Appellant's Appeal Partially Allowed: Education Cess Deduction Permitted

The Tribunal partially allowed the appellant's appeal, directing the AO to permit the deduction of Education Cess paid by the appellant and setting aside the disallowance under Rule 8D(2)(ii) while confirming the disallowance under Rule 8D(2)(iii).

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Issues:
1. Disallowance under section 14A r.w. Rule 8D(2) of the I.T. Rules.
2. Deduction of Education Cess under Finance Act while computing taxable income.

Issue 1: Disallowance under section 14A r.w. Rule 8D(2) of the I.T. Rules:
The appellant contested the disallowance of Rs. 18,67,577 made under section 14A r.w. Rule 8D(2) by the CIT(A). The appellant argued that since its own funds exceeded the investments made, it should be presumed that the investments were made from its own funds. The appellant had made investments of Rs. 15.18 crores, and its Balance Sheet showed own funds of Rs. 32,38,52,976, which exceeded the investments. The Tribunal agreed that the disallowance under Rule 8D(2)(ii) was not maintainable in this case. The disallowance relating to 0.5% of investments amounting to Rs. 6,47,273 was confirmed, but the total disallowance made by the AO was set aside. The Tribunal directed the deletion of the disallowance made by the appellant and the AO, totaling Rs. 15,52,067, under Rule 8D(2)(ii), while confirming the disallowance under Rule 8D(2)(iii).

Issue 2: Deduction of Education Cess under Finance Act while computing taxable income:
The appellant sought a deduction of Rs. 5,25,000 paid towards Education Cess under the Finance Act when computing taxable income. The Tribunal noted that the Hon'ble High Court of Bombay had held that Education Cess is an allowable expenditure under the Income Tax Act. Referring to relevant case law, the Tribunal directed the AO to allow the deduction of Education Cess paid by the appellant. The Tribunal allowed the additional ground raised by the appellant, emphasizing that Education Cess is an allowable expenditure as per the provisions of Section 40(a)(ii) of the Income Tax Act, 1961. The Tribunal found no supporting evidence from the Revenue to contest this position.

In conclusion, the Tribunal partly allowed the appellant's appeal, directing the AO to allow the deduction of Education Cess paid by the appellant and setting aside the disallowance under Rule 8D(2)(ii) while confirming the disallowance under Rule 8D(2)(iii).

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