Case Law Details
Peerless Hotels Limited Vs ACIT (ITAT Kolkata)
ITAT Kolkata held that education cess is not allowable expenditure under section 37(1) of the Income Tax Act.
Facts- The assessee has filed its return of income on 27.10.2017, which was revised on 16.07.20 18 disclosing total income of Rs.1,99,51,420/-. The case of the assessee was selected for scrutiny assessment and a notice u/s. 143(2) was issued and served upon the assessee. On scrutiny, AO found that the assessee has made investments, which are reflected in the Balance-sheet. The total investments as on 3 1.03.2017 worked out by AO are of Rs.325.64 lakhs plus Rs.7 lakhs. He found that the assessee has suo motu made disallowance of Rs.9, 134/- u/s. 14A. In the opinion of AO, this expenditure was not sufficient for looking after this huge investment. He proposed to disallow more amounts. AO observed that the assessee has earned income in the shape of dividend, which was reinvested. Thereafter AO has made a detailed analysis of Section 14A read with Rule 8D. AO made a disallowance on the basis of Rule 8D(2) and worked out such disallowance at 1% by taking note of annual average of the monthly averages of the opening and closing balances of the value of investment.
Further, assessee has pleased that CIT(A) has erred in not allowing Education Cess u/s. 37(1) of the Income Tax Act.
Conclusion- Held that, subsection (2) of section 14A contemplates that expenditures relatable to earning of tax-free income are required to be worked out for making disallowance. In the present case, there are expenditures, but the expenditures relatable to exempt income could not be demonstrable. Ld. Assessing Officer has to take help of the formula under Rule 8D and worked out the disallowance. Therefore, the assessee could not buttress its case on the strength of the above decisions. We do not find any merit in these grounds of appeal. They are rejected.
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