M/S. EXPEDITORS INTERNATIONAL (INDIA) PVT. LTD,NEW DELHI vs. CIT(A), NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER :

Aforesaid appeals filed by Expeditors International (India)

2. Appellant, Expeditors International (India) Pvt. Ltd., the taxpayer’ by filing the present appeal sought to set aside the impugned order dated 30.09.2010 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2006-07 on the grounds inter alia that :-

1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ( AO") is bad in law and void ab-initio.

3. That on facts and circumstances of the case and in law, the Ld. AO erred in making an addition of Rs. 18,11,13,059/- to the returned income of the Appellant by re-computing the arm's length price of the international transactions under section 92 of the Act.

4. That on the facts and in the circumstances of the case and in law, the Ld. AO/ Ld. TPO/ Ld. Dispute Resolution Panel ("DRP") erred on facts and in law in determining the arm's length price of the international transaction of royalty of the Appellant by :

(a) by not considering and thereby arbitrarily rejecting the Transactional Net Margin Method analysis adopted by the Appellant and by re- computing the arm's length price without using any of the methods specified in Rule 10B of the Income Tax Rules, 1962;

(b) by not correctly appreciating the special characteristics of the business and functional and risk profile of the Appellant and its relationship with its various Associated Enterprises;

(c) based on conjectures and surmises, treating the royalty payment to the US based holding company as unjustified, without considering the evidence of benefits derived by the Appellant from the services availed by it in lieu of the royalty;

(d) by not appreciating that the royalty payment was to the US based holding company and not a part of the other international logistics transactions with other Associated Enterprises and (e) by not appreciating that the entire transaction of royalty payment has been verified and permitted by the Reserve Bank of India and the Foreign Investment Promotion Board and hence is a payment for a bonofide transaction.

5 The adverse findings given t I the Ld. TPO/ upheld by the Ld. DRP are contrary to the evidence on record and their conclusions are based on surmises.

6 That on the facts and circumstances of the case and in law, the Ld. DRP has erred in stating that the appellant failed to controvert the findings of the Ld. TPO and the Ld. AO, when in fact the I J. DRP has not duly considered the submissions made by the appellant in this regard.

7 That on the facts and in the circumstances of the case and in law, the Ld. AO/Ld. DRP erred in disallowing the 5 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 Global Account Management ("GAM") charges of Rs.7,921,416 paid by the Appellant to its US based holding company u/s 40(a)(iii) of the Act. 8 That on the facts and in the circumstances of the case and in law, the Ld. AO/Ld. DRP erred in disallowing the VSAT uplinking charges of Rs. 3,418,286 paid by the Appellant to its US based holding company u/s 40(a)(i) of the Act.

9. That on the facts and in the circumstances of the case and in law, the Ld. AO/Ld. DRP erred in allowing depreciation on UPS and printers @15% instead of 60%, as UPS and printers are integrated in to the computer system. 10 On the facts and circumstances of the case, the Ld. DRP has erred in not examining the validity of initiation of penalty proceedings u/s 271(1)(c).”

“1. That on the facts and circumstances of the case and in law, the Assessing Officer ought to have considered that the education cess paid on the income tax was an allowable deduction for computing total income given the fact that the same was not hit by the provisions of section 40(a}(ii) of the Act.”

“1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.21,33,75,753/- made on account of arm's length price. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.1,59,89,104/- made on account of non deduction of .TDS on Global Account Management and lease line expenses.”

"That on the facts and in the circumstances of the case, the Ld.TPO erred in coming to the conclusion that the Arm' price of the royalty payable by the assessee to its associate enterprise is 'Nil'. Purportedly applying 'CUP' method in utter disregard of the statutory provisions of Rule (1) 10B of the I.T Rules, 1962 read with section 92C of the Act"

“1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.20,38,24,930/- made on account of Arm's Length Price.

2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.87,18,175/- made on account of non deduction of TDS on account of payment made towards Global Account Management charges.”

(hereinafter referred to as ‘the taxpayer’) by filing the present appeal sought to set aside the impugned order dated 23.01.2014 passed by the ld. CIT (Appeals)-XX, New Delhi qua the assessment year 2008-09 on the grounds inter alia that :-

“1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld CIT(A) is bad in law and void ab-initio.

2. Disallowance of lease line connectivity charges (VSAT uplinking charges) amounting to Rs.25,50,215/- paid by the appellant. 2.1 That on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in not providing an adequate opportunity to the appellant of being heard and explained before treating the lease line charges as royalty liable to tax, thereby violating the principles of natural justice. 2.2 (a) Without prejudice to the above, that on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in treating the lease line connectivity charges (VSAT uplinking charges) amounting to Rs 25,50,215/- as royalty in view of Explanation 6 to Section 9(l)(vi) of the Income Tax Act, 1961 ("the Act") without providing any reasons and without appreciating that the amendments in the Act cannot be read into the Indo-US DTAA. 2.2 (b) That on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in treating the payment of lease 8 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 40(a)(i) of the Income-tax Act, 1961('Act').

