Education Cess @3% Not Includable while Computing Tax Effect: ITAT Dismisses Appeal under ₹60L Threshold [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) recently dismissed an appeal filed by the Revenue after noting that the tax effect involved in the matter fell below the ₹60 lakh monetary threshold prescribed under the Central Board of Direct Taxes (CBDT) circular, once the Education Cess @3% was excluded from the computation of tax.

The appeal was instituted by the Income Tax Officer, Ward 21(1), New Delhi against the respondent-assessee Rainbow Diamonds Pvt. Ltd. for the Assessment Year 2017-18. The Revenue challenged an order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, arising from assessment proceedings under Section 143(3) of the Income Tax Act, 1961.

The Revenue’s counsel challenged the deletion of an addition of ₹79.75 lakh by the CIT(A). The Department contended that the appellate authority had erred in disregarding the detailed analysis by the Assessing Officer (AO) which alleged abnormal sales patterns and abnormal cash-in-hand and cash deposit patterns.

The Revenue further argued that the CIT(A) had wrongly relied upon self-serving documents without noting that they cannot substitute independent evidence.

During the course of hearing, the assessee contested the maintainability of the appeal contending that in the instant case the tax effect is less than the threshold limit of ₹60 lakhs, contravening CBDT Circular No. 09/2024 dated September 17, 2024, which revised the monetary limit for filing appeals before the Tribunal to ₹60 lakh.

The assessee contended that while the AO had computed the tax effect at ₹61,60,687, the calculation improperly included Education Cess @3%. The Assessee submitted that once the education cess component was excluded, the actual tax effect would stand lowered to ₹59,81,250, thus falling below the threshold limit of ₹60 Lakh.

Reference was made to the ruling by the co-ordinate Hyderabad Bench in MA No.35/HYD/2017 which in turn followed the Delhi High Court judgment in Dalmia Cement (Bharat) Ltd. vs. CIT (2013) where the Delhi High Court affirmed that Education Cess is not part of “tax.”

The Tribunal Bench of Mahavir Singh, Vice President and Manish Agarwal, Accountant Member observed that CBDT Circular No.09/2024 had indeed revised the monetary limit for filing appeals before the Tribunal to ₹60 Lakhs and further clarified that the Circular would be applicable to all pending appeals.

It was accordingly concluded that the Revenue’s appeal having low tax effect was not maintainable. The appeal was thus dismissed, however, liberty to the Revenue to re-institute the appeal if they could establish that the appeal is protected by the exceptions prescribed or tax effect is above the maximum limit.

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