NATIONAL CONTRACTING COMPANY (INDIA), PRIVATE LIMITED,CHENNAI vs. DCIT, CORP CIRCLE-4(1), CHENNAI

Brief facts of the case is that the assessee filed its return of income on 18.12.2020 declaring a total income of Rs.38,10,910/-. The return of income was processed on 26.12.2021 u/s 143(1) of the Income Tax Act, 1961 (‘Act’ in short). The CPC Bengaluru determined the total income at Rs.1,18,30,990/- and made following disallowances: A) Disallowance of expense u/s 37 of the Act for Rs.90,240/- B) Disallowance of Gratuity u/s 43B of the Act for Rs.79,25,442/- C) Disallowance u/s 36 of the Act for Rs.4398/- 4. The only grievance raised by the assessee is that the Ld. CIT(A), erred in confirming the disallowance of Rs.79,25,442/- on the basis of audit report in the intimation generated u/s143(1) of the Act.

In the present case, 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 showing it under any other allowance ‘Schedule BP A-33’ Column in the Income Tax Return. The appellant has submitted that the said amount has been incorrectly claimed as deduction u/s 43B of the Act instead of claiming it under any other allowance in Schedule BP. Since there was no reporting of such amount by the auditor in its audit report in Form 3CD, CPC Bengaluru disallowed the same while processing u/s 143(1) of the Act.

In the mean while, appellant on 06.01.2022 filed Revised Tax Audit Report and revised ITR-6 for AY 2020-21. Vide rectification request dated 06.01.2022 also 154 of the Act. CPC Bengaluru vide order dated 30.06.2022 has not acceded to the prayer of assessee.

The appellant has also filed the appeal on 13.01.2022 before the ld.CIT(A) against the intimation order, however, disallowance of Gratuity u/s 43B of the Act for Rs.79,25,442/- has been upheld. The Ld.CIT(A) has given following findings while upholding disallowance: ‘’The CPC is bound the process the return of income as per the particulars furnished in the return of income. The appellant has reported the said amount under the incorrect head; therefore AO CPC has made the addition of the said amount to the total income as per the provisions of the Income Tax Act, 1961. It may be mentioned that if any incorrect particulars have been reported in the return of income, the only recourse available is, filing the revised return of income. There is no such provision in the Income Tax Act which allows to revise the particulars of income without filing a revised return of income. On perusal of CPC 2.0, it is seen that the appellant has not filed any revised return of income. Therefore, the claim made by the appellant during the appellate proceedings is not admissible as per the provisions of the Act’’.

Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

The Ld. AR before us filed a paper book running from pages 1 to 47 and contended that the sum of Rs.79,25,442/- was disallowed in the AY2020-21 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 showing it under any other allowance ‘Schedule BP A-33’ Column in the Income Tax Return. The appellant has further submitted that the said amount has been incorrectly claimed in part –A OI Schedule under 10 (b)’ as deduction u/s 43B of the Act instead of claiming it under any other allowance in ‘’Schedule BP A-33’. As per the Ld. Counsel a genuine claim of the assessee cannot be denied merely on account of mismatch of an audit report in Form 3CD.

On the other hand, the Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. As discussed above, we note that the basis of making the disallowance is that such deduction was not mentioned in proper classification in Income Tax Return and also not reported in the tax audit report. We are of the considered view that inadvertent non-reporting in tax audit report by auditor is bonafide when when all details are available in ITR on records although such deduction was find mentioned in wrong classification in ITR as the discussed supra. Deductions based on the genuine claim of the assessee cannot be denied especially in the circumstances as narrated above. As such the assessee has claimed deduction u/s 43B of the Act and therefore in our considered view, the same should have been allowed by the authorities below.

The Allahabad High Court in CIT v. Dhampur Sugar Ltd [1973] 90 ITR 236 (ALL)] made a distinction between revised return and a correction of return. It held that: There is distinction between a revised return and a correction of return. If the assessee files some application for correcting a return already filed or making amends therein, it would not mean that he has filed a revised return. It will retain the character of an original return. But once the revised return is filed, the original return must be taken to have been withdrawn and to have been substituted by a fresh return for the purpose of assessment.The same view has been taken in Gopaldas Parshottamdas v. Commissioner of Income-tax, [1941] 9 I.T.R. 130 (All.)”.

We also refer, Circular issued by the CBDT Circular No: 14 (XL-35) dated April 11, 1955. It states:

The Hon’ble Gujarat High Court in the case of S.R. Koshti Vs. CIT reported in 276 ITR 165 has held as under:

In the result, the appeal of the assessee is allowed.