The Income Tax Appellate Tribunal (ITAT) Bangalore bench has held that the cess forms part of tax and cannot be allowable as a deduction under section 40(a)(ii) of the Income Tax Act.1961.
The Appellant was represented by Sri. Sumit Khurana and the Respondent were represented by Dr Manjunath Karkihalli.
The assessee,M/s.Cypress Semiconductorchallenged the final assessment order dated 25.09.2021 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act.
It was contended by the assessee that cess was not levied on the profits and gains of business, anddoes not satisfy the second limb of section 40(a)(ii) of the Income Tax Actwhichstated that cess is not levied on the profits.
The learned Departmental, on the other hand, submitted that insertion of explanation 3 to section 40(a)(ii) of the I.T.Act by Finance Act, 2022 with effect from 01.04.2005 makes it clear that cess is part of the tax and the same cannot be allowed as a deduction while computing the profits and gains of business of the assessee.
The Tribunal observed that the assessee’s contention was not acceptable and even though cess was calculated as % of Income-tax, effectively, it was a levy on the profits and gains of the assessee. Further observed that the words `any tax’ in section 40(a)(ii) include cess.
The Coram comprising Shri George George K, JM &Ms Padmavathy S, AM observed that sincethe cess is not an allowable deduction u/s 40(a)(ii) of the Act, then no deduction u/s 37 of the I.T.Act is permissible.
As the assessee itself stated that it was not granted a credit of self-assessment tax paid u/s 140A of the Act amounting to Rs.5,14,63,960, the Tribunal restore this issue to the files of the A.O to examine the matter. The appeal filed by the assessee was partly allowed for statistical purposes.
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