Education cess & Secondary and Higher Education Cess are allowable deduction while computing income chargeable under the head of profits and gains of business or profession
ABACUS Case Law Citation
ABCAUS 3358 (2020) (08) ITAT
Important case law relied upon by the parties:
Sesa Goa Ltd. vs. JCIT [2020] 117 taxmann.com 96 (Bombay)
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowance of Education cess & Secondary and Higher Education Cess u/s 40(a)(ii) of the Income Tax Act, 1961 (the Act).
The appellant assessee was a company. The return of income Assessment Year in question was selected for scrutiny and thereafter initially the assessment was framed u/s 143(3) of the Act.
Subsequently, the case was reopened by issuing notice u/s 148. One of the reasons recorded for reopening of the assessment was that the assessee had claimed and had been allowed deduction of expenditure on account of cess on income tax of which was not allowable u/s 40(a)(ii) of the Act.
Consequently, the case was taken for scrutiny and thereafter assessment was framed u/s 143(3) r.w.s 148 adding inter alia the cess to the income of the assessee.
The CIT(A) confirmed the addition.
Education cess / HSE Cess are allowable deductions
Before the Tribunal, the assessee contended that the cess on income tax is not covered u/s 40(a)(ii) and the case is covered in assessee’s favour by the decision of Hon’ble High Court.
According to the assessee, the Hon’ble Bombay High Court in the aforesaid decision has held that education cess and higher and secondary education cess are liable for deduction while computing income chargeable under the head of ‘profits and gains of business or profession’.
The Tribunal observed that the Hon’ble High Court had held that education cess and secondary and higher education cess to be eligible for deduction while computing income chargeable under the head of Profit and Gains of Business.
The Tribunal further noted that the Hon’ble High Court had held that though cess may be collected as part of income tax but that does not render such cess either rate or tax which cannot be deducted in terms of provision of section 40a(ii) of the Act.
The Tribunal further found that Hon’ble High Court while arriving at the aforesaid conclusion had also considered the CBDT Circular No. F. No. 91/58/66-ITJ(19), dated 18.05.1967. where the Board had held that the view of the AO was not correct in disallowing cess paid by the assessee.
The Tribunal found that the Revenue had not placed any contrary binding decision in its support.
In view of the decision of Hon’ble High Court the Tribunal held that the AO was not justified in disallowing the amount of cess paid on income tax.
Accordingly, the AO was directed to delete the disallowance.
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