TaxTMI 
TaxTMI 
2022 (1) TMI 680
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....ovisions of the Income-tax Act, 1961 and book profit u/s 115JB of the Income-tax Act, 1961. 1.2 The ld. CIT(SA) failed to appreciate that the learned Assessing Officer had not recorded any satisfaction in the assessment order about the correctness or otherwise of the claim of expenditure made by the assessee in relation to income which does not form part of the total income under the Act for such previous year and hence, there was no reason to apply the provisions of rule 8D for making the disallowance u/s 14A and accordingly the entire addition made of Rs. 26,99,512/- may kindly be deleted. 1.3 The learned CIT(A) erred in not following the ratio of decision of Hon'ble ITAT, Pune for Assessment Years 2008-09, 2010-11 and 2011-12 in the appellant company's own case and not restricting the disallowance to Rs. 1,79,050/-. 2. Without prejudice to the above grounds, the appellant company submits that in case , the disallowance u/s 14A is to be worked out by applying the provisions of Rule 8D, in that case, the investments on which no tax free income has been earned during the year under consideration should be excluded while determining the correct amount of d....
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....1,87,440/- Original assessment was thereafter framed by the A.O vide his order passed u/s 143(3) of the Act, dated 29.12.2017, wherein after making an additional disallowance u/s 14A of Rs. 73,24,621/- the income of the assessee company was assessed at Rs. 88,45,12,060/-. 3. Controversy involved in the present appeal lies in a narrow compass i.e as to whether or not the lower authorities are right in law and the facts of the case in quantifying the disallowance u/s 14A r.w Rule 8D of the Income-tax Rules, 1962 at an amount of Rs. 73,24,621/-?. Shorn of unnecessary details, the assessee company which was in receipt of exempt dividend income of Rs. 9,93,863/- during the year, had in its statement of total income, on a suo motto basis, offered for disallowance u/s 14A of the Act an amount of Rs. 1,79,050./- i.e 15% of the salary paid to finance manager. Rejecting the disallowance that was offered by the assessee company u/s 14A of the Act, the A.O reworked out the same at Rs. 73,24,621/- i.eby triggering the machinery proviso contemplated U/rule 8D of the Income-tax Rules, 1963, as under : Sr. No Particulars Amount 1. Expenditure directly related to tax free income ....
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....same to the extent of the exempt dividend income that was received by the assessee company during the year under consideration. Apropos his claim that "Education cess" and "Higher EducationCess" be allowed as a deduction while computing the income of the assessee company, the ld. A.R had drawn support from the judgment of the Hon'ble High Court of Bombay in the case of Sesa Goa Limited vs. Joint Commissioner of Income-tax (2020) 107 CCH 375 (Bom). 6. Per Contra, the ld. Departmental Representative ("D.R", for short) did not raise any objection w.r.t the aforesaid contentions of the assessee's counsel, viz. (i) confining of the disallowance u/s 14A to the extent of the exempt dividend income that was received by the assessee company during the year in question; and (ii). the allowing of the "Education cess" and "Higher EducationCess" as a deduction while computing the income of the assessee company. 7. We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his aforesaid....
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....alia provides that notwithstanding anything to the contrary in sections 30 to 38 of the IT Act, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession", - (a) in the case of any assessee - (ia)........................... (ib)................................ (ic) ............................... (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. [Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any 9 TXA17&18-13 dt.28.02.2020 sum paid on account of any rate or tax levied includes any sum eligible....
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....e to construe a taxing statute by making assumptions and presumptions [See Goodyear Vs State of Haryana 188 ITR 402(SC)]. 21. There are several decisions which lay down rule that the provision for deduction, exemption or relief should be interpreted liberally, reasonably and in favour of the assessee and it should be so construed as to effectuate the object of the legislature and not to defeat it. Further, the interpretation cannot go to the extent of reading something that is not stated in the provision [See AGS Tiber Vs CIT 233 ITR 207]. 22. Applying the aforesaid principles, we find that the legislature, in Section 40(a)(ii) has provided that "any rate or tax levied" on "profits and gains of business or profession" shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession". There is no reference to any "cess". Obviously therefore, there is no scope to accept Ms. Linhares's contention that "cess" being in the nature of a "Tax" is equally not deductable in computing the income chargeable under the head "profits and gains of business or profession". Acceptance of such a contention will amount to readin....
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....s introduced in the Parliament stood as under:- "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the Income Tax Officers so that further litigation on this account may be avoided.[Board's F. No.91/58/66-ITJ(19), dated 18-5-1967.]" 27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression "cess" ought not to be read or included in the expression "any rate or tax levied" as appearing in Section 40(a)(ii) of the IT Act....
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....' even if levied upon or calculated on the basis of business profits may be allowed in computing such profits under this Act. 30. The Division Bench of the Rajasthan High Court (Jaipur Bench) in Income Tax Appeal No.52/2018 decided on 31st July, 2018 (Chambal Fertilisers and Chemicals Ltd. Vs CIT Range-2, Kota ), by reference to the aforesaid CBDT Circular dated 18th May, 1967 has held 16 TXA17&18-13 dt. 28.02.2020 that the ITAT erred in holding that the "education cess" is a disallowable expenditure under Section 40(a)(ii) of the IT Act. Ms. Linhares was unable to state whether the Revenue has appealed this decision. Mr. Ramani, learned Senior Advocate submitted that his research did not suggest that any appeal was instituted by the Revenue against this decision, which is directly on the point and favours the Assessee. 31. Mr. Ramani, in fact pointed out three decisions of ITAT, in which, the decision of the Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd.(supra) was followed and it was held that the amounts paid by the Assessee towards the 'education cess' were liable for deduction in computing the income chargeable under the head of "p....
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.... cess and NCCD could not be included in the expression "duty of excise" and consequently, the amounts paid towards such cess or NCCD did not qualify for exemption under the exemption Notification. This view of the High Court was upheld by the Apex Court in Unicorn Industries (supra ). 36. The aforesaid means that the Supreme Court refused to regard the levy of education cess, higher education cess and NCCD as "duty of excise" when it came to construing exemption Notification. Based upon this, Mr. Ramani contends that similarly amounts paid by the Appellant - Assessee towards the "cess" can never be regarded as the amounts paid towards the "tax" so as to attract provisions of Section 40(a)(ii) of the IT Act. All that we may observe is that the issue involved in Unicorn Industries (supra ) was not at all the issue involved in the present matters and therefore, the decision in Unicorn Industries ( supra ) can be of no assistance to the Respondent - Revenue in the present matters. 37. Ms. Linhares, learned Standing Counsel for the Revenue however submitted that the Appellant - Assessee, in its original return, had never claimed deduction towards the amounts paid by it....
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.... appeal is to ascertain the correct tax liability of the Assessee in accordance with law. 40. The decision in Goetze (supra) upon which reliance is placed by the ITAT also makes it clear that the issue involved in the said case was limited to the power of the assessing authority and does not impinge on the powers of the ITAT under section 254 of the said Act. This means that in Goetze (supra), the Hon'ble Apex Court was not dealing with the extent of the powers of the appellate authorities but the observations were in relation to the powers of the assessing authority. This is the distinction drawn by the division Bench in Pruthvi Brokers (supra) as well and this is the distinction which the ITAT failed to note in the impugned order. 41. Besides, we note that in the present case, though the claim for deduction was not raised in the original return or by filing revised return, the Appellant - Assessee had indeed addressed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner ( App....