Sanjeev Chopra Vs ITO (ITAT Chandigarh)
Wrong Return Column Cannot Close the Claim: ITAT Revives ₹13 Lakh Retirement Exemptions
Omitted Exemption Claim Requires Examination on Merits
The Chandigarh ITAT restored a retired employee’s claim for ₹10 lakh gratuity exemption under Section 10(10) and ₹3 lakh leave encashment exemption under Section 10(10AA) to the Assessing Officer for fresh examination.
The exemptions had not been reflected in the prescribed columns of the return. The CIT(A) treated that omission as a procedural barrier and declined relief, relying on Goetze (India) Ltd. v. CIT.
The Tribunal held that, once a specific claim had been raised before the appellate authorities with supporting documents, the omission in the return did not, by itself, remove the requirement to examine its factual and legal merits.
However, the Tribunal expressly refrained from deciding whether the exemptions were ultimately allowable.
CPC Processing Increased Salary Income by ₹13 Lakh
The assessee filed his return for AY 2017-18 declaring total income of ₹95,57,040. The Tribunal records that the return was filed on 30 March 2018.
While processing it under Section 143(1), the CPC did not allow exemption for the gratuity and leave encashment received on retirement.
Consequently, salary income increased from ₹93,13,940 as returned to ₹1,06,13,940 as computed, producing a consequential demand.
The intimation was dated 20 March 2019. The assessee maintained that he initially believed his return had been accepted because he had not received communication concerning the adjustment.
Demand Came to Notice Several Years Later
According to the assessee, he became aware of the demand through an email dated 17 September 2024 and then raised a grievance with the Department.
The Section 143(1) intimation was subsequently made available on the portal on 21 November 2024. He filed his appeal on 3 December 2024.
The CIT(A) recorded that the appeal was filed within the prescribed period reckoned from the date on which the intimation became available to him. Thus, although the processing related to an earlier year, limitation was not the ground on which his substantive claim failed.
The dispute centred on whether the omitted exemptions could be considered in the appeal.
Employer’s Form 16 Supported the Claim
The assessee relied on Form 16 issued by his employer, which treated the gratuity and leave encashment receipts as exempt.
He submitted that both amounts had been received upon retirement and that supporting documents were available. His argument was that a substantive exemption should not be denied merely because of the manner in which it had been reflected—or omitted—in the return.
Before the Tribunal, his representative requested that the matter be restored to the Assessing Officer for examination under the relevant statutory provisions.
The Department’s representative fairly submitted that the claim was otherwise maintainable on merits, although the Revenue’s position before the CIT(A) had supported the CPC’s processing treatment.
CIT(A) Focused on the Return Omission
The Revenue’s case was that the assessee had not entered the exemptions in the prescribed return columns. On that basis, the CPC was considered justified in not allowing them during processing.
The CIT(A) further relied on Goetze (India) Ltd. to conclude that the omitted claim could not be entertained without a revised return.
The Tribunal observed that this approach had confined the appellate adjudication essentially to the procedural omission.
The underlying eligibility had not been examined in detail with reference to the nature of employment, retirement, actual receipt of the amounts and supporting evidence.
Tribunal Directed Independent Verification
The Tribunal held that a specific claim supported by material on record required examination on its factual and legal merits.
It therefore set aside the CIT(A)’s order to the extent of the exemption dispute and restored the matter to the Assessing Officer.
The officer must examine the ₹10 lakh gratuity claim and ₹3 lakh leave encashment claim, applying the relevant statutory provisions and considering Form 16 together with other documents furnished by the assessee.
A reasonable opportunity of hearing must be provided, and the assessee may submit all necessary evidence.
The Tribunal explicitly stated that it had expressed no opinion on the ultimate allowability of either exemption. The appeal was allowed for statistical purposes.
Author’s Comments
The decision reinforces the distinction between an omission in return reporting and eligibility for a statutory exemption. In this case, the procedural omission could not end the examination once the claim and supporting evidence were before the appellate authorities.
Form 16 was valuable supporting material, but the Tribunal did not treat the employer’s classification as conclusive. The Assessing Officer must independently verify the applicable conditions and computation.
For a retirement-benefit claim, the supporting submission should therefore connect the employment category, retirement particulars, amounts received, employer’s calculation and statutory limits applicable to the relevant year.
The ruling grants an opportunity for merits adjudication, rather than automatic exemption. Its practical message is that a supported claim should receive substantive examination even where the relevant return column was omitted, while the taxpayer must still establish that the statutory requirements are satisfied.
Cases Discussed
- Goetze (India) Ltd. Vs CIT (Supreme Court) — The CIT(A) relied upon this decision for the proposition that an omitted claim could not be entertained otherwise than through a revised return.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This appeal by the assessee is directed against the order dated 04.02.2026 passed by the learned Commissioner of Income Tax (Appeals)-1, Nashik [“ld. CIT(A)”], arising from the intimation dated 20.03.2019 issued under section 143(1) of the Income-tax Act, 1961 (“the Act”) for Assessment Year 2017-18. The appeal was filed on 03.12.2024. The ld. CIT(A) recorded that the appeal was filed within the prescribed period reckoned from the date on which the intimation was made available to the assessee.
2. The assessee, in substance, has challenged the action of the CPC/AO in making an adjustment of Rs.13,00,000/-, consisting of Rs.10,00,000/- under section 10(10) on account of gratuity and Rs.3,00,000/- under section 10(10AA) on account of leave encashment, both having been received at the time of retirement. The assessee has also prayed for appropriate relief and liberty to amend or alter the grounds, if required.
