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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 within the due date. While processing the return under section 270(1) of the Income-tax Act, 2025, the Centralised Processing Centre finds that the tax audit report shows a disallowance of Rs 4,00,000 that the company did not add back in computing its total income. What is the correct course of action?

The disallowance shown in the audit report but omitted from the return can be adjusted at the processing stage. The law allows this adjustment, but the assessee must first receive a communication of it, in writing or electronically, and the response must be considered before the adjustment is made.

  1. AThe disallowance can be added only after a notice under section 270(8) is served and a regular assessment is made
  2. BThe disallowance indicated in the audit report but not taken into account can be adjusted while processing, after a communication to the assesseeCorrect
  3. CNo adjustment is permitted unless the return was filed after the due date
  4. DThe disallowance can be added 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 of the proposed adjustment must be given first. Option A is wrong because processing itself allows the adjustment, and option D is wrong because prior communication is mandatory.

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