Opinions given by the chartered accountants in report u/s 44AB are not binding either on the assessees or on the assessing officer

Opinions given by the chartered accountants in report u/s 44AB are not binding either on the assessees or on the assessing officer

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Opinions given by the chartered accountants in report u/s 44AB are not binding either on the assessees or on the assessing officer
IN THE HIGH COURT OF DELHI
ITA No. 961/2018
PRINCIPAL COMMISSIONER OF INCOME TAX -3
Vs
ESCORTS LTD
Sanjiv Khanna & Chander Shekhar, JJ
Dated: September 04, 2018
The auditor in the note had qualified this expenditure as prior period expenditure. This qualification or note alone would not justify reversal of the factual finding recorded by the Tribunal.
Auditor’s opinion though relevant and material would not be final and conclusive even when against the assessee.
Auditor’s report in a way is a third party and an independent report that can be equated with an expert opinion.
It may be accepted or rejected or partly accepted and partly rejected. It has to be considered with other material.
It cannot be treated as final or binding on the Assessing Officer, or for that matter even on the assessee, except when mandated by a statutory provision, which requires an unqualified auditor’s report or certification.
In the absence of statutory provision it would not be right to hold that a reservation or qualifying note in the audit report would be a conclusive and bind finding against the assessee.
The Gujarat High Court in Rajkot Engineering Association v. Union of India, (1986) 162 ITR 28 (Guj) had appropriately referred to the affidavit file by the Union of India repelling and quelling misgiving expressed by the assessee on the binding nature of qualifications or reservations expressed in audit reports under Section 44AB of the Act, to clarify and observe:-
“53. It was, therefore, submitted that if the auditor finds that the financial information furnished to him is not according to the acceptable accounting policy and principles or not according to the relevant regulations and statutory requirements, he may refuse to give an unqualified opinion in which case an assessee would be exposed to grave consequences of not only a best judgment assessment but also to penalty. We can appreciate this apprehension expressed on behalf of the assessee. However, in view of the clarification made by the Union Government in the reply affidavit of Shri Kalyanchand, Under Secretary in the Finance Ministry to the Government of India in paragraph 15 that opinions given by the chartered accountants are not binding either on the assessees or on the assessing officer, we do not think that the assessee will be prejudiced by the qualified opinion given by the tax auditor in any given case. It is no doubt true that the assessee concerned may be required to persuade the Income-tax Officer that there was no justification for the qualified opinion or that there were valid and compelling reasons for an assessee for his failure or omission to satisfy an auditor. We are sure that the concerned tax authorities will not approach the matter in a strictly technical manner so as to make a best judgment assessment and/or to levy penalty merely because there is a qualified report of an auditor. The authorities will adopt a judicial approach and consider all attendant circumstances including the fact that the non-corporate assessees were not required to maintain their financial records in the manner in which the corporate assessees maintain as required under the law in force for the time being and the authorities will also bear in mind that non-corporate assessees should have reasonable time to adopt themselves to the changed situation emerging from the insertion of the impugned provisions for the first time in the statute book having far-reaching repercussions. This contention, therefore, also stands rejected.”

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