Difference in profit reported in ITR & Tax Audit taxable if Assessee is unable to explain his claim: ITAT
Brief facts of the case are that the assessee is a partnership firm, engaged in the business of running hospital, filed its return of income tax for the assessment year 2016-17 on 19.10.2016 admitting total income of Rs. 2,86,33,480/-. During the course of assessment proceedings, the Assessing Officer noticed that there is a difference in net profit reported in ITR filed for relevant assessment year and net profit reported in tax audit report. As per return, net profit reported is Rs.2,85,23,422/-, whereas as per tax audit report in Form 3CD, net profit was shown at Rs. 3,28,01,026/-. There is a difference of Rs. 42,77,602/- in net profit shown in tax audit report and ITR filed for the relevant assessment year. Therefore, the Assessing Officer called upon the assessee to explain and reconcile difference. In response, the assessee vide letter dated 11.12.2018 submitted that tax auditor has reported net profit as per unaudited financial statement, which has not considered year end provision towards salary expenses and employer contribution to EPF & ESI, provision for partners salary, provision for depreciation on lift and bank interest income, after reconciliation with Form 26AS and if you consider these year end expenses, net profit reported by the assessee in the return of income filed for the relevant assessment year is correct. However, the tax auditor has not considered correct financials while uploading data in Form 3CD. Therefore, the assessee submitted that difference in net profit as per two documents has been reconciled.
The Assessing Officer however, was not convinced with the explanation furnished by the assessee and according to him, arguments of the assessee is that Tax Auditors Mr.Narayanaswamy and N.Krishnaswamy, who furnished audit report u/s. 44AB of the Act, has not reported correct figures is incorrect, because audit report has been filed on twice, one before the assessee filed its return of income on 27.10.2016 and the other subsequent to filing of return of income by the assessee. If the claim of the assessee is correct, then the tax auditor would have corrected mistake while filing subsequent tax audit report. Since figures reported by tax auditor in both audit reports is same, claim of the assessee that auditor has considered unaudited financials while uploading audit report is incorrect and cannot be accepted. Thus, rejected arguments of the assessee and made additions towards difference in net profit as shown in ITR and tax audit report filed for relevant assessment year and made addition of Rs. 42,77,604/- to returned income.
Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has reiterated its arguments and filed a reconciliation statement explaining the difference between income & expenditure shown in ITR filed for the relevant assessment year and tax audit report issued in Form 3CD and argued that the auditor has committed an error in uploading figures for which the assessee cannot be penalized. The learned CIT(A), after considering relevant facts and also taken note of various reasons given by the Assessing Officer came to the conclusion that contention of the appellant that the tax auditor has erred in uploading figure in Form 3CD lacks basis, more particularly, when the statutory auditor filed revised audit report, subsequent to filing of return, has reported same profit as that of original audit report. Therefore, the learned CIT(A) opined that there is no error in the findings of the Assessing Officer that revised audit report which has been filed after filing of return did not reflect claim of provisions made for expenses and thus, there is no case for the assessee to claim that difference has been reconciled, hence, rejected arguments of the assessee and sustained additions made by the Assessing Officer towards difference in net profit. Aggrieved by the learned CIT(A) order, the assessee is in appeal before Tribunal.
Income Tax Appellant Tribunal (ITAT) pointed out that when the assessee has submitted its accounts to tax auditor for audit, then it is presumed that accounts for the year are finalized in all respects. Further, the tax auditor has reported financial figures as per which there is no difference in income and major expenses. Further, the assessee claims to have made certain year end provisions which has been not considered by the tax auditor. However, on perusal of reasons given by the Assessing Officer, it is abundantly clear that even after filing revised tax audit report, tax auditor has reported very same net profit which was reported in earlier tax audit report filed on 17.10.2016, even before the assessee filed return of income on 27.10.2016. If at all, claim of the assessee is correct that auditor has not considered year end provisions while uploading Form 3CD, then tax auditor would have corrected said mistake, when he had filed second audit report on 27.10.2016, subsequent to return of income filed by the assessee on 19.10.2016.
Even before ITAT, although the assessee has filed a chart explaining difference between income and expenditure shown in ITR as well as Form 3CD, but claim of the assessee goes unproved in absence of any evidences. Therefore, ITAT took a view that there is no error in the reasons given by the Assessing Officer to make additions towards difference in net profit shown in ITR filed for relevant assessment year and tax audit report issued in Form 3CD.