Dossa Chemicals Private Limited Vs ITO (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal allowed Dossa Chemicals P Ltd’s appeal for Assessment Year 2021-2022 and deleted the penalty of ₹2,70,277 levied under section 270A of the Income-tax Act, 1961. The assessee filed its return on 31 January 2022, declaring total income of ₹18,37,91,040, and revised it on 1 February 2022 without changing the declared income. The Assessing Officer disallowed an education cess deduction of ₹17,32,000 following the retrospective amendment introduced by the Finance Act, 2022, and imposed a penalty for underreporting of income. The CIT(A) confirmed the penalty, rejecting the assessee’s contention that its claim was bona fide and supported by the judicial position prevailing when the return was filed.
The assessee argued that the education cess deduction rested on the then-prevailing High Court decisions, including Sesa Goa Limited v. JCIT and Chambal Fertilizers and Chemicals Limited v. JCIT. It submitted that a subsequent retrospective amendment did not automatically establish underreporting warranting a penalty, and that its explanation qualified for the exclusion under section 270A(6)(a). The assessee also cited the Supreme Court decisions in CIT v. Reliance Petro Products Private Limited and Price Waterhouse Cooper’s Private Limited v. CIT regarding rejected claims and bona fide errors. The Revenue relied on the CIT(A)’s order.
The Tribunal found that the education cess claim was bona fide because the jurisdictional Bombay High Court’s interpretation supported the deduction when it was claimed. It accepted that the retrospective amendment subsequently changed that judicial position. Referring to Poonawalla Fincrop Ltd v. ITO and Wellknown Polyesters Limited v. DCIT, the Tribunal held that the assessee’s explanation fell within section 270A(6) and deleted the penalty attributable to the education cess disallowance.
The Tribunal separately examined the ₹550 GST late fee deduction, which the assessee admitted for disallowance and offered to tax during assessment. It observed that the resulting tax was less than ₹200 and the corresponding penalty at 50% would be less than ₹100. Against declared income of approximately ₹18.37 crore and regular tax payments exceeding ₹400 lakh, it found the explanation bona fide and did not accept that the claim reflected an intentional attempt to suppress tax liability. Accordingly, the Tribunal deleted the entire penalty of ₹2,70,277 and allowed the appeal. The relief concerned the penalty; the order did not restore the disallowed deductions.
Cases Discussed
- Poonawalla Fincrop Ltd v. ITO — ITAT Pune; ITA Nos. 486 and 497/PUN/2026; order dated 19 June 2026. The Tribunal referred to deletion of the section 270A penalty on an education cess deduction and the distinction where the claim had already been disallowed in assessment.
- Wellknown Polyesters Limited v. DCIT — ITAT Mumbai; ITA No. 9492/Mum/2025; order dated 29 May 2026. Referred to for the conclusion that an education cess claim supported by prevailing precedents could not be treated as underreporting or misreporting merely because of a retrospective amendment.
- Sesa Goa Limited v. JCIT — (2020) 117 taxmann.com 96 (Bombay High Court); Tax Appeal Nos. 17 and 18 of 2013; judgment dated 28 February 2020. The assessee relied on this jurisdictional precedent supporting education cess deductibility when the return was filed; the Tribunal relied on that prevailing judicial position to find the claim bona fide.
- Chambal Fertilizers and Chemicals Limited v. JCIT — (2019) 107 taxmann.com 484 (Rajasthan High Court); D.B. Income Tax Appeal No. 52/2018; judgment dated 31 July 2018. Cited by the assessee as supporting the education cess deduction under the judicial interpretation prevailing before the retrospective amendment.
- Price Waterhouse Coopers Private Limited v. CIT — (2012) 348 ITR 306 (Supreme Court); Civil Appeal No. 6924 of 2012; judgment dated 25 September 2012. Cited by the assessee for the principle that a bona fide and inadvertent error does not automatically justify a penalty.
