ITAT Rules: Revised Audit Report Correcting Professional Error Must Be Considered in Rectification

1. The Core Dispute: A “Copy-Paste” Professional Error

The assessee faced a tax demand due to a mechanical addition made during the processing of their return under Section 143(1).

The Error: The Chartered Accountant (CA) filed a Tax Audit Report (TAR) in Form 3CD that contained figures for delayed PF/ESI contributions.
The Twist: The assessee claimed to have no employees whatsoever. The PF/ESI data in the report actually belonged to another client of the same CA, which was inadvertently included in the assessee’s audit report.
The Consequence: Based on the “defaults” reported in Form 3CD, the Centralized Processing Centre (CPC) automatically disallowed the contributions under Section 36(1)(va) and raised a tax demand.

2. The Legal Analysis: Rectification vs. Technical Finality

The assessee sought a remedy under Section 154 (Rectification of Mistake Apparent from Record), but the Assessing Officer (AO) rejected it, refusing to look beyond the original (erroneous) audit report.

I. Validity of Revised Form 3CD

The CA admitted the professional negligence and filed a Revised Tax Audit Report on the Income-tax portal, which showed zero employees and zero PF/ESI liability. The Tribunal observed that the portal provides a specific mechanism for uploading revised audit reports to correct bona fide clerical or factual errors.

II. Adherence to Natural Justice

The Tribunal held that the tax department exists to collect the correct amount of tax, not to profit from a professional’s clerical blunder.

Record defined: “Record” for the purpose of Section 154 is not limited to the return of income but includes all documents available at the time of the rectification order—including a revised audit report.
Fact over Fiction: If the assessee truly has no employees, they cannot be “deemed” to have defaulted on employee contributions just because of a clerical error.

3. The Ruling and Final Directions

The ITAT found the AO’s refusal to consider the revised report unsustainable.

Outcome: The order rejecting the rectification was set aside.
Remand: The matter was restored (remanded) to the jurisdictional Assessing Officer.
The Mandate: The AO is directed to:
1. Verify the Revised Form 3CD.
2. Verify the assessee’s claim of having no employees (via bank statements, business nature, etc.).
3. Pass a speaking order after giving the assessee a fair hearing.

Key Takeaways for Taxpayers

Check Your 3CD Carefully: Always review the data in the schedules of Form 3CD before your CA finalizes the upload.
Revised Reports are Remedial: If a CA makes a factual mistake, they should immediately file a revised report on the portal with a note explaining the reason for the revision.
Rectification Power: Section 154 is a powerful tool to correct “apparent mistakes.” A professional’s admission of error, backed by a corrected statutory report, constitutes an “error apparent from the record.”

IN THE ITAT AHMEDABAD BENCH ‘SMC’

Jyotiben Niranjan Jani

Deputy Commissioner of Income-tax^*

Dr. B.R.R. Kumar, Vice President
and Ms. Suchitra Kamble, Judicial Member

IT Appeal No. 1499 (Ahd) OF 2025
[Assessment year 2019-20]

NOVEMBER 25, 2025

Rupesh R. Shah, AR for the Appellant. Sudhakar Verma, Sr. DR for the Respondent.

ORDER

Dr. B.R.R. Kumar, Vice-president. – This appeal has been filed by the assessee against the order dated 19.06.2025 passed by the Ld. ADDL/JCIT(A)-6, Kolkata [hereinafter referred to as “Ld. CIT(A)” in short], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” in short] for the Assessment Year 2019-20.

2. The assessee has raised the following grounds of appeal:

That action of CPC/ADDL/JCIT (A) KOLKATTA in upholding the addition under S.36(1)(va) for Rs. 12,81,710 made under S.143(1)/154 processed by CPC 21-02-2020 and 12-05-2020 without appreciating the facts that provision under S.36(1)(va) PF and ESI is not applicable to the appellant as appellant not having single employee only part-time accountant therefore action of both the lower authorities is unjust, illegal, arbitrary, illusory and deserves to be deleted.

That action of CPC/ADDL/JCIT (A) KOLKATTA has erred in law and upholding the addition of Rs. 12,81,710 made under S.154 dated 2406-2020 ignoring the original physical Audit Report as well as Revised Audit Report form Number 3CD uploaded by the appellant Chartered Accountant where in there is no disallowance are shown under S.36(1)(va) in the original physical Audit Report as well as revised Audit report by the appellant Chartered Accountant therefore action of both the lower authorities is unjust, illegal, arbitrary, illusory and deserves to be deleted.”

