Education Cess cannot be allowed as Allowable Expense u/s 37 (1) of Income Tax Act: ITAT [Read Order]

In a recent ruling, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) observed that the education cess cannot be allowed as allowable expense under Section 37 (1) of Income Tax Act, 1961.

The facts in brief that the assessee raised claim the education Cess as eligible business expenditure under Section 40(a)(ii) of Income Tax Act. Both the assessee and revenue filed the cross appeals.

The contention of the assessee that prohibition contained in Section 40(a) (ii) of Income Tax Act was only with reference to payment of Income Tax and same does not apply to claim of education Cess paid along with Income Tax.

The assessee also made reference to CBDT Circular No. F. No.91/58/66-ITJ (19) dated 18/05/1967 and the decision of M. M. Aqua Technologies Ltd. vs. CIT [2021] 129 taxmann.co. 145. The above contentions of the assessee has been negated by the CIT(A) on the ground that additional surcharges are part of income tax and as such the same is not allowable in terms of express provision of Section 40(a)(ii) of the Income Tax Act.

Mr. S. S. Naagar representing the assessee stated that ‘cess’ being not covered within the ambit of section 40(a)(ii) of Income Tax Act, and was  legally allowable as a deduction under Section 37(1) of Income Tax Act. The appellant assessee has also relied on the decision Rajasthan High Court in Chambal Fertilizers Ltd. and decision of the Bombay High Court in Sesa Goa Ltd. in which both have concluded that it is not covered and hence is allowable as deduction under Section 37(1) of Income Tax Act.

The two member bench of Dr. B.R.R Kumar (Accountant member) and Yogesh Kumar U.S (Judicial member) held that the education Cess can’t be allowed as an allowable expense, accordingly the particular ground raised by the assessee was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates