TaxTMI 
TaxTMI 
2025 (3) TMI 1636
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....-. The case was taken for scrutiny and the assessment was completed at a total income of Rs. 1,05,05,84,578/- by making addition of Rs. 99,58,838/- after disallowing the deduction claimed on account of Education Cess on Income Tax. The Assessing Officer has initiated penalty proceedings u/s 270A of the Income Tax Act for misreporting of income as per the satisfaction recorded in assessment order. Thereafter vide order dated 28.03.2023, the AO has levied penalty of Rs. 69,60,032/- being a 200% of the disallowance by holding the same as under reporting of income in consequence of misreporting. Against such order, the assessee preferred an appeal before Ld. CIT(A) who dismissed the appeal of the assessee, therefore, the present appeal is filed before the Tribunal by taking following grounds of appeal:- "1. That, in view of the facts and circumstances of the case and in law, the notice dated 08.09.2022 issued under Section 274 r.w.s. 270A of the Income Tax Act, 1961 ("the Act"), the order dated 20.03.2023 passed under Section 270A of the Act imposing penalty of Rs. 69,60,032/- are illegal, bad in law, and without jurisdiction. The penalty imposed is unjust, arbitrary, and high....
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....pportunity. The CIT(A) should have heard the Appellant on the merits of the case as well and provided due opportunity. 8. That, the explanations given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the observations made by AO/CIT(A) are erroneous, illegal, and bad in law." 3. Since, all the grounds of appeal are in respect to the levy of penalty u/s 270A of the Act, thus, all the grounds of appeal are taken together for consideration. 4. During the course of hearing, the Ld. AR submitted that the assessee has claimed deduction of expenses in P & L account towards payment of Education Cess based on the judgements of various High Courts and thus claim of the assessee is bonafide. When the assessee has made the claim of deduction of Education Cess as expenses, there were favourable judgements wherein it was held that the Education Cess is allowable as an expenditure. It is only vide Finance Act, 2022 an amendment was brought in statute with retrospective effect providing that Education Cess is not an allowable expenditure, and, therefore, it cannot be said that the claim of the assesse....
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....laimed deduction of Rs. 99,58,838/- on account of Education Cess which is not allowable expenditure wholly and exclusively for the purposes of business. Further, the AO has placed reliance of amendment made in Finance Act 2022 where it is provided that corporate cannot claim deduction for taxes paid as cess u/s 37(1) of the Act. Such amendment was retrospective in nature and, accordingly, AO was of the opinion that assessee has under reported its income as a consequence of misreporting. Identical issue was came up before the Co-ordinate Bench of ITAT, Bangalore, wherein the Co-ordinate Bench in Para 5.10 to 5.12 has observed as under:- "5.10 Therefore, it goes without saying that for the applicability of section 270A of the Act, the conditions stated therein must be strictly followed. A mere making of the claim which is based on a honest and bonafide belief and even offered for taxation before the completion of assessment by itself will not amount to under reporting resulting in misreporting of income. 5.11 In the present case, the assessee company well before the completion of the assessment proceedings ie. on 16.9.2022 filed a letter to AO for voluntary declarat....
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....High Court). Thus, claim of the assessee was not malafide and the allowability of Education Cess as expenses is highly debatable which stood resolved by the amendment made in Finance Act, 2022. At this juncture, it is relevant to state the explanation given in the "Memorandum explaining the provisions of Finance Bill, 2022" wherein while explaining the amendment proposed in Clause -13, it is observed as under: "Clarification regarding treatment of cess and surcharge Section 40 of the Act specifies the amounts which shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". Sub-clause (ii) of clause (a) of section 40 of the Act provides that 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 shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". 2. However, certain taxpayers are claiming deduction on account of 'cess' or 'surcharge' under section 40 of the Act claiming that 'cess' has not been sp....
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....al Dictionary includes among others "to charge (one) too much or in addition" also "additional tax". Thus the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Sur- charge; (iii) special surcharge and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax" 21. The Hon'ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income-tax. At this stage, it is pertinent to mention here that 'education cess' was brought in for the first time by the Finance Act, 2004, wherein it was mentioned as under:- "An additional surcharge, to be called the Education Cess to finance the Government's commitment to universalise quality basic education, is proposed to be levied ....
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.... correct. Clause 40(a)(ii) of the IT Bill, 1961 as 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 year 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided." 6. In the above referred Circular issued by CBDT, 'Cess' is to be allowed under sub-clause (ii) of clause (a) of section 40 of the Act. However, it is to be noted that 'Cess' is imposed not only by the Central Government through Finance Act for a financial year, but also by various State Governments. It is pertinent to mention that in the above referred Circular of CBDT, there is no reference to the 'Cess' imposed by the Central Government through Finance ....
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....than High Court and Bombay High Court did not consider the judgment of Hon'ble Supreme Court discussed above, the judgments of these two High Courts appear to be per incuriam. It may be mentioned that in paragraph 578 at page 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows: "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which covered the case before it, in which case it must be decided which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force." 9. From the above discussion it may be seen that the interpretations of two High courts and various ITATs are against the intention of legislature and not in line with the judgment of Hon'ble Supreme Court. Hence, in order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to include an Explanation retrospectively in the Act itself to clarify that....