Summary of this article
ITAT allowed Rs 79.25 lakh gratuity deduction despite ITR reporting error
Section 43B deduction remained valid because gratuity payment was undisputed
Wrong Schedule BP reporting and Form 3CD omission triggered CPC disallowance
Tribunal said genuine tax relief should not fail over clerical mistakes
A wrong entry in an income-tax return can sometimes have expensive consequences. In a recent case, a company saw its taxable income rise sharply after a gratuity deduction of Rs 79.25 lakh was disallowed because the amount had not been reported under the correct schedule in its return.
The matter eventually reached the Chennai bench of the Income Tax Appellate Tribunal (ITAT), which ruled in favour of the taxpayer and held that an otherwise valid deduction should not be denied merely because of a reporting error.
The dispute related to assessment year 2020-21. The company had filed its return in December 2020, declaring income of around Rs 38.1 lakh. However, after the return was processed by the Central Processing Centre (CPC), Bengaluru, its assessed income went up to nearly Rs 1.18 crore.
1 August 2026
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Where The Taxpayer Went Wrong
At the centre of the dispute was gratuity of Rs 79.25 lakh, which the company said had actually been paid during the relevant financial year and was therefore deductible under Section 43B of the Income-tax Act, 1961, according to a recent report by Mint.
The problem was in the way the claim was reported.
Instead of claiming the amount in the relevant field of Schedule BP, the company disclosed it elsewhere in the return. The tax auditor had also failed to report the gratuity payment in Form 3CD.
While processing the return under Section 143(1), the CPC disallowed the deduction.
The company later tried to correct the mistake by filing a revised tax audit report and a revised return. It also sought rectification under Section 154. The disallowance, however, remained, and the Commissioner of Income Tax (Appeals) upheld the adjustment.
The taxpayer then approached the ITAT.
Why The ITAT Allowed The Claim
The tribunal noted that the gratuity payment itself was not in dispute. The claim had been reflected in the return, though under the wrong head, and the lapse in the tax audit report was described as an inadvertent mistake.
The ITAT took the view that a taxpayer should not end up paying tax on a higher income simply because a legitimate deduction was incorrectly reported.
It also referred to earlier judicial rulings and a Central Board of Direct Taxes (CBDT) circular that said tax authorities should assist taxpayers in obtaining reliefs that are legally due to them instead of benefiting from mistakes made while filing returns.
The tribunal consequently directed the Assessing Officer to delete the Rs 79.25 lakh disallowance.
For taxpayers, the case is a reminder that ITR schedules and audit disclosures need careful attention. At the same time, a clerical or reporting mistake by itself may not destroy a genuine claim if the taxpayer can establish that the deduction was otherwise legally available.
FAQs
Can a genuine tax deduction be denied because of an ITR reporting error?
Not necessarily. The ITAT held that an otherwise valid deduction should not be rejected merely because it was reported under the wrong schedule.
Why was the Rs 79.25 lakh gratuity deduction disallowed?
The amount was not claimed in the appropriate field of Schedule BP, and the tax auditor had also failed to report it in Form 3CD.
What should taxpayers learn from this case?
ITR schedules and audit disclosures should be checked carefully. However, a bona fide clerical mistake may not defeat a legitimate claim if supporting records establish eligibility.
