KOSHAMBH MULTITRED PRIVATE LIMITED,VADODARA V. THE DY.CIT, CIRCLE-1(1)(1), VADODARA

ITA 1031/AHD/2025

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The case involves Koshambh Multitred Pvt. Ltd., which appealed against the penalty imposed by the Deputy Commissioner of Income Tax for underreporting income by claiming a deduction for education cess, which was later disallowed due to a retrospective amendment to Section 40(a)(ii) of the Income Tax Act by the Finance Act, 2022. Initially, the assessee claimed the deduction based on favorable judicial decisions, but upon the amendment, surrendered the claim during the assessment proceedings. The Tribunal examined whether the penalty for underreporting of income was applicable despite the surrender of the claim and found that the assessee was entitled to immunity from the penalty under the specific provisions of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 716376 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 09-05-2025
• Other Referred Cases: Sesa Goa Ltd. vs JCIT, Chambal Fertilizers & Chemicals Ltd. vs JCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT AA SUDA NI
• Assessee Lawyers: SANJAY R SHAH
• Keywords: Retrospective amendment
• Section: 154

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER I.T.A. No. 1031/Ahd/2025 (Assessment Year: 2020-21) Koshambh Multitred Pvt. Ltd., 303, Gamthi Complex, Opp. BPC Council Productivity Road, Alkapuri, Vadodara-390007 Vs. Deputy Commissioner of Income Tax, Circle-1(1)(1), Vadodara [PAN No.AAACK7744A] (Appellant) .. (Respondent) Appellant by : Shri Sanjay R Shah, CA Respondent by : Shri Rohit Aasudani, Sr. DR Date of Hearing 13.08.2025 Date of Pronouncement 21.08.2025 O R D E R PER: ANNAPURNA GUPTA - AM: The present appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi dated 15.04.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2020-21 confirming the levy of penalty under Section 270A(2) of the Act for underreporting of income. 2. The facts of the case are that in assessment proceedings the assessee was noted to have claimed deduction of education cess paid amounting to Rs. 15,94,943/-. When confronted with the fact that in view of the latest amendment made in section 40(a)(ii) of the Act, vide Finance Act, 2022 with retrospective effect from 01.04.2005, the education cess was categorically not allowable as deduction, the assessee accepted the disallowance of the same and accordingly, Printed from counselvise.com ITA No.1031/Ahd/2025 Koshambh Multitred Pvt. Ltd. vs. DCIT Asst.Year –2020-21 - 2 - the impugned sum was added to the returned income of the assessee. Thereafter, penalty proceedings for misreporting of income were initiated in terms of section 270A(9) of the Act. During penalty proceedings the assessee pleaded before the AO that the issue of claim of deduction of education cess was earlier a debatable issue, referring to various judicial decisions on the same, and that it was only by virtue of an amendment made subsequently vide Finance Act, 2022 that too retrospectively, that the claim statutorily disallowed. It was also contended that the assessee had surrendered the said claim during assessment proceedings itself and had no intention of underreporting its income. All contentions of the assessee were rejected by the AO, noting series of decisions of the ITAT holding the claim to be not allowable as per law and also the amendment made by Finance Act, 2022 to section 40(a)(ii) of the Act retrospectively, and penalty was levied @ 200% of the tax on the misreported income. As a result, penalty of Rs. 11,14,674/- was levied on the assessee. 3. The matter was carried in appeal before Ld. CIT(A) who though held that it was a fit case for levy of penalty , however it was not a case of misreporting of income but only of underreporting of income under section 270A(2) of the Act and accordingly, directed the AO to re-compute the penalty for underreporting of income. The assessee, before the Ld. CIT(A), had besides reiterating the arguments made before the AO had also taken the plea that section 155(18) of the Act provided for immunity from the levy of penalty on account of the retrospective amendment made under section 40(a)(ii) of the Act subject to assessees surrendering the same to the AO in the prescribed form and within the prescribed time and after paying the tax due thereon. The Ld. CIT(A), however, rejected this argument of the assessee pointing out that the prescribed form was notified only w.e.f. 01.10.2022 and the prescribed time was on or Printed from counselvise.com ITA No.1031/Ahd/2025 Koshambh Multitred Pvt. Ltd. vs. DCIT Asst.Year –2020-21 - 3 - before the 31.03.2023 and the assesee having not made any such application therefore, it was not saved from levy of penalty in terms of 2nd Proviso to section 155(18) of the Act. 4. Aggrieved by the same the assessee has come up in appeal before us raising the following grounds of appeal: “1. The learned CIT(Appeals) erred in law and on facts in confirming penalty u/s.270A(7) for underreporting of the income in respect of the deduction claimed for education cess, which was available to the Appellant at the relevant point of time because of the favourable decisions, which were however nullified because of the retrospective amendment to the provisions of the Act, which could not have been anticipated by the Appellant. It is submitted that there cannot be penalty because of the retrospective amendment made to the Act and the same be directed to be deleted. 