Income Tax Return Cannot Be Declared Invalid Over Clerical Error in Section 44AB Audit Option, Clarifies ITAT:

The ITAT Kolkata, in a recent key ruling, has clarified that an income tax return cannot be invalidated merely because of an inadvertent clerical error in selecting the audit-related option under Section 44AB of the Income Tax Act, 1961. The tribunal remanded the case to the AO for fresh verification of the cash transactions.

M/s N M Finance & Investment Consultancy Limited (assessee) had declared an aggregate income amounting to Rs 2.56 crore in its income tax return (ITR) for the Assessment Year 2022-23. The assessee had disclosed a business turnover of Rs 3.81 crore. The Centralised Processing Centre (CPC), Bengaluru, vide a notice issued under Section 139(9) of the Act, declared the return defective, holding that the company had not furnished a tax audit report (TAR) under Section 44AB despite having business receipts exceeding Rs 1 crore.

In response to the same notice, the assessee claimed that the cash receipts and payments in question were within the prescribed 5% limit. Consequently, it was not liable to furnish a tax audit report under the provisions of Section 44AB. However, the CPC treated the return as invalid, not finding the explanation relevant.

Thereafter, the assessee company filed a second appeal before the Income Tax Appellate Tribunal (ITAT), Kolkata, contending that it had mistakenly selected 'NO' against the 5% cash transaction criteria in Schedule Part-A General. The error was merely clerical, and the return could not be corrected through the portal after the revised return deadline had expired.

After considering the submissions, the Tribunal observed that procedural requirements should not override substantial justice. It also referred to CBDT Circular No. 14(XL-35) of 1955, which advises tax authorities against taking undue advantage of taxpayers' genuine mistakes.

The tribunal clarified that "an assessee cannot be penalized or deprived of having its return processed merely on account of an inadvertent clerical error committed while toggling a radio button on the e-filing utility. If the actual cash component of receipts and payments is less than 5%, the assessee was never statutorily mandated to obtain an audit report under Section 44AB. In such a scenario, treating the validly filed return as "invalid" and non-est operates harshly and runs contrary to the spirit of CBDT Circular No. 14(XL-35) of 1955, which mandates that the Department must not take undue advantage of an assessee’s ignorance or inadvertent mistake."

Accordingly, ITAT Kolkata set aside the CIT(A)'s order and restored the matter to the jurisdictional AO for verification. The appeal was allowed for statistical purposes.