3. The brief facts of the case, as culled out from the record, are that the assessee is an individual who derives income from business and other sources. The assessee filed return of income for the year under consideration on 30.09.2019 declaring total income of Rs.3,57,862/-. The return was processed by CPC, Bangalore u/s 143(1) and an adjustment was made towards alleged delayed deposit of employees’ PF/ESI contributions based on figures appearing in the tax audit report (TAR) in Form 3CD. Subsequently, the assessee filed a rectification u/s 154 pointing out an error in the tax audit report, which was rejected by CPC on 24.06.2020, maintaining the same adjustment.

4. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) who dismissed the appeal of the assessee, by observing as under:-

“5.2 Ground of appeal no. 1 is against addition of Rs. 12,81,713/- on account of delayed deposit of employees’ contribution towards ESI and PF as per the provisions of sec. 36(1)(va) of the Act. Facts involved in the issue is that the appellant had got her accounts audited by a Chartered Accountant and prepared and e-filed the tax audit report (TAR) in Form 3CD. In the said TAR, an amount of Rs. 12,81,713/- was shown as collected from employees towards ESI and PF but reported as deposit after the due dates specified in the respective ESI and PF Acts. In view of the same, AO, CPC first added this amount to total income u/s 36(1)(va) of the I.T. Act while processing the return u/s 143(1) and on request for rectification by the appellant again did the same in the order u/s 154. As far as CPC’s action is concerned, it was justified since the said adjustment was made u/s 143(1)(a)(iv) of the Act due to mismatch in facts and figures reported in TAR and ITR. On the other hand, appellant claimed that while filing the ITR, her auditor had mistakenly uploaded the figures of ESI and PF collection from employees of some other client in the relevant column of TAR. The appellant also got a fresh tax audit report prepared by her auditor much afterwards the return was filed and processed u/s 143(1) and order u/s 154 passed. During these appellate proceedings, she submitted the said fresh TAR claiming that she did not have any employees and collection and deposit of ESI and PF was also not applicable. She therefore prayed for deletion of the addition made by CPC. In this regard, it is to be mentioned that the ITR filed by appellant was processed u/s 143(1) by CPC on the basis of figures reported therein and after tallying the figures with those reported in TAR. Since there was no mistake in CPC’s action, rectification of the same u/s 154 also did not arise and CPC rightly passed the order u/s 154 without making any modifications to the Intimation u/s 143(1). So there is no infirmity in CPC’s action, appellant’s prayer is not acceptable. If she had discovered any mistake in the facts reported in ITR, she was required to file a revised return as per the provisions of section 139(5) ofthe Act. In this respect, appellant’s 2nd ground of appeal that fresh TAR should be admitted as fresh evidence under Rule 46A of I.T. Rules is not applicable in this case. The appeal is therefore dismissed.”

5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

6. Before us, the Ld. AR submitted that the assessee is a senior citizen lady engaged only in share trading and speculative transactions. The Ld. AR contended that that the assessee did not have any employees except a parttime accountant receiving Rs. 32,500/-; hence, PF/ESI laws were not applicable, and no PF/ESI was deducted or collected. It was also submitted that the details of another client’s PF/ESI were mistakenly uploaded in Form 3CD due to a software or staff error while using “Spectrum KDK Income Tax Audit Software”; however, immediately upon discovering the error, the CA revised Form 3CB/3CD on 13.07.2022 vide acknowledgment No. 798222930130722. The Ld. AR further submitted that the assessee could not furnish the corrected 3CD before CPC due to automated processing, and therefore the evidence deserves admission under Rule 46A.

7. The Ld. DR, on the other hand, supported the order of the authorities below and submitted that CPC acted based on the data available in the originally uploaded Form 3CD.

8. We have heard both the parties and perused the material available on record. It is an undisputed fact that the addition of Rs. 12,81,710/- u/s 36(1)(va) was made solely on the basis of entries reported in the original Form 3CD, which admittedly contained PF/ESI data that belonged not to the assessee, but to another client of the CA. The assessee has also demonstrated that she had no employees liable under PF/ESI laws and the alleged PF/ESI amounts did not pertain to her business. It was also established that the Chartered Accountant of the assessee has accepted the error and filed a revised audit report on 13.07.2022 correcting the wrong figures and the revised Form CD has been duly uploaded and acknowledged on the Incometax portal. Once it is shown that the tax audit report contained an inadvertent error subsequently corrected through a validly uploaded revised report, principles of natural justice warrant that the matter be examined afresh by the jurisdictional Assessing Officer. Accordingly, in the interest of justice, the matter is restored to the file of the Jurisdictional Assessing Officer (JAO) to verify the revised Form 3CD, the assessee’s claim of having no employees, to determine the applicability of section 36(1)(va) of the Act and to pass a speaking order, after granting adequate opportunity of being heard.

9. In the result, the appeal of the assessee is allowed for statistical purposes.