2. The learned CIT(Appeals) erred in invoking the provisions of section 155(18) inserted by the Finance Act, 2022 w.e.f. 01.04.2022, which in the facts and circumstances of the case of the Appellant, are not applicable since the Appellant itself had voluntarily surrendered the deduction of education cess during the course of assessment proceedings, and thus, was not allowed to him in the assessment order. It is submitted that it be so held now and the penalty for underreporting of income confirmed by the learned CIT(Appeals) be deleted. 3. The appellant reserves the right to add, alter or amend any of the grounds of appeal.” 5. The Ld. Counsel for the assessee argued that the assessee had claimed deduction of education cess following the decision of the Hon’ble Bombay High Court in the case of Sesa Goa Ltd. vs JCIT (2020) 423 ITR 426 (Bom) and the decision of the Hon’ble Rajasthan High Court in the case of Chambal Fertilizers & Chemicals Ltd. vs JCIT ITA No.52/2018 Dt. 31-07-2018 prevailing at that point of time, i.e A.Y. 2020-21, and categorically holding such claims allowable. That it was only subsequently , by virtue of a retrospective amendment made to section 40(a)(ii) by Finance Act,2022 that the claim was treated not allowable and when confronted with the amendment the assessee fairly submitted and surrendered the said claim for disallowance .That therefore, the assessee could not be charged with having underreported any income for levy of penalty under section 270A(2) of the Act. He further referred to the provisions of Section Printed from counselvise.com ITA No.1031/Ahd/2025 Koshambh Multitred Pvt. Ltd. vs. DCIT Asst.Year –2020-21 - 4 - 155(18) of the Act and pointed out that even the said section provided immunity from the levy of penalty under section 270A(2) of the Act on account claims made of education cess, in view of the retrospective amendment made to section 40(A)(ii) of the Act, in circumstances where the assessee surrenders the said amount to taxation, in a prescribed form and within a prescribed time. The contention of the Ld. Counsel for the assessee was that the benefit of immunity from penalty u/s 155(18) of the Act was applicable when claim of education cess made by the assessee had been allowed in assessment by the AO but on account of the retrospective amendment made to section 40(a)(ii) of the Act it was not allowable. In such circumstances, the assessee, it was contended, had been given a safe passage from the levy of penalty by surrendering such claim for taxation in a prescribed form within the prescribed time and after paying taxes thereon. That the purpose of this safe passage given to the assessee was because of the prevailing debatable position on the allowability of claim of education cess which was adversely effected by the retrospective amendment made to section 40(a)(ii) of the Act. That therefore, for bonafide claims made by assesses, but which were required to be disallowed on account of the retrospective amendment made by to the section, assessees were permitted to suo moto surrender the said amount and pay taxes thereon so as to be saved from the levy of penalty. The contention of the Ld. Counsel for the assessee before us was that in the facts of the present case the assessee had surrendered the claim during assessment proceedings itself and therefore, it was on a better footing than the situations envisaged under section 155(18) of the Act and was entitled to immunity from levy of penalty under section 270A(2) of the Act. He further contended that while the AO noted misreporting of income by the assessee and levied penalty @200% of tax thereon in terms of section 40A(9) of the Act, the Ld. CIT(A) had categorized it as underreporting of income in terms of 270A(2) Printed from counselvise.com ITA No.1031/Ahd/2025 Koshambh Multitred Pvt. Ltd. vs. DCIT Asst.Year –2020-21 - 5 - of the Act and directed AO to levy penalty accordingly, which he contended was beyond the powers of the Ld. CIT(A). 6. Ld. DR on the other hand, vehemently relied on the order of the Ld. CIT(A). 7. We have heard both the parties and we are in agreement for the Ld. Counsel for the assessee that penalty levied in the present case under section 270A(2) of the Act for underreporting of income on account of incorrect claim of deduction of education cess is not sustainable in law. 8. It is not denied that when the claim was made by the assessee in A.Y 2020-21, there were decisions of the Hon’ble High Courts of Bombay and Rajasthan ruling in favour of the assessee, in Sesa Goa (supra) & Chambal Fertilizers (supra) respectively decided on 28-02-2020 and 31-07-2018 respectively. It was only by virtue of a retrospective amendment to section 40(a)(ii) of the Act by Finance Act, 2022 w.e.f 01-04-2005, that the said claim became disallowable and the fact of the matter is that the assessee fairly surrendered the said claim during the assessment proceedings when confronted with the said amendment. 