Deduction cannot be Denied for mere Wrong Classification in ITR: ITAT Chennai

National Contracting Company (India) Private Limited Vs DCIT (ITAT Chennai)

Introduction: The Chennai Income Tax Appellate Tribunal (ITAT) recently delivered a significant ruling in the case of National Contracting Company (India) Private Limited vs. Deputy Com-missioner of Income Tax (DCIT). The decision, pronounced on June 24, 2024, addresses the issue of whether a wrong classification in an Income Tax Return (ITR) can result in the denial of a legitimate deduction.

Background of the Case: National Contracting Company (India) Private Limited, the appellant, filed its return of income for the assessment year 2020-21 on December 18, 2020, declaring a total income of ₹38,10,910. The return was processed by the Centralized Processing Center (CPC) in Bengaluru, which determined the total income at ₹1,18,30,990 after making several disallowances. Among these disallowances was an amount of ₹79,25,442 for gratuity, which was claimed under Sec-tion 43B of the Income Tax Act but incorrectly classified in the ITR.

Issues Raised: The primary issue in this appeal was whether the incorrect classification of gratuity under Section 43B instead of the appropriate allowance schedule in the ITR could justify the disallowance of a genuine deduction. The appellant contended that the mistake was inadvertent and should not result in the denial of a legitimate claim. Additionally, the appellant had submitted a revised tax audit report and ITR but was still denied relief by the Commissioner of Income Tax (Appeals) [CIT(A)].