2021 (1) TMI 479 - AT - Income Tax

Deduction of education cess paid u/s 40(a)(ii) - HELD THAT - This issue is covered in favour of the assessee by the decision of Chambal Fertilizers Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT wherein it was held that education cess is not a part of tax. Accordingly, the same was held as allowable as a deduction and that disallowance u/s 40(a)(ii) of the Act cannot be made. Hon ble High Court of Bombay in the case of Sesa Goa Ltd. vs. JCIT. 2020 (3) TMI 347 - BOMBAY HIGH COURT held that education cess is allowable expenditure as the word cess is conspicuously absent under the provision of Section 40(a)(ii) of the Act . This Bench of the Tribunal has applied and followed these decisions in the case of ITC Limited 2018 (11) TMI 1611 - ITAT KOLKATA and other cases. Respectfully following the same we allow this claim of the assessee.

Summary

Issues involved:
1. Interpretation of Section 80IA(8) of the Income Tax Act, 1961 regarding determination of transfer pricing of power between eligible and non-eligible units.
2. Allowability of deduction of education cess under Section 37 of the Act for arriving at taxable income.

Interpretation of Section 80IA(8):
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2006-07. The Commissioner followed the Tribunal's propositions in the assessee's case for the AY 2013-14 and granted relief based on the transfer pricing of power between eligible and non-eligible units. The dispute centered around whether the electricity duty component should be considered in determining the transfer price of power. The Commissioner, supported by various judgments, held that the landed cost, including electricity duty, should be considered as the transfer price. The Tribunal upheld the Commissioner's decision, citing precedents and judicial approvals. Additionally, various High Courts and Tribunals supported the inclusion of electricity duty in the transfer pricing calculation. Thus, the Tribunal upheld the methodology followed by the appellant in determining the transfer rate for Section 80IA(8) at ?4.36/unit.

Allowability of deduction of education cess:
Regarding the Cross Objection filed by the assessee concerning the deduction of education cess under Section 37 of the Act, a delay of 303 days was noted in filing the objection. The assessee attributed the delay to the emergence of judicial pronouncements on the issue post the original filing. The Tribunal, after considering both sides, condoned the delay, noting the genuine cause preventing timely filing. The Cross Objection focused on the claim of deduction of education cess paid, which was supported by the decision of the Rajasthan High Court and the Bombay High Court, stating that education cess is allowable as an expenditure. Following these precedents, the Tribunal allowed the claim of the assessee, dismissing the Revenue's appeal and approving the Cross Objection.

In conclusion, the Tribunal upheld the Commissioner's decision regarding the interpretation of Section 80IA(8) and allowed the deduction of education cess under Section 37 of the Act based on relevant judicial pronouncements and legal precedents.