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CA Pratibha Goyal | May 13, 2022 | Views 49246

Contents of tax-audit report should be be ‘true and correct’ and not merely ‘true and fair’: ITAT

Contents of tax-audit report should be be ‘true and correct’ and not merely ‘true and fair’: ITAT

Where Income Tax Addition is made on Account of Tax Audit Report (TAR) and Taxpayer is claiming that figures have been incorrectly reported by the Auditor, Taxpayer is bound to produce revised Tax Audit Report.

In this matter, One of the additions to the Taxpayer’s Income was on account of interest income escaping assessment to the tune of Rs. 8,58,317/-, because as per AO the auditors had shown Rs. 17,12,601/- as income from interest in Part B of Annexure-I in the tax-audit report in Form No. 3CD, while the interest income reflected in the Profit and Loss Account by the assessee was Rs. 8,54,284/- , which led to the additions being made by the AO of the differential amount of interest income, to the tune of Rs. 8,58,317/- in the hands of the assessee, on the grounds that interest income to the tune of Rs. 8,58,317/- had escaped assessment.

However, this addition was deleted by the ld. CIT(A), who observed that the aforesaid differential interest income stood declared by the assessee in the Profit and Loss Account, and no interest income has escaped assessment, and merely because there are some technical mistakes in Part-B of Form No. 3CD wherein hire charges were merged with interest income by the tax- auditor, would not call for additions being made in the hands of the assessee.

Aggrieved by the deletion, the Assessing Officer is in an Appeal with the Income Tax Appellant Tribunal (ITAT).

Contention of Tax Payer:

The assessee, in is contending that the tax-auditor has committed two mistakes while certifying the tax-audit report dated 24.09.2011 while certifying the interest income earned by the assessee, aggregating to Rs. 17,12,601/- as declared by the tax-auditor, the first mistake is that the tax-auditor included hire charges of Rs. 14,19,980/- in the interest income which should not have been included by the tax auditor, and the second mistake committed by the tax auditor in the aforesaid tax- audit report was that the accrued interest on FDR amounting to Rs. 5,61,663/- was not included in the interest income.

ITAT Order

Tax Auditor should have revised inadvertent error in Tax Audit Report (TAR) on their part

If there was any inadvertent error on the part of tax-auditor in their tax- audit report , they could have always issued addendum/revised tax-audit report to rectify and clarify the correct positions after due verifications/checkings from their audit records. The AO in remand proceedings specifically asked for the said revised tax-audit report, but the assessee chose not to bring on record addendum/revised tax-audit report from the tax-auditors.

Contents of tax-audit report should be be ‘true and correct’ and not merely ‘true and fair’

The 1961 Act has made provisions of tax-audit under Section 44AB of the 1961 Act, wherein the onus is now put on the tax-auditors who are qualified Chartered Accountants to certify financial details/data’s of the tax-payers in the prescribed form no. 3CB and 3CD as part of tax-audit under the provisions of Section 44AB, with a view that such certification by a qualified Chartered Accountant would assist the Revenue in framing assessments/processing of returns and computing the correct income chargeable to tax as well as at the same time easing the burden on the Revenue officials, that is why the certification called from tax auditor’s in Form No. 3CB/Form No. 3CD under the aegis of Section 44AB is that the financial data’s as contained therein is certified to be true and correct which is an onerous/heavy burden cast on tax-auditors, and the said certification does not merely called the tax auditor to certify that the affairs are ‘true and fair’ as is envisaged while auditing under Companies Act. Thus, certainly the burden/duty on tax-auditor is very heavy/onerous under the 1961 Act to certify contents of tax-audit report to be ‘true and correct’ and not merely ‘true and fair’.

Assessee to approach Tax Auditor if the inadvertent error has been committed by him in tax-audit report

Thus, if there was an inadvertent error committed by tax-auditor as is averred by the assessee, the assessee could have always approached the tax-auditor to issue addendum/revised tax-audit report to certify correct figures after due checking’s /verifications by the tax-auditors.

Chartered Accountants bound to issue revised TAR: Non-Issue would call for disciplinary action from ICAI

The qualified Chartered Accountants who are appointed as tax- auditors being responsible officer/qualified professional , are expected to issue any addendum/revised tax-audit report with due care and caution with full responsibility , after thorough checking/verifications, otherwise it would call for disciplinary action from the ICAI and other consequences as provided under law.

Assessee never produced revised tax-audit report

  • The assessee never produced the aforesaid addendum/revised tax-audit report from tax-auditor.
  • The ld. CIT(A) deleted the additions without calling for such information from the tax auditors and then reconciling/verifying from the books of accounts, but merely deleted the additions.

Profit/Loss contains cutting/overwriting and such overwriting/cutting is not authenticated by tax-auditor

It is further observed that in same Part B- Annexure-I (Page 17/PB) of tax-audit report, there is a cutting/overwriting in the figure of Net Profit/(Loss) before tax which is shown at Rs.3,78,565/- (with over-writings) , and such overwriting/cutting is not countersigned / authenticated by tax-auditor, and authenticity of such overwritten figure cannot be ascertained/relied upon , which also is required to be brought on record by the tax-auditor.

Final Order

Thus, keeping in view of our above discussions and totality of facts and circumstances, It will be just , fair and in the interest of justice that the appellate order of ld. CIT(A) be set aside and the matter be restored to the file of the AO for fresh determination of the issue. The assessee be directed to file revised tax-audit report/addendum to the tax-audit report and the AO to verify the same with books of accounts and other relevant evidences, to arrive at the correct income chargeable to tax.

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