Arora & Associates Reality Limited, a real estate firm based in New Delhi, contested adjustments made during the processing of their return for the Assessment Year 2019-20 by the Central Processing Center (CPC) in Bangalore. The case was adjudicated by Sh. N. K. Billaiya, Accountant Member, through video conferencing, leading to a tribunal decision on October 25, 2021.
The appellant contested the disallowance of Rs.7,23,552 related to subscription fees paid to a club which was processed by the CPC. The CPC’s adjustment was initially based on inconsistencies reported in the tax audit Form 3CD concerning disallowance under section 37 of the Income Tax Act.
The CIT(A)-1, New Delhi, upheld the disallowance, aligning with the CPC’s decision which cited discrepancies in the audit report. However, Arora & Associates argued that the adjustments were unjustified as the auditors had not specifically indicated any disallowance related to the subscription fees.
Upon reviewing the submission and the audit report, Sh. N. K. Billaiya noted that the auditors did not mention the disallowance of the expenditure explicitly, thus making the application of section 143 (1)(a)(iv) inappropriate for this case. It was determined that the CPC had erred in their initial processing by misinterpreting the audit findings.
The Tribunal directed the AO to delete the impugned addition, allowing the appeal in favor of Arora & Associates Reality Limited. The decision highlighted the necessity for precise documentation and proper assessment during the processing of tax returns.
This case serves as a significant precedent for assessing the validity of disallowances based on audit reports and stresses the importance of clear communication between tax auditors and processing centers. The final order reinforced the principle that procedural errors must be corrected to ensure fairness in tax assessments.
Order pronounced in open court on October 25, 2021.
ITA 1706/DEL/2020: Arora & Associates Reality Limited vs DCIT CPC, Bangalore
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