TaxTMI 
TaxTMI 
2024 (12) TMI 1789
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....ort filed by the assessee, which remains un-amended or rectified till now, admittedly indicating the disallowance? 2 Whether on the facts and in the circumstances of the case, the learned CIT(A) has adjudicated on merits, gone beyond the audit report and admitted other material- an exercise impermissible under the inherently limited scope of processing under section 143(1) (a)? 3 Whether on the facts and in the circumstances of the case, the learned CIT(A) has taken a stand vitiated in law, beyond the scope of limited scope of powers under section 143(1) (a) r.w.s.250, and unsustainable in law and on facts? 4 Whether on the facts and in the circumstances of the case, and without prejudice to the foregoing, the conclusions arrived at by the learned CIT(A) are erroneous, inappropriate to the facts of the case and wholly sustainable in law? 5 The appellant craves leave to add, amend, modify. vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal." 3. Briefly the facts of the case are that while processing the return of income under section 143(1), the income of the assessee was asses....
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....ssee in the return of income that the amount of Rs. 5,63.70,00,000/- is in the nature of liability of contingent nature debited to P&L account and disallowable u/s 37. (iv) As per the AR, the above said amount has been reported in para 21(g) due to inadvertent mistake as according to the Guidance note on Tax Audit under Section 44AB of the Income Tax Act, 1961, "the particulars of any liability of a contingent nature debited to the P&L account" is required to be reported in clause 21(g) of the Tax Audit Report. (v) It is further brought on record that the corporate guarantee has only been reported by statutory auditor in the notes on account of the statutory audit report as contingent liabilities and commitments but the same has not been debited in the P&L account. It is not forming part of any financial account i.e. neither of P&L account, nor of Balance Sheet. 5.1.3 I have considered the reasoning given in the intimation order u/s 143(1) of the Act, submissions & documents submitted by the appellant, remand report submitted by the AO, facts of the case and legal position. (i) The only issue involved is the disallowance of Rs. 5,63,70,00,000/- m....
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....this amount of Rs. 5,63,70,00,000/- has not been debited in the P & L account and has not been claimed as expenditure. For reference, the copy of balance sheet and Profit & loss account is reproduced as under: (iv) Entire disallowance has been made as per Section 37(1) of the Act, therefore it is relevant to reproduce the section 37(1) of the Act as under: Quote 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee). laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1. - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. Explanation 2. -For the removal of doubts, it is hereby declared t....
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....am of considered view that the disallowance made by the CPC is not sustainable as it has never been claimed as expenditure/deduction. In fact, it is not forming part of any financial account i.e. neither of P&L account, nor or Balance Sheet, as submitted by the appellant. Therefore, this disallowance of Rs. 5,63,70,00,000/- made by the CPC, Bangalore is deleted. 6. The ld CIT/DR submitted that basis the tax filings done by the assessee by way of its return of income and tax audit report, the CPC has done the adjustment on account of corporate guarantee and which has been deleted by the ld CIT(A) and being aggrieved with the order of the ld CIT(A), the Revenue has preferred the present appeal. He relied on the intimation issued by the CPC. 7. The Ld. AR supported the order and the findings of the Ld. CIT(A) and submitted that the Ld. CIT(A) has taken due cognizance of the revised Tax Audit Report (TAR), the guidance note issued by the ICAI, Financial statement wherein the said amount has not been claimed in the P&L Account and the return of income wherein there is no separate deduction which has been claimed and therefore he has passed a well reasoned and speaking order and no....
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....ed Accountants of India, it has been clarified on page 167 regarding the amounts to be reported in clause 21(g) "Particulars of any liability in a contingent nature" as under: "The assessee is required to furnish the particulars of any liability of a contingent nature debited to the P&L account. " 3.4 The Tax Auditor vide clarification dated 21.07.2022 has clarified the above stated issue as under and has also issued revised tax audit report which has been placed on record during the course of appellate proceedings before the CIT(A) :- "1. that in the Tax Audit report in Form-3CD the corporate guarantee has been reported in para 21(g) as "particulars of any liability of a contingent nature". 2. That the above said amount has been reported in para 21 (g) due to inadvertent mistake as according to the Guidance note on Tax Audit under Section 44AB of the Income Tax Act, 1961, "the particulars of any liability of a contingent nature debited to the P&L account" is required to be reported in clause 21(g) of the Tax Audit Report for which the kind attention of your goodself is drawn to Guidance note on Tax Audit under section 44AB of the Income Tax, 196....
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....ly be decided on merits." 4. Findings of CIT(A): - "5.1.3 I have considered the reasoning given in the intimation order u/s 143(1) of the Act, submissions & documents submitted by the appellant, remand report submitted by the AO, facts of the case and legal position. (i) The only issue involved is the disallowance of Rs. 5,63,70,00,000/- made by the CPC, Bangalore. As per annexure/other information in para 7(i) of order u/s 143(1) of the Act dt. 20.09.2021, the reason has been given as "Amounts debited to the profit and loss account to the extent disallowable under section 37; (i) Amount of any liability of a contingent nature." [page 29 of order u/s 143(1) of the Act]. The key submission of the AR is that this amount has not been debited in the P&L account. Therefore, it cannot be disallowed u/s 37 of the Act. It was further argued that it was a mistake by the auditor. Further argument of the AR was that no opportunity was granted before making adjustment u/s 143(1) of the Act. The AR has also cited certain case laws. (ii) The basic issue involved was factual in nature i.e, whether this amount Rs.5,63,70,00,000/- has been claimed as amount of an....
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....ly been reported by statutory auditor in the notes to the accounts of the statutory audit report as contingent liabilities and commitments but the same has not been debited in the P&L account. During the appellate proceedings, the matter was again referred to the Assessing officer for necessary verification and in his remand report dated 03/01/2024, the Assessing officer has stated that from the perusal of the financial statement of the assessee, it is found that the amount of Rs 5,63,70,00,000/- was not debited in the profit/loss account. In light of the same, there cannot be any dispute that the said amount was neither debited in the profit/loss account nor claimed in the return of income. In view of the same, we see no reason to interfere with the findings of the Id CIT(A) wherein he has taken into consideration not just the submissions of the assessee but the remand report of the AO as well as the financial statements of the assessee and held that the disallowance made by the CPC is not sustainable as it has never been claimed as expenditure/deduction nor forming part of any financial account i.e. neither of P&L account, nor Balance Sheet, as submitted by the appellant. The ord....