2022 (2) TMI 374 - AT - Income Tax

Tribunal grants appeal, allows deduction for education cess under Section 37(1) of Income Tax Act

Ms. Vyanktesh Corrugators Pvt. Ltd. Ujjain Versus ACIT (Central) Ujjain

The Tribunal allowed the assessee's appeal, setting aside the addition of Rs. 4,28,336/- for undisclosed business profit and granting the deduction of Rs. ... Undisclosed business profit - Variation in the inventories physically found during the search with that recorded in books of accounts - HELD THAT:- The figure of inventories as per regular books of account taken by both lower authorities is ₹ 19,85,00,000/- which is an approximate figure and the actual figure of the inventories as per the books is ₹ 19,62,74,025/- which is duly supported by the details of quantity rate and value given in the submissions. We find that if this actual figure of inventories as per regular books of account is applied in the computation sheet mentioned in the impugned order as well as in the finding of Ld. AO, the resultant gross profit @ 13.87% will need to be worked out on the figure of ₹ 9,37,46,093/- and the same will be ₹ 1,30,02,583/- which is the same figure that the assessee has disclosed in the return of income. In other words there will remain no difference to make addition for low gross profit as all the necessary reconciliation has been proved to our satisfaction by the ld. counsel for the assessee. We, accordingly set aside the finding of Ld. CIT(A) and held that Ld. AO erred in making the addition for undisclosed cost profit of ₹ 9,43,234/-. Ground No.1 of the assessee’s appeal is allowed. Claim of education cess and secondary higher education cess - HELD THAT:- The Hon'ble High Court of Bombay in the case of Sesa Goa Ltd.[2020 (3) TMI 347 - BOMBAY HIGH COURT] was pleased to hold that the Education Cess is an allowable expenditure as per the provision of the I.T. Act - Thus we allow this ground of the assessee claiming the deduction for payment of Education Cess as business expenses u/s 37(1) - Decided in favour of assessee. Issues Involved:1. Addition of Rs. 4,28,336/- as undisclosed business profit due to alleged variation in inventories.2. Non-grant of deduction of Rs. 1,42,446/- for payment of education cess under Section 37(1) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:Issue 1: Addition of Rs. 4,28,336/- as Undisclosed Business Profit1. Summary of Additions Made/Sustained:- The Assessing Officer (AO) computed the inventories as per books at Rs. 19,85,00,000/- and the physical verification at Rs. 8,70,66,973/-, resulting in a difference of Rs. 11,14,33,027/-. After adjustments, the net difference was Rs. 10,05,46,627/-.- The AO applied a gross profit rate of 13.87%, resulting in a gross profit of Rs. 1,39,45,817/-. After deducting the income shown by the assessee (Rs. 1,30,02,583/-), the AO added Rs. 9,43,234/- to the income.- The CIT(A) corrected the valuation of stock lying with M/s. Shriniwas Board & Paper Pvt. Ltd. to Rs. 1,31,75,225/- and accounted for sales made on 26.07.2017, reducing the addition to Rs. 4,28,336/-.2. Justification for Inventories as per Books:- The actual value of stock as on the date of search was Rs. 19,62,74,025/- instead of the rounded-off figure of Rs. 19,85,00,000/- used by the search party. This correction was supported by detailed quantity, rate, and value data.3. Recomputation of Physical Inventories:- The physical inventories were initially valued at Rs. 8,70,66,973/-. Adjustments included stock lying with SBPPL (Rs. 1,31,75,225/-) and sales made on 26-07-2017 (Rs. 14,23,489/-), leading to a recomputed value of Rs. 10,25,27,932/-.- The remaining difference of Rs. 8,62,245/- was attributed to incorrect valuation by the search party, as highlighted in post-search communications.4. Tribunal's Findings:- The Tribunal found that the actual figure of inventories as per books should be Rs. 19,62,74,025/-. Applying the gross profit rate of 13.87% to the corrected figure resulted in a gross profit of Rs. 1,30,02,583/-, matching the amount disclosed by the assessee.- Consequently, the Tribunal held that no addition for undisclosed business profit was warranted, setting aside the CIT(A)'s finding and allowing the assessee's appeal on this ground.Issue 2: Non-Grant of Deduction of Rs. 1,42,446/- for Payment of Education Cess1. Claim for Deduction:- The appellant claimed a deduction for education cess amounting to Rs. 1,42,446/- under Section 37(1) of the Act, arguing that education cess is distinct from income tax and should be allowable as a business expense.2. CIT(A)'s Rejection:- The CIT(A) rejected the claim, not considering the appellant's detailed submissions and judicial precedents supporting the deduction.3. Tribunal's Findings:- The Tribunal referred to the decisions in Agrawal Coal Corporation Pvt. Ltd. vs. ACIT (2020) and Sesa Goa Ltd. vs. JCIT (2020), which supported the allowance of education cess as a deductible business expense under Section 37(1).- As the Departmental Representative (DR) did not present any binding precedents against the claim, the Tribunal allowed the deduction for education cess, granting the assessee's appeal on this ground.Conclusion:- The Tribunal allowed the assessee's appeal, setting aside the addition of Rs. 4,28,336/- for undisclosed business profit and granting the deduction of Rs. 1,42,446/- for education cess under Section 37(1) of the Act. The order was pronounced on 30.11.2021.