9. Moreover, we have noted that alongwith the retrospective amendment made to section 40(a)(ii) of the Act disallowing claim of education cess w.e.f 01-04-2005, power to rectify orders allowing such claims earlier was also granted to Assessing Officers by introducing sub-section (18) to section 155 of the Act. The said sub section was brought on the statute alongwith the amendment made to section 40(a)(ii) of the Act by Finance Act 2022 and w.e.f 01-04-22. And gave powers of rectification of such claims, with the limitation Printed from counselvise.com ITA No.1031/Ahd/2025 Koshambh Multitred Pvt. Ltd. vs. DCIT Asst.Year –2020-21 - 6 - of four years for exercising the power of rectification being reckoned from the end of the previous year commencing on 1st April 2021, i.e. from 01-04-22 onwards, when the retrospective amendment was brought on the statute. Thus alongwith introducing provisions disallowing claim of education cess retrospectively, provisions empowering AO’s to rectify such claims allowed earlier was also introduced giving four years time from the introduction of the amendment to rectify such claims allowed earlier. The provisions of section 155(18) are reproduced hereunder for clarity: “(18) Where any deduction in respect of any surcharge or cess, which is not allowable as deduction under section 40, has been claimed and allowed in the case of an assessee in any previous year, such claim shall be deemed to be under-reported income of the assessee for such previous year for the purposes of sub-section (3) of section 270A, notwithstanding anything contained in sub-section (6) of section 270A, and the Assessing Officer shall recompute the total income of the assessee for such previous year and make necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub- section (7) of section 154 being reckoned from the end of the previous year commencing on the 1st day of April, 2021: Provided that in a case where the assessee makes an application to the Assessing Officer in the prescribed form and within the prescribed time, requesting for recomputation of the total income of the previous year without allowing the claim for deduction of surcharge or cess and pays the amount due thereon within the specified time, such claim shall not be deemed to be under-reported income for the purposes of sub-section (3) of section 270A.” 10. As per the said sub section, such claims of education cess not allowable on account of the retrospective amendment but allowed earlier, were deemed to be under reported income for purposes of levy of penalty u/s 270A of the Act. However, the proviso to the sub section carved an exception providing immunity from the levy of penalty, subject to assessees surrendering such claims and paying taxes thereon in the prescribed form and by the date prescribed. Thus, clearly recognizing claims of deduction of education cess made earlier by assesses to be bonafidely made, considering the prevailing position of law and Printed from counselvise.com ITA No.1031/Ahd/2025 Koshambh Multitred Pvt. Ltd. vs. DCIT Asst.Year –2020-21 - 7 - therefore offering them a safe passage from the levy of penalty by allowing declaration of such claims to taxation after the amendment was brought on statute. The said proviso, in effect, excluded claims of education cess which were effected by the retrospective amendment from being deemed underreported incomes, if subsequently surrendered by assesses. The date by which the said claim was to be surrendered was 31-03-2023, as noted by the Ld. CIT(A) at para 5.4 of his order. 11. In the facts of the case before us, the assesses claim of education cess was disallowable on account of the retrospective effect of the amendment to section 40(a)(ii) of the Act, the claim pertaining to A.Y 20-21 and the amendment disallowing education cess being made by Finance Act 2022. This claim was not earlier allowed to the assessee but was subject matter of scrutiny in assessment proceedings. And at this stage itself the assessee surrendered its claim of deduction of education cess. The assessment order accepting the surrender of the assessee was passed on 13-09-2022. In such facts and circumstances, we completely agree with the Ld. Counsel for the assessee that the assessee had fulfilled the spirit/purpose/objective of proviso to section 155(18) of suo moto surrendering its claim of deduction when confronted with the amendment and paying taxes thereon that too within the time prescribed in law for such surrender, i.e upto 31-03-2023. When the legislature itself did not intend penalizing assessees on account of the retrospective amendment to section 40(a)(ii) of the Act if they subsequently surrendered such claims within the time prescribed, then any such assessee honestly surrendering such claims during assessment, as in the facts of the present case, there can be no case for levy of penalty on the assessee. Printed from counselvise.com ITA No.1031/Ahd/2025 Koshambh Multitred Pvt. Ltd. vs. DCIT Asst.Year –2020-21 - 8 - 12. The assessee, we hold, therefore is entitled to benefit from the immunity provided by the said proviso to section 155(18) of the Act from the levy of penalty u/s 270A of the Act for underreporting of income. 13. In light of the above, we hold, that the penalty levied in the present case under section 270A(2) of the Act is not sustainable and direct deletion of the same. 14. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 21/08/2025 Sd/- Sd/- (T.R. SENTHIL KUMAR) (ANNAPURNA GUPTA) (JUDICIAL MEMBER) ACCOUNTANT MEMBER Ahmedabad; Dated 21/08/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 13.08.2025 2. Date on which the typed draft is placed before the Dictating Member 14.08.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 20.08.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement .08.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 21.08.2025 7. Date on which the file goes to the Bench Clerk 21.08.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order…………………………………… Printed from counselvise.com "