TaxTMI 
TaxTMI 
2026 (3) TMI 798
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....6.10.2025 passed for A.Y. 2020-21. 2. The assessee has taken the following grounds of appeal: "01. The learned Commissioner of Income-tax (Appeal) ("Ld. C1T(A)") has erred in confirming the penalty of Rs. 3,69,579 under section 270A of the Income-tax Act, 1961 (" the Act") on account of disallowance of claim of Health and Education Cess of Rs. 21,53,724 inasmuch as the Health and Education Cess of Rs. 21,53,724 was claimed based on bona fide legal interpretation of the Income-tax law and judicial pronouncements prevailing at the time of filing return, the amendment by Finance Act, 2022 had retrospective effect and no mala fide could be attributed to the appellant. 02. The Ld. CIT(A) has erred in confirming penalty under....
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....was deleted by the CIT(A). However, the assessee did not challenge the disallowance made on account of Health and Education Cess and therefore the addition of Rs.21,53,724/- attained finality. 4. Consequent to the aforesaid disallowance, the Assessing Officer initiated penalty proceedings under section 270A of the Act for underreporting of income to the extent of Rs.21,53,724/-. The assessee submitted that the claim of deduction towards Health and Education Cess was made based on prevailing judicial precedents including the decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. v. JCIT (2020) 423 ITR 426 (Bom) and therefore the claim was bona fide. It was further submitted that after the retrospective amendment brought by....
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....ed the same. The CIT(A) held that the decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. was already available when the assessee filed its original return of income and therefore the explanation offered by the assessee was not acceptable. The CIT(A) further held that the retrospective amendment introduced by the Finance Act, 2022 clarified that cess is in the nature of tax covered by section 40(a)(ii) of the Act. According to the CIT(A), the withdrawal of the claim during the course of assessment proceedings could not be treated as voluntary as the same was done only after the Assessing Officer had proposed disallowance. The CIT(A) held that the assessee had under-reported its income within the meaning of section 270A(2)....
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....were in favour of the assessee. 10. Subsequently, by the Finance Act, 2022 an Explanation was inserted in section 40(a)(ii) of the Act with retrospective effect from 01.04.2005 clarifying that the expression "tax" shall include surcharge and cess. As a consequence of the retrospective amendment, the deduction claimed by the assessee towards Health and Education Cess became statutorily disallowable. However, the material on record clearly shows that upon the introduction of the retrospective amendment the assessee suo-moto withdrew the claim during the course of assessment proceedings and accepted the disallowance. Thus, the conduct of the assessee demonstrates that the claim was made bona fide and without any intention to conceal income.....
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....es not attract penalty under the Act. This position is fortified by the Hon'ble Bombay High Court in case of CIT v. Yahoo India (P.) Ltd. [(2013) 33 taxmann.com 332 (Bom)], wherein it was reiterated that where a claim is made transparently and based on legal interpretation, even if not accepted, it does not amount to furnishing inaccurate particulars or under-reporting. Thus, relying on the principles laid down therein, we hold that the assessee's claim towards deduction of cess made prior to the retrospective amendment and disclosed in full cannot trigger penalty under section 270A of the Act." 15. The Coordinate Bench further held: "8.7 In view of the foregoing discussion, the appeal of the assessee is allowed and the penalty ....
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....lowance on account of claim of cess during course of assessment proceedings and moreover assessee also filed Form 69 withdrawing its claim of deduction towards cess, penalty levied under section 270A of the Act for underreporting of income was not sustainable. 19. In the case of IIFL Samasta Finance Ltd. v. Dy. CIT [IT Appeal No. 1054 (Bang.) of 2024, dated 27-9-2024], the return was filed by the assessee at a time when judicial precedents of the Karnataka High Court and other Courts allowed deduction of employees' PF contribution if paid before due date of filing return, and also allowed deduction of education cess as not being "tax". The assessee had disclosed all material facts and claimed both deductions under a bona fide belief base....