ITAT Chennai Upholds Deduction, Rejects Incorrect Classification In ITR

In a recent case, the Income Tax Appellate Tribunal in Chennai emphasised the correct classification of investment and expenses in the income tax returns to claim proper deductions and exemptions. 

The taxpayer sought the allowability of deduction under Section 80C of the Income Tax Act. However, the tax authorities have not allowed the same for the assessee. On hearing the case, the ITAT observed that the assessee had wrongly classified an investment, which was one of the reasons for the denial of deduction. While there are many ways to save income tax, 80C is used as a deduction for various investments.

Case Background

National Contracting Company India Private Limited had filed its income tax return for the assessment year 2020–21, where it declared its total income as Rs. 38,10,910. Its tax return was processed by the Centralised Processing Center (CPC) in Bengaluru, and after deducting a few items, its total income was determined to be Rs. 1,18,30,990. 

One of the substantial deductions was the gratuity of Rs. 79,25,442/-. The main issue in this dispute was whether the misclassification of gratuity in Section 43B instead of the correct list of allowances in the ITR could justify the denial of a legitimate deduction. 

Arguments And Judgement

The appellant argued that the error was an oversight that should not result in the denial of a legitimate claim. In addition, the appellant filed a new tax audit report and a new ITR and received no relief from  Income Tax. The appellant contended that the disallowance was solely due to a technical error because all other relevant details were in the record.

The counsel for the appellant referred to precedents and circulars issued by the CBDT to prove that the tax authorities were duty-bound. It should have made all efforts to help the assessee claim the deduction that they are entitled to. It should not exploit the ignorance or mistakes of the assessee. 

It was observed that a return has to be distinguished from a revised return and a correction of an existing return. It referred to the decision of the Allahabad High Court in CIT v. Dhampur Sugar Ltd. and concluded that the correction of a return cannot be treated as filing a new return. 

It also referred to the decision of the Gujarat High Court in S.R. Koshti vs. CIT, where it was held that where an error on the part of an assessee has led to his over-assessment, the income tax department will have to correct it so that only the legitimate amount due by the assessee is paid.

Conclusion

The income tax appeal tribunal's decision proves that the taxpayer has earned the deduction despite the error in his tax return. This rule also means that income tax officials should focus on the essence of their decision; they must be helpful to the taxpayer instead of just focusing on the technicalities and harassing them.

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