3. That on the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not considering the provisions of Article 12 (3) of India-USA Double Taxation Avoidance Agreement ("The Treaty") in accordance with section 90 of the Act. 4 On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in upholding the levy of interest u/s 234B of the Act made by the AO.

5. General a. The above grounds of appeal are all independent and without prejudice to one another. b. The appellant craves leave to supplement, to cancel, to amend, to add and/or otherwise to alter/modify any or all the ground(s) of appeal stated herein above on or before its hearing before your honour.”

8. Briefly stated the facts necessary for adjudication of the grounds raised in all the aforesaid appeals/cross objections, taken from for Assessment Year 2006-07 are : the taxpayer is into providing logistic services in the Indian region involving the transportation of consignments from the consignee (or Indian ports/airports) to the Indian Ports/airports (or consignee), while another Group member typically handles the other end of the consignment in their respective region. The logistic services provided consisted of packaging, loading/unloading, trucking, activities besides moving the goods via air/sea. The taxpayer is also registered with the International Air Transport Association (IATA) having operations in four cities, namely, Delhi, Mumbai, Bangalore & Chennai apart from 16 satellite offices in India.

Pursuant to the reference made by the AO under section 92CA(3) of the Act, ld. TPO benchmarked the international transactions at Rs.18,11,13,059/-, Rs.21,33,75,753/- & Rs.20,38,24,930/- for Assessment Years 2006-07, 2007-08 & 2008-09 respectively and consequently directed the AO to enhance the income of the taxpayer. AO, apart from making addition on account of Arm’s Length Price (ALP) adjustment proposed by the ld. TPO, also proceeded to make addition on account of global account management & lease line expenses to the tune of Rs.1,13,39,702/-, Rs.1,59,89,104/- & Rs.87,18,175/- for Assessment Years 2006-07, 2007-08 & 2008-09 respectively and also made addition on account of depreciation of computers for AY 2006-07.

8.1 The taxpayer also by raising additional ground sought claim of education cess as an allowable deduction. Consequently, AO assessed total income of the taxpayer at Rs.36,88,93,100/-, 2006-07, 2007-08 & 2008-09 respectively.

GROUNDS NO.1 & 2 OF (AY 2006-07) FILED BY THE TAXPAYER GROUND NO.1 & 5 OF (AY 2008-09) FILED BY THE TAXPAYER

GROUNDS NO.3 to 6 OF (AY 2006-07) FILED BY THE TAXPAYER GROUND NO.1 OF ITA NO.2639/DEL/2012 (AY 2007-08) FILED BY THE REVENUE GROUND NO.1 OF CO NO.260/DEL/2012 (AY 2007-08) FILED BY THE TAXPAYER GROUND NO.1 OF ITA NO.2231/DEL/2014 (AY 2008-09) FILED BY THE REVENUE

However, in AYs 2007-08 & 2008-09, ld. CIT (A) in appeals preferred by the taxpayer reversed the findings returned by ld. TPO by following the decision rendered by the coordinate Bench of the Tribunal in taxpayer’s own case for AY 2005-06 vide order dated 17.12.2020 in ITA No.2128/Del/2011.

We have perused the order passed by the coordinate Bench 16. of the Tribunal in taxpayer’s own case for AY 2005-06 (supra) in the light of the facts and circumstances of the cases at hand, taxpayer as well as the Revenue in their respective appeals are identical to the facts of taxpayer’s own case decided in AY 2005- 06 (supra) and since then the taxpayer has not undergone any change in the business model. Coordinate Bench of the Tribunal in taxpayer’s own case for AY 2005-06 (supra) has upheld the findings returned by the ld. CIT (A) that TPO/DRP was not justified in making addition by returning following findings :-

“9. TPO noted that Assessee had paid royalty of Rs.13,59,65,489 to Expeditors International of Washington Inc. It was stated by the assessee that it was in the nature of technical knowhow from its associated enterprise and has helped the assessee in generating good business and turnover. The justification made by the assessee for the royalty payment was not found acceptable to TPO. TPO noted that when the revenue from logistics services was split on the basis of FAR analysis then no further payment of royalty was required to be made by the Assessee. TPO also concluded that with the payment of royalty, the profitability of the assessee has reduced in comparison to its peer group companies. The TPO thus held the ALP of the international transaction on account of royalty payment to be Nil and accordingly the income of the assessee was enhanced by Rs.13,59,65,489/-.

