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Assessee to submit revised audit report if he claims that auditor committed error; submitting reconciliation isn’t valid

May 19, 2022[2022] 138 taxmann.com 320 (Allahabad - Trib.)

INCOME TAX : If assessee contends inadvertent error in Form No. 3CD, he should submit revised tax audit report/addendum issued by the tax auditor.

• Since tax auditors certify figures reported by them in Form No.3CD as true and correct, assessee cannot lightly allege/contend that tax auditors committed errors in reporting in Form No. 3CD. If assessee contends that tax auditors committed any inadvertent error in reporting figures/details in tax audit report in Form No. 3CD, he should get a revised tax audit report/addendum thereto issued by tax auditor and produce the same. Merely submitting reconciliation of figures of interest income reported in P&L account with interest income reported in Annexure-I to Form No. 3CD (old Form No. 3CD) will not suffice. Matter remanded to AO to allow assessee to submit revised tax audit report/addendum thereto and verify the same with books of account.

Editor's Note:

1.   See Kalpesh Synthetics (P.) Ltd. v. Deputy Commissioner of Income-tax, CPC Bangaluru [2022] 137 taxmann.com 475 (Mum. - Trib.) where the Tribunal observed as under at Para 7.
  ".……..Can the observations in a tax audit report, by themselves, be justifications enough for any disallowance of expenditure under the Act? As we deal with this question, we are alive to the fact section 143(1)(a)(iv) specifically an adjustment in respect of "disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return". It does proceed on the basis that when a tax auditor indicates a disallowance in the tax audit report, for this indication alone, the expense must be disallowed while processing under section 143(1) by the CPC. It is nevertheless important to bear in mind the fact that a tax audit report is prepared by an independent professional. The fact that the tax auditor is appointed by the assessee himself does not dilute the independence of the tax auditor. The fact remains that the tax auditor is a third party, and his opinions cannot bind the auditee in any manner. As a matter of fact, no matter how highly placed an auditor is, and even within the Government mechanism and with respect to CAG audits, the audit observations are seldom taken an accepted position by the auditee- even when the auditor is appointed by the auditee himself. These are mere opinions and at best these opinions flag the issues which are required to be considered by the stakeholders. On such fine point of law, as the nuances about the manner in which Hon'ble Courts have interpreted the legal provisions of the Income Tax Act in one way or the other, these audit reports are inherently even less relevant- more so when the related audit report requires reporting of a factual position rather than express an opinion about legal implication of that position. In the light of this ground reality, an auditee being presumed to have accepted, and concurred with, the audit observations, just because the appointment of auditor is done by the assessee himself, is too unrealistic and incompatible with the very conceptual foundation of independence of an auditor. On the one hand, the position of the auditor is treated so subservient to the assessee that the views expressed by the auditor are treated as a reflection of the stand of the assessee, and, on the other hand, the views of the auditor are treated as so sacrosanct that these views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act. There is no meeting ground in this inherently contradictory approach. Elevating the status of a tax auditor to such a level that when he gives an opinion which is not in harmony with the law laid down by the Hon'ble Courts above- as indeed in this case, the law, on the face of it, requires such audit opinion to be implemented by forcing the disallowance under section 143(1), does seem incongruous……"
2.   With effect from 1-4-2021, Rule 6G(3) provides that "(3) The report of audit furnished under this rule may be revised by the person by getting revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing of report under sub-rule (1) and (2) which necessitates recalculation of disallowance under section 40 or section 43B." With effect from AY 2021-22, it is doubtful whether a revised tax audit report can be issued and/produced in circumstances other than those covered in Rule 6G(3)
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