- CIT v. Reliance Petroproducts Private Limited — (2010) 322 ITR 158 (Supreme Court). Cited by the assessee for the principle that rejection of a claim, or its unsustainability in law, does not by itself establish furnishing of inaccurate particulars.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order dated 18/03/2026 passed by the National Fiscal Appeals Center, Delhi, u/s 250 of the Income Tax Act, 1961, for the assessment year 2021-2022, arising out of the penalty order under Section 270A dated 21/06/2023 by the Assessing Officer.
2. The Assessee raised the following grounds of appeal before the Tribunal :
1. On facts and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the penalty of ₹2,70,277/- levied under section 270A of the Income-tax Act, 1961, without appreciating the facts and circumstances of the case.
2. The learned CIT(A) erred in holding that the disallowance of education cess resulted in under-reporting of income, without appreciating that the claim made by the appellant was bona fide, fully disclosed, and supported by judicial precedents prevailing at the time of filing of return.
3. The learned CIT(A) failed to appreciate that the case of the appellant is squarely covered under section 270A(6)(a), and therefore, no penalty is leviable.
4. The learned CIT(A) erred in not appreciating that the disallowance of education cess arose solely due to a retrospective amendment introduced by the Finance Act, 2022, and therefore, penalty provisions being substantive in nature cannot be applied retrospectively.
5. The learned CIT(A) failed to consider that the appellant had relied upon binding judicial precedents, including the decision of the jurisdictional High Court, and therefore the claim cannot be treated as furnishing of inaccurate particulars or under-reporting of income.
6. The learned CIT(A) erred in holding that mere disallowance of a claim automatically leads to levy of penalty under section 270A, which is contrary to settled law.
7. The learned CIT(A) erred in confirming penalty even on the disallowance of GST late filing fees of ₹550/-, which is trivial and does not warrant levy of penalty.
8. The learned CIT(A) failed to appreciate that there was no concealment of income, no misreporting, and no malafide intention on the part of the appellant.
9. The appellant craves leave to add, amend, alter or delete any of the above grounds.
3. The brief relevant facts of the case are that the Assessee has filed its return of income on 31/01/2022, declaring total income of ₹18,37,91,040/-, further revised on 01/02/2022 with the same total income amount.
4. On perusal of the profit and loss account, the assessing officer has found that the Assessee company had claimed deduction of education cess of ₹17,32,000/- in the profit and loss account. In view of the amendments brought by the Finance Act, 2022, therefore, it has been clarified that the education cess is not an allowable expense, thus, AO has disallowed the claim of the Assessee and initiated the penalty proceeding under section 270A of the IT Act, 1961, for underreporting of the income.
5. During the course of penalty proceeding, the Assessing Officer submitted that it has claimed deduction of education cess of ₹17,32,000/- in computing its business income, on the basis of the legal position and judicial precedents of the Honorable Bombay High Court in the case of Sesa Goa Limited v. JCIT and Chambal Fertilizers and Chemicals Limited, etc. However, this allowance of GST late filing fee of ₹550/- in the profit and loss account has been accepted by the Assessing Officer during the assessment proceedings.
6. The Assessing Officer, considering the submissions of the Assessee, levied the penalty of ₹2,70,277/- u/s 270A, for the default of underreporting of income. The Assessee preferred an appeal before Ld. CIT (A) against the levy of penalty of Rs. 2,70,277/-, which has also been confirmed by the CITA for the reason that subsequent amendment by the Finance Act, 2022, has clarified that education cess is not allowable expenditure from the business income. The net Ld.CIT (A) did not accept the appellant’s contention that the claim was bona fide and based on the judicial precedents prevailing at the relevant time.
7. Now the Assessee is in appeal before the Tribunal, before us, it is submitted that the impugned claim of deduction as an expenditure was purely on the basis of interpretation of the provisions of the law .
8. It is contended that at the time of filing the return, the appellant had the benefit of judicial decisions holding that the education cess was not covered by the expression “tax” in Section 40(2)(a) of the Act, and was accordingly allowable as a reduction under Section 37(1) of the Act.
9. The Assessee relied upon the judgment of the Hon’ble Bombay High Court in Sesa Goa Limited v. JCIT, 117 Taxman.com 96 (BOM), Chambal Fertilizers and Chemicals Limited v. JCIT, 107 Taxman.com 484 (Raj).
