Audited business loss cannot be recharacterised as taxable profit without a factual basis for income enhancement.

An amount reflected as business loss in duly audited accounts cannot be treated as taxable profit without a factual basis supporting enhancement of income. The audited profit and loss account showed a loss of Rs. 48,70,648, and no adverse finding was recorded in the audit report. As the Revenue did not challenge the deletion of the assessment additions, the only surviving issue was the appellate enhancement. That enhancement was held unsustainable because it rested on a factual error, and it was directed to be deleted in favour of the assessee.

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Issues: Whether the amount of Rs. 48,70,648, shown as loss in the audited profit and loss account, could be treated as taxable profit by way of enhancement of income.

Analysis: The audited profit and loss account showed a business loss of Rs. 48,70,648 for the relevant year. The accounts were statutorily audited and no adverse finding was recorded in the audit report. The appellate finding that the loss represented taxable profit was therefore based on a factual error. Since the Revenue had not challenged the deletion of the additions made in assessment, the only surviving dispute was the enhancement of income made at the appellate stage.

Conclusion: The enhancement of income was unsustainable and was directed to be deleted, in favour of the assessee.

Final Conclusion: The assessment was not sustained to the extent of the appellate enhancement, and the assessee's appeal succeeded.

Ratio Decidendi: An amount recorded as loss in duly audited accounts cannot be treated as taxable profit in the absence of a factual basis supporting such enhancement.

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