ARVIND ENVISOL LIMITED,AHMEDABAD vs. THE DY.CIT, CIRCLE-1(1)(1), AHMEDABAD

The assessee, in this appeal, is aggrieved by the action of the Ld. CIT(A) in confirming the penalty levied by the Assessing Officer (in short ‘the AO’) u/s. 270A of the Act on account of disallowance of Education Cess claimed by the assessee in the return of income.

At the outset, Ld. AR submitted that it is not a case of under reporting or misreporting of income. He has submitted that the assessee had made a bonafide claim of deduction of Education Cess relying upon certain case laws, wherein, it has been held that the Education Cess was admissible expenditure. Subsequently, an amendment was brought to the Income Tax Act vide Finance Act, 2022 with retrospective effect from 01.04.2005 holding that the Education Cess was not an admissible expenditure and that the same was the part of the Income Tax payable by the assessee. Since, the amendment was brought within retrospective effect, the lower authorities have held that the assessee had under reported his income by claiming Education Cess as an income. It is to be noted that the assessee had filed his return of income on 15.02.2025 i.e. much prior to the Finance Act, 2022. Though, the amendment holding that the Education Cess is not an admissible expenditure has been brought with retrospective effect, however, the assessee cannot be penalized for claiming such deduction as the assessee could not have visualized such amendment in future with retrospective effect. Therefore, the impugned penalty levied

In the result, appeal of the assessee stands allowed.