18 October 2022
Tax audit report for AY 2021.22 was submitted in Feb 2022. The provision of Rs. 7 lakhs was made for leave encashment as on 31.3.2021. In the said report the leave encashment Rs. 50000 paid between April 21 to Aug 21 was shown in clause 26 B (a) of 3CD under subclause a – “as paid on or before the due date for furnishing the return of income of the previous year under section 139(1)”. However while filing the return of income in Feb 22, the leave encashment Rs. 400000 paid in Sep 21 was also claimed u/s 43B on payment basis ( the due date of filing of return of income was extended for AY 21.22). Now this additional claim u/s 43B is disallowed while processing the return of income u/s 143(1) on the basis of mismatch between audit report and return of income. Can I revise the audit report to add 400000 in clause 26 B (a) of 3CD. I am doughtful because the wording in rule 6G clause 3 - is " The report of audit furnished under this rule may be revised by the person by getting revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing of report under sub-rule (1) and (2) which necessitates recalculation of disallowance under section 40 or section 43B.]"
Or alternatively will it be better to accept and pay the demand of tax made on the addition of mismatch of Rs. 400000 and claim it for AY 22.23. Will there be a risk of 270A?
11 July 2024
Based on the situation described, here are the considerations for revising the tax audit report or handling the disallowed claim:
### Revising the Tax Audit Report:
1. **Permissible Revision**: As per Rule 6G of Income Tax Rules, the tax audit report can be revised to incorporate any payments made after the initial submission of the report, which necessitate recalculation of disallowances under Section 40 or Section 43B. Since you paid Rs. 400,000 in September 2021, after the original audit report was submitted, you have grounds to revise the audit report to include this amount.
2. **Procedure**: To revise the audit report: - Obtain a revised report of audit from your chartered accountant. - Ensure the revised report is duly signed and verified by the accountant. - Furnish the revised report before the end of the relevant assessment year (AY 2021-22 in this case).
3. **Impact**: By revising the audit report, you can correctly reflect the Rs. 400,000 payment under Section 43B in Clause 26 B (a) of Form 3CD. This will align the audit report with the return of income filed in February 2022.
### Accepting the Demand and Filing for AY 2022-23:
1. **Accepting the Demand**: If you decide not to revise the audit report, you would accept the disallowance made by the tax authorities based on the mismatch between the audit report and the return of income.
2. **Filing for AY 2022-23**: You can then claim the Rs. 400,000 as a deduction under Section 43B for the assessment year 2022-23, provided you pay it within the due dates specified under the income tax laws.
### Risk of Section 270A:
1. **Risk Consideration**: Section 270A deals with penalties for under-reporting and misreporting of income. If you revise the audit report to correctly reflect the payment of Rs. 400,000 and file a revised return for AY 2021-22, you mitigate the risk of penalties under Section 270A due to incorrect reporting.
2. **Compliance**: Filing a revised return and audit report demonstrates compliance and rectification of any inadvertent errors in the original filings.
### Conclusion:
- **Revising the Audit Report**: It is advisable to revise the audit report to include the Rs. 400,000 payment under Section 43B. This aligns with the correct reporting of income and avoids potential penalties under Section 270A.
- **Consultation**: It's prudent to consult with your tax advisor or chartered accountant to ensure compliance with the rules and to handle the revision process effectively.
By revising the audit report and filing a revised return, you rectify the mismatch and correctly claim the deduction, thereby maintaining compliance and minimizing any future tax risks.
CAclubindia
