Mistake of Auditor who has Wrongly given the Figures and Made Wrong Observation can’t be basis for Assessment: ITAT [Read Order]

Auditor ICAI

Kolkata bench of Income Tax Appellate Tribunal (ITAT) has recently declared that addition merely on ground of mistake of the auditor has wrongly given the figures and made wrong observations is invalid under the Income Tax Act.

The division bench was hearing an appeal filed by the assessee who was engaged in the construction business mainly in the nature laying of underground piping, construction of reservoir, buildup of iron & Arsenic Treatment Plant etc.

During the period of assessment proceedings the Assessing Officer (AO) has found that the assessee claimed an amount of Rs.20,93,155 as outstanding labour charges against total claim of labour charges amounting to Rs.99,35,275. After made a test check about the details of the labours the AO disallowed a sum of Rs. 12,65,216. And accordingly the CIT (A) has confirmed the addition made by the AO under section 69C of the act as unexplained credit. The AO further noted that the assessee has made provisions for Value Added Tax (VAT) on Rs.1,78,334. The AO was of the opinion that the assessee did not adjust the same in his computation submitted along with the return under section 139(1) of the act. Hence the AO added the aforementioned liability of the assessee under section 43B of the act.

The bench consists of Judicial Member Aby.T.Varkey and Accountant Member Dr.A.L.Saini has observed that according to the CIT (A) since the labour charges have been paid, the said sum of money could have been from the unaccounted source of the assessee and, therefore, he disallowed the entire expenditure claimed by the assessee at Rs.99,35,275. The bench found that the CIT (A) has not considered the entire records and only taken the payments received by the assessee, and the assessee did not have liquid cash in hand to disburse to labourers and disallow the entire claim under section 69 of the act.

The bench also held that a total VAT expenditure has debited by the assessee to the Profit & Loss account which is the VAT ledger account for the period which reflected that the entire amount has been debited by various parties and therefore, there was no unpaid liability on this account. “In the light of the material facts it is clear that all these errors arise due to the mistake of the auditor who has wrongly given the figures and made wrong observations because of which the AO made additions and disallowances.”

While allowing the appeal filed by the assessee the bench also deleted the additions made by the AO.

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