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Question: Whether penalty u/s 270A can be saved for deduction claimed as business deductible expenditure for payment of Cess on income tax and surcharge in any previous year?
Key words: Penalty u/s 270A, 270A, Penalty, penalty u/s 270A can be saved, Whether penalty u/s 270A can be saved for deduction claimed as business deductible expenditure for payment of Cess on income tax and surcharge in any previous year, how to save penalty 270, 155, 155(18), 40, 40(b), proviso, proviso to section 40
Answer: Yes, provided the assessee makes an application to the Assessing Officer in the prescribed form and within the prescribed time, requesting for re-computation 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, since such claim shall not be deemed to be under-reported income for the purposes of sub-section (3) of section 270A in view of proviso of Sub section (18) of section 155. This provison shall come into force from the 1st day of October, 2022.
Bombay High Court in the case of “Sesa Goa Limited Vs. JCIT” (2020) 117 taxmann.com and Hon’ble Rajasthan High Court in the case of “Chambal Fertilizers & Chemicals Ltd Vs. JCIT” held that ‘education cess’ can be claimed as an allowable deduction while computing the income chargeable under the heads “profits and gains of business or profession”. However, ITAT Kolkata after disussing the above High Court judgments as well as other judgments vide order dated 26-10-2021 in the case of M/s. Kanoria Chemicals & Industries Ltd ITA No. 2184/Kol/2018 (TS-1129-ITAT 2021 Kol) held that the “Cess” is not to be allowed as deduction.
To end the litigation, the Govt Finance Act 2022 introduced an amendment in Section 40 of Income Tax Act, 1961 and inserted an explanation thereto retrospectively with effect from 1st April 2005 and clear that it will accordingly apply in relation to assessment for the assessment year 2005-06 and subsequent years. The amendment was 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.’
Statutory provision of Section 155(18) was inserted by the Finance Act, 2022 provides as under:
“(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 re-computation 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, since such claim shall not be deemed to be under-reported income for the purposes of sub-section (3) of section 270A in view of proviso of Sub section (18) of section 155. This provison shall come into force from the 1st day of October, 2022.