Tribunal Rules in Favor of Assessee on Tax Disallowance, Write-Back Issue

The Tribunal partly allowed the appeal filed by the assessee. It ruled in favor of the assessee on the disallowance under section 40(a)(i) of the Income Tax Act and the write back of excess provision issues. However, the claim for the deduction of education cess paid was rejected by the Tribunal.

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Issues:
1. Disallowance u/s 40(a)(i) of the I.T. Act amounting to Rs.1,20,013
2. Write back of excess provision towards additional salary of Rs.10,00,000
3. Allowability of education cess paid as a tax deductible expenditure

Issue 1: Disallowance u/s 40(a)(i) of the I.T. Act amounting to Rs.1,20,013

The Assessing Officer disallowed Rs.1,20,013 u/s 40(a)(i) of the I.T. Act, claiming it was payment for professional services and hence chargeable to tax in India. The CIT(A) upheld this view. However, the Tribunal referred to a previous case where it was held that reimbursement of expenses for software usage without any mark-up is not liable for TDS. Citing the decision of the Tribunal in the previous case, the Tribunal ruled in favor of the assessee, stating that the reimbursement to M/s. Brand Union Worldwide Ltd., London, was not liable for TDS under section 40(a)(ia) of the I.T. Act.

Issue 2: Write back of excess provision towards additional salary of Rs.10,00,000

The A.O. disallowed the provision for additional salary of Rs.10 lakh, which was added back to the income of the assessee for the previous assessment year. The CIT(A) rejected the claim of the assessee. However, based on a remand report from the A.O. stating that the claim of the assessee was correct and to avoid double taxation, the Tribunal directed the A.O. to delete the sum of Rs.10 lakh from the taxable income for the relevant assessment year.

Issue 3: Allowability of education cess paid as a tax deductible expenditure

The Tribunal considered the claim of deduction of education cess including secondary and higher educational cess while computing the total income. Referring to a Kolkata Bench decision, the Tribunal held that education cess is not allowable as a deduction, following the precedent set by the Hon'ble Supreme Court in the case of CIT Vs. K. Srinivasan. Consequently, the Tribunal rejected the claim for deduction of education cess paid.

In conclusion, the appeal filed by the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the disallowance u/s 40(a)(i) and write back of excess provision issues, but rejecting the claim for the deduction of education cess as a tax-deductible expenditure.

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