ITAT Chennai remands case where assessee missed NFAC notices on ITBA portal during pandemic

Background of the dispute

The matter in Chennai Metro Rail Limited Vs DCIT arose from an appeal before the Income Tax Appellate Tribunal, Chennai Bench, challenging the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 26.06.2025 for Assessment Year 2018-19.

The assessee, Chennai Metro Rail Limited (CMRL), is:

  • A Government Company within the meaning of Section 2(45) of the Companies Act, 2013
  • A Special Purpose Vehicle (SPV) jointly owned by the Government of India and the Government of Tamil Nadu
  • Each government holds 50% equity for the purpose of implementing the Chennai Metro Rail Project in Tamil Nadu

For Assessment Year 2018-19, the assessee filed its return of income under Section 139(1) on 30.10.2018. In this return, it:

  • Declared a loss of ₹791,60,31,085
  • Claimed a refund of ₹8,39,53,709

The return was processed by the Centralized Processing Centre, Bengaluru under Section 143(1) vide intimation dated 12.05.2020. Upon such processing:

  • A refund of ₹9,21,25,241 was granted
  • This amount included interest under Section 244A

Subsequently, the case was selected for scrutiny, and regular assessment proceedings were opened.

Initiation of scrutiny and proposed adjustments

Notices under e-assessment framework

The Assessing Officer (AO) issued:

  • Notice under Section 143(2) dated 22.09.2019, thereby initiating scrutiny assessment under the e-assessment regime
  • Further notices along with questionnaires under Section 142(1)

The assessee did file replies to some of these notices and participated in the assessment initially.

Disallowance of gratuity under Section 40A(7)

During the course of the assessment, the AO proposed to make certain additions, one of which related to gratuity:

  • The AO noticed that a gratuity amount of ₹37,58,066 was disclosed in the Tax Audit Report in Form 3CD
  • However, this amount was not shown as disallowed in the ITR-6 computation under Section 40A(7)

On this basis, the AO proposed disallowance of ₹37,58,066 under Section 40A(7).

The assessee’s stand was:

  • The same gratuity amount had already been disallowed in the return of income under Section 43B
  • Therefore, making a further disallowance under Section 40A(7) would lead to double disallowance of the same expenditure

This issue remained contested and required verification of the tax audit report, computation, and return details.

Difference between Form 26AS receipts and income offered

Another major proposed adjustment related to a mismatch between receipts as per Form 26AS and income reported in the return. The AO recorded that:

  • Receipts as per Form 26AS amounted to ₹254,01,15,594
  • Income reported in the return was ₹155,03,23,456

Based on this comparison, the AO noticed a difference of ₹98,97,92,138. He proposed to treat this difference as undisclosed income and add it to the total income of the assessee.

To address this issue, the AO issued:

  • Notice under Section 142(1) dated 16.04.2021
  • The assessee was required to submit an explanation or reconciliation by 20.04.2021

However, this notice period coincided with the severe disruption caused by the COVID-19 pandemic.

Non-response during COVID-19 and completion of assessment

The assessee did not file its reply within the time specified in the notice dated 16.04.2021. The explanation subsequently offered was that due to constraints and disruptions arising out of COVID-19, the assessee could not timely respond.

In the absence of a response:

  • The AO proceeded to complete the scrutiny assessment
  • The differential amount of ₹98,97,92,138 (as per variance between Form 26AS and returned income) was added to the income
  • The AO also proceeded with other proposed adjustments, including the gratuity disallowance

Ultimately, the AO framed the assessment order dated 26.04.2021 under Section 143(3) read with Section 144B of the Income Tax Act, 1961.