M/s. Shriji Polymers (India) Ltd., Ujjain V. THE ACIT 2(1), Ujjain

ITSSA 116/Ind/2021

AI Insights

The case involves M/s. Shriji Polymers (India) Limited, the appellant, contesting the disallowance of a deduction claim for education and higher education cess amounting to Rs. 14,80,628 for the Assessment Year 2014-15. The primary legal contention was whether the cess, which is linked to income tax, should be considered an allowable business expenditure under section 37(1) read with section 40(a)(ii) of the Income Tax Act. The Commissioner of Income Tax (Appeals) and the Tribunal both ruled against the appellant, citing that the cess is a tax and not a fee, and thus not deductible as a business expense. The Tribunal's decision was influenced by a retrospective amendment to the law that explicitly includes cess under the definition of tax.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130717 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 28-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-05-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 15-07-2021
• Other Referred Cases: JCIT vs. M/s. Chambal Fertilizers & Chemicals Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Retrospective amendment
• Section: 37; 37(1)

Judgement Text

Page 1 of 4 आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.116/Ind/2021 (Assessment Year:2014-15) M/s. Shriji Polymers (India) Limited. 15-D Industrial Area Maxi Road Ujjain Vs. ACIT-(Central)-2(1) Ujjain (Appellant / Assessee) (Respondent/ Revenue) PAN: AAICS 6990 E Assessee by None Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 25.05.2023 Date of Pronouncement 29.05.2023 O R D E R Per Vijay Pal Rao, JM: This appeal by the assessee is directed against the order dated 30.06.2021 of Ld. Commissioner of Income Tax (Appeals)-3 Bhopal (in short Ld. CIT(A), for Assessment Year 2014-15. 2. None has appeared on behalf of the assessee despite the service of the notices issued through R.P.A.D. as per the acknowledgment on record. It also transpires from the record that after filing the present appeal no- body has appeared on behalf of the assessee till date. Accordingly the Bench proposes to hear and disposed of this appeal ex-parte. 3. The assessee has raised following grounds of appeal: ITA No.116/Ind/2021 Shriji Polymers Ltd. Page 2 of 4 Page 2 of 4 1. The ld. Commissioner of Income Tax (Appeals) erred in not allowing the claim of allowable deduction u/s 37(1) in respect of Health and Education Cess of Rs. 14.80.628/-in aggregate without discussing the issue in the assessment order on the facts and circumstances of the case. The claim of deduction was duly made during the course of assessments proceedings. 2. The Id. Commissioner of Income Tax (Appeals) erred in not considering that the Cess is not covered under the definition of Tax and as such the provisions of section 40(a)(ii) are not applicable. 4. The solitary issue raised by the assessee in this appeal is against the disallowance of claim of deduction in respect of education and higher education cess as per the provision of section 40(a)(ii) of the Act. 5. We have heard the Ld. DR and gone through the orders of the AO and CIT(A). The Ld. CIT(A) has considered and decided this issue as under: 4.4 Ground No. 12:- Through this ground of appeal, the appellant has claimed deduction u/s 37(1) of Rs. 14,80,628/- on account of payment of education cess and higher education cess. Provisions of section 40(a)(ii) clearly states that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed to a proportion of or otherwise on the basis of any such profit or gain. Since, education cess and higher education cess is calculated on income tax which in turn is calculated on gross income which includes profits or gains of any business (in appellant's case). Therefore, directly, the education cess and higher education cess is linked with income tax which is an expenditure of personal nature and is not an allowable expenditure. Further, the cess is not a fee but a tax, since fees are payable in return for a certain benefit or services, while tax is imposed by the government and the taxpayer is not entitled to any benefit or service in return, as with the cess. Therefore, the plea of the appellant has no merit and is therefore, rejected. Therefore, appeal on this ground is Dismissed. 6. Ld. CIT(A) upheld the disallowance made by the AO on the ground that the education cess and higher education cess is linked with the income tax which is not allowable expenditure as per the provisions of section 40(a)(ii) of the Act. Further in view of the amendment to the provision of ITA No.116/Ind/2021 Shriji Polymers Ltd. Page 3 of 4 Page 3 of 4 section 40(a)(ii) by Finance Act 2022 with retrospective effect from 01.04.2005 the explanation (3) has been inserted as under: Explanation 3.- For the removal of doubts, it is hereby clarified that for the purposes of this sub-clause, the term “tax” shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. (Inserted vide Finance Act, 2022, effective retrospectively from 1-4-2005.) 6. An identical issue has been considered and decided by the Hon’ble Supreme Court in case of JCIT vs. M/s. Chambal Fertilizers & Chemicals Ltd. 291 taxman 438 as under: 1. Leave granted, 2. Learned senior advocate appearing on behalf of the respondent- assessee states that in view of the amendment vide the Finance Act. 2022 with retrospective effect from 1-4-2005 to section 40%) of the Income Tax Act, 1961, the present appeal has to be allowed. 3. In view of the statement made, we direct that the Education cess paid by the respondent-assessee would not be allowed as an expenditure under section 37 read with 40(a)(i) of the Income-tax Act, 1961 4. Learned senior advocate appearing on behalf of the Respondent- assessee states that they have also paid, the applicable tax on the disallowance. 5. Recording the above, the appeal is allowed in the aforesaid terms, without any order as to costs 7. Accordingly, in the facts and circumstances of the case and in view of the retrospective amendment in section 40(a)(ii), the education and higher ITA No.116/Ind/2021 Shriji Polymers Ltd. Page 4 of 4 Page 4 of 4 education cess is nothing but part of the income tax and therefore, the same is not allowable business expenditure. Hence, we do not find any error and illegality in the impugned order of Ld. CIT(A) qua this issue. 8. In the result, appeal of assessee is dismissed. Order pronounced in the open court on 29.05.2023. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member Indore, 29 .05.2023 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore