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2021 (10) TMI 1367 - AT - Income TaxDeduction of Education Cess - assessee debited education cess in the Profit Loss Account which was disallowed u/s 40(a)(ii) in the computation of income - assessee claimed the deduction of the same during appellate proceedings which was rejected by Ld. CIT(A) - HELD THAT - This issue is squarely covered in assessee s favor by the decision of Hon ble Bombay High Court in Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT wherein it has been held that in the Income-tax Act, 1922, Section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. However, in the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression cess is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression cess and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) - The effect of such omission is that the provision in Section 40(a)(ii) does not include, cess and consequently, cess whenever paid in relation to business, is allowable as deductable expenditure. Therefore, respectfully following the same, we direct Ld. AO to allow the deduction of education cess paid by the assessee. This ground stand allowed. Quantum of deduction u/s 35(2AB) - HELD THAT - We concur with the submissions of Ld. AR that deduction has to be allowed as claimed by the assessee and certified by the Auditors since the amendment was brought in the Rule 6(7A)(b) w.e.f. 01/07/2016 only. Prior to the amendment, the prescribed authority was to submit its report in relation to the approval of in-house research development facility in form No.3CL to the DG (IT exemptions) within 60 days of its granting approval. It was only with effect from 01/07/2016, the prescribed authority was required to quantify the expenditure incurred by the assessee on in-house research development facility. We find that fact as well as issue is pari-materia the same. In the absence of any contrary decision on record, respectfully following the above decisions, we would hold that the assessee would be entitled for deduction u/s 35(2AB) on actual expenditure incurred by it. The aggregate amount of expenditure stated be to be incurred by the assessee is Rs.150.19 Lacs and the assessee is eligible to claim deduction @200%. AO is directed to quantify the exact claim and allow the deduction of the same. This ground stand allowed.
Issues:
1. Denial of deduction of education cess 2. Quantum of deduction u/s 35(2AB) Denial of deduction of education cess: The appeal pertains to the denial of deduction of education cess for Rs.51.02 Lacs. The assessee raised this issue during appellate proceedings through an additional ground. The deduction was disallowed by the Ld. CIT(A) under section 40(a)(ii) in the computation of income. However, the assessee claimed that education cess should be allowed as a deductible expenditure. The ITAT Mumbai, citing a decision of the Hon’ble Bombay High Court, held that the legislative history and provisions of the Income-tax Act, 1961, do not include "cess" in Section 40(a)(ii), making education cess paid by the assessee allowable as a deduction. Therefore, the ITAT directed the Ld. AO to allow the deduction of education cess, ruling in favor of the assessee. Quantum of deduction u/s 35(2AB): The assessee claimed a deduction under section 35(2AB) for Rs.150.19 Lacs for scientific research and development expenditure. Discrepancies arose regarding the allowable deduction amount as per Form 3CL approval. The ITAT noted that the prescribed authority's approval in Form 3CL was relevant only post the amendment in Rule 6(7A)(b) from 01/07/2016. Prior to this amendment, the deduction had to be allowed as claimed by the assessee and certified by the Auditors. Referring to a decision of the Pune Tribunal, the ITAT held that the assessee was entitled to claim deduction based on actual expenditure incurred. The ITAT directed the Ld. AO to quantify the exact claim and allow the deduction accordingly. Relying on previous decisions, the ITAT allowed the appeal, emphasizing that the assessee should be entitled to the deduction based on actual expenditure incurred. In conclusion, the ITAT Mumbai allowed the appeal in favor of the assessee for both issues, directing the Ld. AO to allow the deduction of education cess and quantify the deduction u/s 35(2AB) based on actual expenditure incurred by the assessee.
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