10. The subsequent insertion of Explanation 3 to Section 40(2)(a) by the Finance Act, 2022 was made with retrospective effect from 01/04/2005. The Assessee, itself disallowed that amount of education cess deduction of Rs. 17,32,000/-, so, it does not fall under the ambit of levy of penalty for underreporting of income under Section 270A(6)(a), provided the exclusion from levy of penalty for underreporting of income.
11. The Assessee placed reliance on the judgment of the Hon’ble Apex Court in CIT v. Reliance Petro Products Private Limited, 322 ITR 158, wherein it is held that merely because a claim is not accepted or is not sustainable in law, it does not follow that particulars furnished by the assessor are inaccurate. The principle is particularly relevant where the claim is transparently disclosed and rests on a plausible interpretation of law.
12. In another judgment in Price Waterhouse Cooper’s Private Limited v. CIT, 348 ITR 306, it is recognized that a bona fide and inadvertent error cannot automatically justify the levy of penalty.
13. The Assessee asserts that its case is even stronger on facts because the claim of deduction was supported by the decision of the Hon’ble High Courts, including jurisdictional High Court, Bombay, when the return was filed. However, the retrospective clarification of the substantive tax computation does not automatically establish the under reporting of Income.
14. That, on the date of filing the return, the appellant had furnished inaccurate particulars or made a malafide claim of deduction.
15. Per contra, Ld. DR relied upon the orders of Ld.CIT (A)
16. We have carefully considered the rival submissions, perused the material on record, and observed that the assessee has claimed deduction of Rs. 17.32 lakh for education cess payment from the profit and loss account or business receipts and at that time the prevailing judicial position, through decision of jurisdictional Bombay High Court in Sesa Goa Limited versus JCIT (supra), allowed the deduction from business income.
17. We find force in the contention of the learned AR that retrospective clarificatory amendment by the Finance Act, 2022 has changed the settled judicial position, whereas at the time of claim of such deduction, the judicial interpretation was in favor of the Assessee.
18. In Poonawalla Fincrop Ltd v. ITO, ITA Nos.486 and 497/PUN/2026, order dated 19/06/2026 held that deleted the penalty levied under section 270A of the Act for the claim of deduction of education cess from the business income. The Tribunal also considered the distinction where the cess claim had already been disallowed in the assessment.
19. The Mumbai ITAT in Wellknown Polyesters Limited v. DCIT, ITA No. 9492/Mum/2025, Order dated 29/05/2026, also held that retrospective education cess amendment. For disallowance of claim based on judicial precedents prevailing at the relevant time is plausible, merely because of the retrospective amendment, could not be treated as underreporting/misreporting of income.
20. In the present case, we find that the claim of deduction of educational cess in the profit and loss account was bona fide in view of judicial position, thus, the explanation of the assessee falls under the provisions of section 270A(6), accordingly, the corresponding amount of penalty for underreporting of income is hereby deleted.
21. Another disallowance of expenditure claimed by the Assessee for payment of GST late fee of Rs. 550/-, the admission of disallowance by the Assessee during the course of assessment proceeding and offered for tax, resulting into tax amount of less than Rs. 200/- and corresponding levy of penalty for underreporting at the rate of 50% would be less than ₹100/-.
22. Looking to the amount of total income of ₹18.37 crore and payment of corresponding tax payment by the assessee, shows that claim of deduction of GST late fee payment of ₹550/- would not be intentional to suppress that tax liability. However, it is difficult to accept that an assessee intentionally avoids the tax payment of ₹200/- against the regular payment of tax exceeding ₹400 lakhs during the year.
23. We noticed that the explanation furnished by the Assessee for underreporting of income of ₹550 for GST late fees claim, is bona fide, and that this disallowance is not liable for levy of penalty for under reporting of income under section 270A of the Act. Therefore, the levy of penalty of ₹2,70,277/- under section 270A of the Act is hereby deleted.
24. In the result, the appeal of the Assessee is allowed.
Order pronounced in the open court on 30.09.2026.
