ITAT restores ₹79.25 lakh gratuity deduction despite ITR error

The company said the gratuity had been paid out during the relevant year and that the misclassification was an inadvertent error. It filed a revised tax audit report and a revised return, and applied for rectification under Section 154. Revenue rejected each move, and the Commissioner of Income Tax (Appeals) upheld the disallowance.

Before the Chennai ITAT, the company argued that the gratuity was a genuine deduction allowable under Section 43B and that the disallowance flowed from nothing more than a reporting slip. The tribunal accepted that position. The omission in the tax audit report was a bona fide mistake, it said, and the facts underpinning the claim were already on record despite the incorrect classification in the return.

An assessee should not be pushed into excess taxation for how a legitimate claim was reported, the tribunal held. It cited the Allahabad High Court's ruling in Dhampur Sugar Mills Ltd. v. CIT and the Gujarat High Court's ruling in S.R. Koshti v. CIT. The tribunal also referred to CBDT Circular No. 14 (XL-35) of 11 April 1955, which directs tax authorities to assist taxpayers in securing reliefs they are legally entitled to and not to take advantage of technical mistakes.

The tribunal set aside the CIT(A) order and directed the Assessing Officer to delete the ₹79.25 lakh disallowance.