3 weeks ago
ITAT rules in taxpayer's favour on ₹79.25 lakh gratuity deduction
A company had to give its workers a special money payment called gratuity, which workers get when they finish many years of service.
In India, companies can subtract such expenses from their taxes so they pay less tax.
This company paid the gratuity, but it wrote the amount in the wrong box on its tax form.
Because of that mistake, the tax department said the company could not get the ₹79.25 lakh deduction.
The company tried to fix its paperwork, but the tax office kept saying no.
The company then asked a special tax court called the Income Tax Appellate Tribunal in Chennai for help.
The tribunal checked the facts and saw that the company really had paid the gratuity.
It said the wrong box was just an honest paperwork mistake and should not cost the company extra tax.
The tribunal told the tax department to give the company back its deduction.
So the company won because the court believed an honest mistake should not be punished heavily.
The Income Tax Appellate Tribunal (ITAT), Chennai ruled that a genuine ₹79.25 lakh gratuity deduction cannot be denied merely because it was claimed under the wrong schedule in the income tax return.
The Central Processing Centre (CPC), Bengaluru had disallowed the gratuity claimed under Section 43B of the Income-tax Act, 1961, as the amount was disclosed under Part A-OI, item 10(b) instead of the allowance section in Schedule BP.
The gratuity amount was also not reported by the tax auditor in Form 3CD, leading to the disallowance while processing the return under Section 143(1).
The taxpayer's revised ITR, revised tax audit report and rectification application under Section 154 were rejected, and the Commissioner of Income Tax (Appeals) upheld the disallowance.
Treating the omission as a bona fide mistake, the tribunal relied on the Allahabad High Court's ruling in Dhampur Sugar Mills Ltd. v. CIT, the Gujarat High Court's ruling in S.R. Koshti v. CIT, and CBDT Circular No. 14 (XL-35) dated 11 April 1955, directing deletion of the ₹79.25 lakh disallowance.
- Who
- A corporate taxpayer whose ₹79.25 lakh gratuity deduction was disallowed; the dispute was decided by the Income Tax Appellate Tribunal (ITAT), Chennai against the Central Processing Centre (CPC), Bengaluru and the Commissioner of Income Tax (Appeals).
- What
- The ITAT ruled that the taxpayer's gratuity deduction cannot be denied just because it was reported under the wrong schedule in the income tax return, and directed deletion of the ₹79.25 lakh disallowance.
- Where
- India — heard by the ITAT in Chennai; the return was processed by the Central Processing Centre (CPC), Bengaluru.
- When
- Assessment year 2020-21; the ITR was filed on 18 December 2020 and the ITAT delivered its decision on 24 June 2026.
- Why
- Because the gratuity had actually been paid during the relevant year and the reporting error was a bona fide mistake, so denying the genuine deduction would subject the assessee to excess taxation.
Key facts
- Disputed deduction
- ₹79.25 lakh (gratuity)
- Assessment year
- 2020-21
- ITR filed
- 18 December 2020
- Statute
- Section 43B, Income-tax Act, 1961
- Tribunal decision
- ITAT, Chennai — 24 June 2026
- CPC recalculation
- ≈ ₹1.18 crore, against declared total income of ≈ ₹38.1 lakh
- Precedents cited
- Dhampur Sugar Mills Ltd. v. CIT; S.R. Koshti v. CIT
- Outcome
- ₹79.25 lakh disallowance deleted; Assessing Officer directed accordingly
Sources
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