3. The assessee filed his return of income for Assessment Year 2017-18 declaring total income of Rs.95,57,040/-. The return was processed under section 143(1) by the CPC, Bengaluru. While processing the return, the CPC did not allow exemption in respect of gratuity of Rs.10,00,000/- under section 10(10) and leave encashment of Rs.3,00,000/- under section 10(10AA). Consequently, an amount of Rs.13,00,000/- was added back while computing the income under section 143(1), resulting in a consequential demand. The intimation records salary income of Rs.93,13,940/- as returned and Rs.1,06,13,940/- as computed under section 143(1).
4. The assessee stated that he had initially remained under the bona fide belief that his return had been accepted, as no communication regarding the adjustment had been received. He subsequently came to know of the demand through an email dated 17.09.2024 and raised a grievance before the Income Tax Department. The intimation under section 143(1) was thereafter made available to him on the portal on 21.11.2024.
5. The assessee thereafter challenged the adjustment before the ld. CIT(A). The specific grievance was that the gratuity and leave encashment received on retirement were eligible for exemption under sections 10(10) and 10(10AA), respectively. The assessee also placed reliance upon the Form No.16 issued by the employer, wherein the aforesaid receipts had been treated as exempt.
6. Before us, the learned AR submitted that the assessee was a salaried person and, upon retirement, had received gratuity of Rs.10,00,000/- and leave encashment of Rs.3,00,000/-. It was submitted that both the receipts were exempt under sections 10(10) and 10(10AA) of the Act. The learned AR further submitted that the employer itself had treated the said receipts as exempt in Form No.16 and that the supporting documents were available on record.
7. The learned AR submitted that the assessee had raised the claim before the appellate authority along with supporting material and that the substantive claim should be examined on merits. It was contended that the assessee ought not to be denied the benefit merely on account of the manner in which the claim was reflected or omitted in the return. The learned AR accordingly pleaded that the matter may be restored to the file of the Assessing Officer for examination of the claim in accordance with law.
8. The case of the Revenue, as emerging from the order of the ld. CIT(A), is that the assessee had not claimed the exemption under sections 10(10) and 10(10AA) in the prescribed column of the return. Therefore, according to the Revenue, the CPC was justified in not allowing the exemption while processing the return under section 143(1). The ld. CIT(A) further relied upon the decision of the Hon’ble Supreme Court in Goetze (India) Ltd. vs. CIT and held that the omitted claim could not be entertained otherwise than through a revised return. However it was fairly submitted by Ld. DR that the claim of assessee is otherwise maintainable on merits.
9. We have considered the rival submissions and perused the material available on record. The short controversy before us relates to the assessee’s claim of exemption in respect of gratuity of Rs.10,00,000/- and leave encashment of Rs.3,00,000/- received at the time of retirement. The assessee has placed reliance upon Form No.16 issued by the employer and other supporting material to substantiate that the aforesaid receipts were treated as exempt.
10. It is not in dispute from the order of the ld. CIT(A) that the aforesaid claim was not reflected in the prescribed column of the return. The ld. CIT(A), therefore, confined the adjudication essentially to the question whether such omission in the return could be subsequently considered while dealing with the appeal against the intimation under section 143(1). The merits of the assessee’s entitlement to exemption, with reference to the nature of employment, retirement, actual receipt of gratuity and leave encashment and the supporting documents, have not been examined in detail.
11. In our considered view, once the assessee has raised a specific claim before the appellate authorities and has placed supporting material on record, the claim requires examination on its factual and legal merits. The mere fact that the claim was not reflected in the relevant column of the original return does not, in the facts and circumstances of the present case, by itself obviate the requirement of examining the underlying claim and the supporting evidence in accordance with law. We also note that the original return of income was filed by the assessee on 30.03.2018, whereas the intimation under section 143(1) was issued by the CPC on 20.03.2019. The assessee thereafter raised the claim before the appellate authority and furnished supporting material, including Form No.16. Thus, the claim was available for examination before the appellate authorities along with the supporting material placed on record.
12. In view of the above, and in the interest of substantial justice, we deem it appropriate to restore the matter to the file of the Assessing Officer for fresh examination. The Assessing Officer shall examine the assessee’s claim in respect of Rs.10,00,000/- towards gratuity under section 10(10) and Rs.3,00,000/- towards leave encashment under section 10(10AA), having regard to the relevant statutory provisions and the documentary evidence furnished by the assessee, including Form No.16 and such other material as may be placed on record.
13. Needless to say, the Assessing Officer shall provide reasonable opportunity of being heard to the assessee and shall decide the aforesaid claims on merits and in accordance with law. The assessee shall be at liberty to furnish all necessary documents and evidence in support of the claims. We make it clear that we have not expressed any opinion on the ultimate allowability or otherwise of the exemptions claimed by the assessee, and the Assessing Officer shall adjudicate the same independently in accordance with law.
14. In view of the foregoing discussion, the order of the ld. CIT(A) is set aside to the extent of the aforesaid issue, and the matter is restored to the file of the Assessing Officer for fresh adjudication in accordance with law and in the manner indicated above. The grounds raised by the assessee are accordingly allowed for statistical purposes.
15. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced on 28th September, 2026.
