC adjustment and assessed the income at ₹59,69,950. The CIT(A) confirmed the addition relying on the tax audit report filed by the assessee.

Issues Involved

Whether an addition made under Section 143(1) on the basis of an inadvertent clerical error in the tax audit report is sustainable, whether a revised tax audit report correcting a factual mistake can be ignored, and whether the CIT(A) was justified in confirming the addition despite evidence of an apparent reporting error.

Petitioner’s Arguments

The assessee submitted that due to a clerical and factual mistake committed by the auditor, an amount of ₹41,42,088 was wrongly reported in clause 21(a) of the original tax audit report as expenditure incurred at clubs towards entry fees and subscription. The correct amount was only ₹41,421. It was contended that the auditor subsequently revised the tax audit report and uploaded the corrected figures. The assessee argued that the addition was purely based on an apparent reporting error and did not represent actual expenditure claimed in the profit and loss account. It was therefore submitted that sustaining such an addition was unjustified and contrary to facts.

Respondent’s Arguments

The Revenue supported the orders of the Assessing Officer and the CIT(A) and contended that the addition was rightly made on the basis of the figures reported in the original tax audit report filed by the assessee.

Court Order / Findings

The ITAT Kolkata observed that the assessee had indeed wrongly reported the amount in clause 21(a) of the original tax audit report and that the correct amount was only ₹41,421. The Tribunal noted that the mistake was purely clerical in nature and had subsequently been rectified by filing a revised tax audit report. The Tribunal held that the CIT(A) failed to take cognizance of this factual error and unreasonably confirmed the addition merely on the basis of the original audit report. It was held that sustaining an addition arising from an apparent and admitted clerical mistake was not justified. Accordingly, the order of the CIT(A) was set aside and the Assessing Officer was directed to delete the addition.

Important Clarification

The Tribunal clarified that additions made mechanically under Section 143(1) based solely on an inadvertent reporting error in the tax audit report cannot be sustained when the assessee demonstrates that the mistake is factual and has been duly corrected through a revised audit report. Tax authorities are required to consider the substance of the transaction and corrected factual records rather than perpetuating an admitted clerical error.

Final Outcome

The appeal filed by the assessee was allowed, and the addition of ₹40,95,670 made under Section 143(1) of the Income-tax Act for Assessment Year 2017-18 was directed to be deleted in full.

Source Link- https://itat.gov.in/public/files/upload/1768387908-K732HE-1-TO.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.