LG Soft India Private Limited Vs DCIT (ITAT Bangalore)
The Hon’ble Bombay High Court in the case of Sesa Goa Limited v. JCIT (supra) had held education cess is an allowable expenditure as the word ‘cess’ is conspicuously absent under the provisions of section 40(a)(ii) of the I.T.Act
The Hon’ble High Court also placed reliance on the CBDT Circular dated 18.05.1967, which clarified that upon omission of the term “cess” from the present section 40(a)(ii) of the I.T.Act, only rates or taxes needs to be disallowed, and hence, education cess ought not to be treated as Income-tax to be disallowed u/s 40(a)(ii) of the I.T.Act.
The Hon’ble Rajasthan High Court in the case of CIT v. Chambal Fertilizers and Chemical Limited (D.B. IT Appeal No.52 of 2018 (judgment dated 31.07.2018) had held education cess is not to be disallowed u/s 40(a)(ii) of the I.T.Act.
The Mumbai Bench of the Tribunal in the case of Voltas Limited in ITA No.6612/Mum/2018 (order dated 30.06.2020) had admitted additional ground of appeal with regard to the claim of education cess and adjudicated the matter in favour of the assessee, by following the judgment of the Hon’ble Bombay High Court in the case of Sesa Goa Limited v. JCIT (supra). In the light of the aforesaid judicial pronouncements, we hold that education cess is to be allowed as deduction. It is ordered accordingly.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 25.02.2020. The relevant assessment year is 2012-2013.
2. The grounds raised read as follows:-
“1. Disallowance of depreciation under the Income Tax Act (‘the Act’) – Rs. 3,62,98,140
a) The learned Commissioner of Income-tax Appeals [‘CIT(A)’] erred on facts in confirming the disallowance made by the learned Assessing Officer (‘AO’) in relation to depreciation of Rs.3,62,98, 140 under section 32 of the Act.
b) The learned CIT(A) failed to consider the invoices submitted by the Appellant towards addition to fixed assets of Rs. 6,18,80,241.
c) Notwithstanding the above, the learned CIT(A) erred in concluding that the invoices furnished by the Appellant are not clear / legible.
2. Disallowance of software development expenses-Rs.2,05,05,279
a) The learned CIT(A) erred in law and on facts in confirming the disallowance of Rs.2,05,05,279 made by the learned AO in relation to software development charges.
b) The learned CIT(A) without considering the submissions made by the Appellant, erred in concluding that the expenses incurred under software development as capital in nature.
c) The learned CIT(A) erred in concluding that the software development expenses provides enduring benefit to the Appellant without fully appreciating the facts of the case.
The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.”
3. The assessee has also raised additional ground. The additional ground raised read as follows:-
“Ground no. 3: Deduction in respect of ‘education cess on income-tax’ and ‘secondary and higher education cess on income-tax’ for the year under consideration. while assessing the total income of the Appellant
3.1 The Learned Assessing Officer (Ld. AO’) and Learned Commissioner of Income-tax Appeals (Ld. CIT(A),), while assessing the total income of the Appellant for the year under consideration, have erred in not allowing a deduction for education cess and secondary & higher education cess (collectively known as ‘education cess’) for the year under consideration.
3.2 On the facts and circumstances of the case and in law, the Ld. AO and Ld. CIT(A) ought to have allowed a deduction of education cess for the year under consideration, though not claimed as a deduction by the Appellant while filing its return of income. ”
We shall adjudicate the issue ground-wise as under.
Disallowance of depreciation of block of computer equipment (Ground 1)
4. The assessee had claimed depreciation on fixed assets amounting to Rs.12,28,67,305 in the return of income. The break-up of the depreciation on the fixed assets are as under:-
