Mistaken tax audit entry and Covid-period provident fund delay: ITAT deleted both additions in favour of the assessee.

Addition for contingent liability was deleted where the tax audit report mistakenly described a bank guarantee as a contingent liability, because no deduction had been claimed in the profit and loss account and the disallowance rested only on the erroneous audit entry. Disallowance of employees' provident fund contribution was also deleted because the delayed deposit was attributed to the Covid period and was treated as having been made within the extended time limit supported by the relevant EPFO notification. Both issues were decided in favour of the assessee, and the appeals were allowed.

---

---

Issues: (i) Whether the addition made on account of contingent liability recorded in the tax audit report was sustainable; (ii) Whether the disallowance for delayed payment of employees' contribution to provident fund was sustainable in the facts of the case.

Issue (i): Whether the addition made on account of contingent liability recorded in the tax audit report was sustainable.

Analysis: The return of income had been filed along with the tax audit report, but the amount of Rs. 9,41,558 was wrongly reflected by the tax auditor as a contingent liability though it represented a bank guarantee and was not claimed as an expenditure in the profit and loss account. The addition arose only from this mistaken reporting in the audit report and not from any actual claim of deduction by the assessee.

Conclusion: The addition on account of contingent liability was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance for delayed payment of employees' contribution to provident fund was sustainable in the facts of the case.

Analysis: The delayed deposits were attributed to the Covid period, and the contribution was stated to have been deposited within the extended time limit applicable during that period. The record also referred to a notification issued by the Employees' Provident Fund Organisation dated 15.04.2020 supporting the assessee's claim for relief from the disallowance.

Conclusion: The disallowance for delayed payment of employees' contribution to provident fund was deleted and the issue was decided in favour of the assessee.

Final Conclusion: Both additions were deleted, and the appeals were allowed in full.

Ratio Decidendi: Where an addition is made solely because of a mistaken entry in the tax audit report and the underlying amount was not claimed as expenditure, the disallowance cannot be sustained; similarly, delayed provident fund contribution made within an extended Covid-period timeline is not liable to disallowance on the facts accepted by the Tribunal.

---