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May 9, 2022

Audit Report filed during assessment proceedings cannot be ignored by AO

by CA Shivam Jaiswal in Income Tax

Audit Report filed during assessment proceedings cannot be ignored by AO

Facts and Issue of the case

The  present    appeal     has  been filed by    the   assessee against the order of ld. CIT( A), Dehradun dated 06 . 03.2019.

Following grounds have been raised by the assessee:

  • That the AO erred on facts and in law in computing total turnover at Rs.2,56 ,64,511 and then computing net profit  @8%  amounting  to Rs.20 ,53,160 on such turnover under section 44AD of I.T. Act as against short term capital  gain declared on shares and F&O transactions by completely ignoring the tax  audit  report  filed during the course of assessment proceedings.
  • That the AO erred on facts and in law in computing the net profit at Rs.20,53 ,160 under section 44AD on account of F&O  transaction instead of assessing the net profit at  Rs.2,41 ,131 on account of F&O  transactions  as declared/reflected in the audited P&L A/ c read with tax audit report filed during the course of assessment proceedings.
  • That the AO erred on facts and in law in computing the net profit at Rs.20,53 ,160 under section 44AD on account of shares instead of assessing the same at Rs.56 ,147 under the head ‘short term capital gain’ as declared by the Appellant.
  • That the Ld. CIT( A) erred on facts and in law in passing an ex- parte appellate order as  no notices off hearing were served on the communication address as mentioned in Form 35 thereby violating the principles of natural justice.
  • That the Ld. CIT( A) erred on facts and in law in passing an ex- parte appellate order as notices of hearing appear to have been sent by email despite the fact that in Form 35,  it was  duly  mentioned that notices of hearing should not be sent through email.

Observation and Conclusion of the Court

The only issue pertains to application of provisions u/s 44AD of the Income Tax Act, 1961. The  assessee  earned income from sale & purchase of derivatives which the AO held that the same should be treated as business income. The assessee has also incurred losses in the derivatives trading which have been duly filed before the AO.  The  AO  held  that the tax Audit Report has not been filed before  the  due  date and ignored the Audit Report filed during the course of assessment proceedings. While  different  provisions  govern the delay in filing of tax Audit Report, the action of  the Assessing Officer not to consider the Audit Report while concluding the assessment and wrongly invoking the provisions of Section 44AD cannot be sustained.

Hence, the matter is remanded back to the file of the Assessing Officer to frame  the  assessment  de novo considering the tax Audit Report. The assessee shall comply to the notices of the revenue authorities promptly without seeking any unnecessary adjournments. The appeal of the assessee was allowed.

Rajesh-Mittal-Vs-ITO-ITAT-Dehradun

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