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CA Final · Direct Tax Laws & International Taxation · Assessment of Various Entities

Sundaram Traders Ltd. filed its return for the tax year on time. The CPC, while processing the return, finds that the audit report shows a disallowance of Rs 4,00,000 which the company did not add back in computing total income. Under the processing provisions of section 270 of the Income-tax Act, 2025, what is the position?

The disallowance shown in the audit report can be added back as a processing adjustment under section 270(1)(a)(v). However, the assessee must first be given a communication of the proposed adjustment and any response must be considered. Scrutiny is not needed, and the adjustment is not limited to arithmetical errors.

  1. AThe adjustment can be made only after a scrutiny notice is served under sub-section (8)
  2. BThe disallowance can be added in computing total income as an adjustment, after a communication to the assessee and consideration of any responseCorrect
  3. CNo adjustment is possible because only arithmetical errors can be corrected
  4. DThe adjustment can be made without any prior communication to the assessee

Explanation

Section 270(1)(a)(v) permits adjustment for disallowance of expenditure or increase in income indicated in the audit report but not taken into account in the return. Under section 270(2), a communication must be given before the adjustment and any response must be considered. Option C is wrong because the adjustments are not limited to arithmetical errors.

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