Tax auditor's mistake in audit report cannot justify addition without verification or assessee opportunity

ITAT Delhi ruled in favor of the assessee regarding validity of assessment under section 143(1). The tribunal found that intimation under section 143(1) was passed after case selection for regular assessment without giving the assessee opportunity. The addition was based on tax auditor's mistake in column 21(a) of audit report, where assessee made no claim of contingent liability in profit and loss account. AO completed assessment under section 143(3) without verification, adopting taxable income from section 143(1) intimation. ITAT directed AO to delete additions made in gross taxable income, allowing assessee's appeal for speedy justice.

---

---

Issues Involved:

1. Whether the addition of Rs. 26,54,02,75,345/- under Section 37 of the IT Act was justified.
2. Whether the procedure under Section 144B of the IT Act was violated.
3. Whether the assessee's appeal against the assessment order under Section 143(3) was valid despite not appealing against the intimation under Section 143(1).
4. Whether the principles of natural justice were violated.

Issue-wise Detailed Analysis:

1. Addition under Section 37 of the IT Act:
The primary issue was the addition of Rs. 26,54,02,75,345/- as a contingent liability under Section 37 of the IT Act. The assessee argued that this amount was inadvertently reported by the tax auditor in Form 3CD and was not actually debited to the profit and loss account. The tribunal noted that the tax auditor had indeed made a clerical mistake in reporting this liability, which was clarified later. The tribunal emphasized that taxes should be collected as per the authority of law and not due to inadvertent mistakes in the tax audit report. The tribunal directed the Assessing Officer to delete this addition, acknowledging the error and the fact that the amount was not claimed in the profit and loss account.

2. Procedure under Section 144B of the IT Act:
The assessee contended that the procedure under Section 144B, which mandates issuing a show cause notice and draft assessment order before a final assessment, was not followed. The tribunal agreed with the assessee, noting that no such notice or draft was issued, which constituted a clear violation of the mandatory procedure. The tribunal referenced several judgments supporting the necessity of following statutory procedures to uphold the principles of natural justice.

3. Validity of Appeal against Assessment Order:
The tribunal addressed the issue of whether the appeal against the assessment order under Section 143(3) was valid, given that the assessee did not appeal against the intimation under Section 143(1). The tribunal observed that the Commissioner of Income Tax (Appeals) erred by dismissing the appeal on technical grounds without appreciating the factual error in the auditor's report. The tribunal emphasized that the CIT(A) has the power to assess the income properly and should have considered the clarification provided by the assessee.

4. Principles of Natural Justice:
The tribunal found that the principles of natural justice were violated as the assessee was not given an opportunity to clarify the mistake before the addition was made. The tribunal noted that the assessment was completed without following the due procedure, and the assessee was not given a chance to rectify the error in the audit report. The tribunal highlighted that the assessee should not be penalized for the auditor's mistake and that the appeal should not be dismissed on technical grounds when the facts clearly indicate an error.

Conclusion:
The tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to delete the addition made under Section 143(1) of the IT Act. The tribunal emphasized the importance of adhering to statutory procedures and the principles of natural justice, ensuring that taxes are imposed based on accurate and lawful grounds. The decision underscores the tribunal's commitment to providing "Impartial, Easy & Speedy Justice."

---