Wrong Classification In ITR Can't Result Into Denial In Deduction: Chennai ITAT

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that the claim of the assessee cannot be denied for the reason that a deduction was mentioned in the wrong classification in the ITR, especially in the circumstances where all other evidence is available on record suggesting the deduction in pursuance of the provisions of Section 43B is available.

The bench of Manu Kumar Giri (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) has observed that the income of the assessee should not be over-assessed, even if there is a mistake made by the assessee. As such, the legitimate deduction for which the assessee is entitled should be allowed while determining the taxable income.

The appellant/assessee filed its return of income, declaring a total income. The return of income was processed. The CPC Bengaluru determined the total income and made disallowances.

The assessee raised a grievance that the CIT (A) erred in confirming the disallowance on the basis of the audit report in the intimation generated under Section 143(1) of the Income Tax Act.

The assessee has disclosed the gratuity paid of Rs. 79,25,442 as allowances under Section 43B in 'Part-A OI Schedule under 10(b)' instead of showing it under any other allowance 'Schedule BP A-33' Column in the Income Tax Return.

The assessee submitted that the amount has been incorrectly claimed as a deduction instead of being claimed under any other allowance. Since there was no reporting of such an amount by the auditor in its audit report in Form 3CD, CPC Bengaluru disallowed it while processing under Section 143(1).

The appellant filed a revised tax audit report and revised ITR-6 for AY 2020–21. The assessee, by rectification request, prayed to rectify the technical error. However, CPC Bengaluru has not acceded to the prayer of the assessee.

The assessee contended that the sum was disallowed in the AY 2020-21 for the reason that the assessee has disclosed the gratuity paid of Rs. 79,25,442/- as allowances under Section 43B in 'Part-A OI Schedule under 10(b)' instead of showing it under any other allowance, 'Schedule BP A-33' Column in the Income Tax Return. The amount has been incorrectly claimed in Part A of the OI Schedule under 10(b)' as a deduction instead of claiming it under any other allowance in ''Schedule BP A-33'. A genuine claim of the assessee cannot be denied merely on account of a mismatch in an audit report in Form 3CD.

The tribunal, while allowing the appeal, noted that inadvertent non-reporting in a tax audit report by the auditor is bona fide when all details are available in the ITR on records, although such a deduction was found to be in the wrong classification in the ITR. The deductions based on the genuine claim of the assessee cannot be denied.

The tribunal set aside the finding of the CIT (A) and directed the AO to delete the addition made by him.

Counsel For Appellant: G. Baskar

Counsel For Respondent: R. Mukundan

Case Title: National Contracting Company Versus DCIT

Case No.: ITA No.455/Chny/2024

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