Addition made pursuant to difference of income reported in ITR and Tax Audit cannot be removed if claim is not backed by appropriate evidence-ITAT

Facts of the Case:

The Assessee is a partnership firm, engaged in the business of running a hospital. The Assessee filed its return of income for the Assessment Year 2016-17 reporting total income amounting to Rs. 2,86,33,480/-.
During the course of assessment proceeding, the assessing officer pointed out the dichotomy in the income reported in the ITR and Tax Audit and added the difference between the two in the income of the Assessee for the year under consideration. Aggrieved by the impugned order, the Assessee preferred an appeal before the CIT(A) and thereafter in ITAT.

Contention of the Assessee:

The Assessee contended that the difference between the net profit reported in the ITR & Tax Audit report was due to fact that figures were taken by the tax auditor from the unaudited financial statement in which the provision of expenses were not yet reported
Also, the Assessee had duly provided the reconciliation between the net profit figure reported in return of income and tax audit report and contended that the figures reported in the tax audit report is erroneous and the Assessee should not be penalized for the mistake of the tax auditor.

Contention of the Revenue:

The revenue contended that the tax audit was revised after filing of return of income and the net profit in such audit report remained unchanged. If there were to be any changes in the net profit figure, then it would have been duly corrected by the tax auditors in their revised Tax Audit report. Thus, the revenue claimed that it was an underreporting of net profit.

Decision of the ITAT:

The Hon’ble ITAT in their decision held that when Assessee submits its accounts to the tax auditor for audit, it is presumed that accounts for the year are finalized in all respects in which all income and expenses including provision of expenses are duly considered before handing over the same to the tax auditor.
Secondly, the contention of the AO was upheld by the ITAT that since the tax auditor has revised its report post the filing of the ITR by the Assessee, any change, if existing, would have been incorporated by the tax auditor in the revised report.
Further, the reconciliation provided by the Assessee is not supported by the evidences, therefore Hon’ble ITAT framed its judgement in the favour of Revenue and thereby dismissed the appeal of the Assessee

Case Law: G.V.N.Hospitals v. ACIT [2022] 139 taxmann.com 284 (Chennai – Trib.)

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