Mere Audit Report Omission of Transaction alone Cannot Support Addition when Books are Proper and AO Fails to Prove Undisclosed Source: ITAT Deletes Addition [Read Order]
The Tribunal deleted the ₹56 lakh addition, holding that the omission in the audit report was at best a reporting lapse and could not override the substantive evidence available in the books.
![Mere Audit Report Omission of Transaction alone Cannot Support Addition when Books are Proper and AO Fails to Prove Undisclosed Source: ITAT Deletes Addition [Read Order]](https://images.taxscan.in/h-upload/2025/10/01/2092984-audit-reports-omission-taxscan.webp "Mere Audit Report Omission of Transaction alone Cannot Support Addition when Books are Proper and AO Fails to Prove Undisclosed Source: ITAT Deletes Addition [Read Order]")
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that mere omission of a transaction in the Tax Audit Report cannot justify an addition when the assessee’s books of account are properly maintained and the Assessing Officer (AO) fails to demonstrate any undisclosed source of funds.
The assessee, Nidhika Rehani, engaged in the garment manufacturing and trading business, had deposited cash during the demonetization period and also made payments to her husband’s proprietorship firm, Vani Designs, towards repayment of an earlier loan.
While the AO treated ₹56 lakh of such repayments as undisclosed transactions on the ground that they were not reflected in the audit report, the Tribunal noted that the transactions were fully routed through banking channels, duly recorded in the regular books of account, and supported by ledger confirmations.
Once the accounts themselves disclosed the opening balance of over ₹76 lakh payable to Vani Designs, the omission in reporting the repayment in the audit report could not, by itself, lead to an addition.
The AO had not proved that the payments were made out of undisclosed sources or outside the regular books.
The Tribunal thus deleted the ₹56 lakh addition, holding that the omission in the audit report was at best a reporting lapse and could not override the substantive evidence available in the books.
The bench of Sudhir Kumar (Judicial member) and Manish Agarwal and (Accountant member) observed that “once the transaction is duly recorded in the books of accounts and AO has failed to establish that this amount was paid from undisclosed source without routing the same through books of accounts, no addition could be made for this amount merely because this amount is not reported in Tax Audit Report as repayment of loan in excess of INR 20,000/-. Accordingly, we direct the AO to delete the addition of INR 56,00,000/- made.”
Further, the Tribunal partly sustained additions relating to cash deposits during demonetization, observing that while ₹25.5 lakh was supported by contemporaneous cash book balances, ₹2.5 lakh remained unexplained due to inconsistencies with available denominations.
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