Chennai Metro Rail Missed Income Tax Notices on Gratuity Disallowance: ITAT Directs De Novo Adjudication [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has granted relief to Chennai Metro Rail Limited (CMRL) by setting aside the orders of lower tax authorities and directing a fresh adjudication regarding disputes over gratuity disallowance and income mismatch.

CMRL - the appellant assessee, a special purpose vehicle jointly owned by the Government of India and the Government of Tamil Nadu for executing the Chennai Metro Rail Project, filed its income tax return for the Assessment Year 2018-19 declaring a loss of ₹791.60 crore and claiming a refund.

While the return was initially processed and a refund was issued, the case was subsequently selected for scrutiny assessment. During the assessment, the Assessing Officer proposed significant adjustments.

One important issue was the disallowance of ₹37.58 lakh in gratuity under Section 40A(7) of the Income Tax Act, 1961. The amount was reported in the tax audit report but not disallowed in the company’s return.

CMRL contended that this exact amount had already been disallowed under Section 43B during income computation, meaning the Assessing Officer’s action resulted in an unfair double disallowance of the same expense.

Another issue was the discrepancy between the receipts reflected in Form 26AS and the income reported in the tax return. The income tax department noted that Form 26AS showed receipts of ₹254.01 crore, while the declared income was only ₹155.03 crore.

When the Assessing Officer issued a notice seeking an explanation for this ₹98.97 crore difference, CMRL failed to submit a timely response. Thus, the Officer added the differential amount to the company’s total income in the final assessment order.

CMRL challenged this addition before the Commissioner of Income Tax (Appeals), but the appeal was dismissed on its merits after the company again missed notices issued through the Income Tax Business Application (ITBA) portal.

The appellant’s counsel submitted that the company had genuinely missed the ITBAportal notices.

The bench of Inturi Rama Rao ( Accountant member) and Manu Kumar Giri (Judicial member) observed that resolving the gratuity and Form 26AS mismatch issues inherently required a detailed verification of factual evidence and supporting documentation.

“In the interest of substantial justice and keeping in view the principles of natural justice, we are of the considered view that the assessee should be provided one more opportunity to present its case.” Therefore the appeal was allowed granting opportunity to adjudicate the matter freshly.

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