10. Aggrieved by the order of AO, assessee carried the matter before the CIT(A). The CIT(A) after considering the submissions of the assessee deleted the addition by observing as under: “I have considered the above submissions made by the Appellant with regard to the payment for royalty. During the year, Expeditors India has provided/received logistics services to Group Companies as well as independent agents. The pricing basis in both cases has remained the same. Also, from the Form 3CEB, it is evident that during the year. Expediters India rendered/received these logistics services to/from more than 100 entities. However,

15 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 US parent company. This fact has not been disputed by the TPO. He has also not disputed that the logistics services transactions was with multiple group entities. He has also not disputed that the 50/50 gross profit spilt was an arm’s length remuneration for the logistics services. In the TP Order, on page 6, the TPO has mentioned that “when the revenue was split on the basis of FAR analysis, then no further payment would have been made by the assesses. Therefore, I am holding that ALP of royalty payment as nil” The TPO has not elaborated on this statement and has not brought forth any analysis or basis for arriving at the conclusions in the order. Consequently, 1 do not find any evidence/analysis to hold that the arm’s length price for the royalty transaction stands subsumed by the gross profit split on revenue received from logistics services on a predetermined basis. Based on the submissions and the facts presented by the Appellant, I am of the view that the services received by the Appellant from the Parent company in lieu of royalty are not covered within the revenue split for the logistics services with multiple group companies. I have been through all the submissions made by the Appellant as well as the TP Order in detail. The TPO has not provided any analysis or evidence in support of his finding that no material benefit has been received by the Appellant. The TPO has not analyzed the operations and the financials of the Appellant to substantiate his conclusion that the Appellant’s business can be managed and operated in exclusion of the various technical, operating and strategic services extended by the US Parent or to show that this expense was not in the nature of expenditure entitled to be treated as business expenditure. The TPO has not disputed the business model of the Appellant. The TPO has also not controverted that this same arrangement was being followed by the Appellant since FY 2001, under a specific approval from RBI. The TPO has also not discussed that the same arrangement, under the same business model, had been found to be on an arm s length basis for last year by the TPO.

16 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 Further, the TPO has not provided any evidence to support his following reasoning: “I have not come across any company which was paying royalty relating to know how and using the same business model The payment made by the Appellant had reduced the profitability of the company in comparison to its peer group companies”. The Appellant, on the other hand, has provided detailed submissions (including evidence) on the benefits and the need of the royalty expense in the global logistics business operations. The Appellant has supported these with detailed documentary evidence, including evidence of similar payments made by other industry players. A supplementary TNMM analysis carried out by the Appellant at my behest to check the impact of royalty payment on the Appellant’s profit margin vis-a-vis that of independent comparable companies also shows that the ratio of operating profit to costs and sales of the Appellant is comparable to that of uncontrolled entities. I have been through the material placed on record and given the global nature of the logistics business of the Appellant, I agree with the beneficial nature of the services received. Based on the discussion hereinabove, it is fair to conclude that there is no meaningful analysis/evidence provided by the TPO to hold that the entire royalty payment should be reduced to zero. The Appellant has been able to demonstrate that the technical, operations and strategic services received by the Appellant in lieu of royalty payment have a direct business nexus and no independent company will provide such services free of charge. The benefits derived by the Appellant from the technical, operations and strategic services availed are critical to the smooth functioning of its business. The adequacy or quantum of the royalty payment from arm’s length perspective stands justified by the supplementary TNMM analysis carried out which shows that comparable uncontrolled entities’ profit margins are comparable to that of the Appellant. It is also evident from the order of the TPO, that he has not followed the statutory principles to determine the arm’s length price. The order does not 17 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 FAR, tested party selection or methods selected. In view of the foregoing, I uphold the arm’s length nature of the royalty payment made by Expeditors India to Expeditors International Inc. This issue is decided in favour the Appellant. The addition made by the AO on this account, is accordingly, deleted.”

11. Aggrieved by the order of CIT(A), Revenue is now before us.

12. Revenue is aggrieved by the deletion of addition made by the AO and in the additional ground the grievance of the Revenue is that the Transfer Pricing documentation and other additional evidences filed before the CIT(A) by assessee were never referred to AO/ TPO which is a violation of provision of Rule 46A of the I.T. Rules, 1962.

13. Before us, Learned DR submitted that CIT(A) while deciding the issue has considered the supplementary TNMM analysis submitted by the Assessee to him and that CIT(A) decided the issue in favour of the Assessee by relying on the supplementary TNMM analysis submitted by the Assessee. He further submitted that the aforesaid supplementary analysis was in the nature of additional evidence and as per the provisions of Rule 46A of the I.T. Rules, the CIT(A) should have confronted the same to the AO/TPO. He further submitted that supplementary TNMM was analysis by the assessee at the behest of CIT(A) to check the impact of royalty payment on assessee’s profit margin vis-à-vis that of independent comparable companies. He submitted that not giving a chance to AO/TPO to confront with the material placed before CIT(A) as an additional evidence was in violation of Rule 46A of the I.T. Rules. He therefore, submitted that the matter be decided in favour of the Revenue or in the alternate matter be remitted back to AO/ TPO so that the additional evidence submitted before CIT(A) can be commented upon by Revenue.

14. Ld AR on the other hand submitted that Royalty payment has been made pursuant to the agreement which was entered into between the parties in F.Y. 2001, the agreement has been approved by Reserve Bank of India (RBI) and the payment of royalty has been accepted by the Revenue in all the earlier years and no adjustment has been made to the ALP transaction on account of royalty. He further submitted that CIT(A) apart from the supplementary TNMM analysis had considered various other

18 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 Rule 46A. He thus supported the order of CIT(A). 15. With respect to additional ground raised by the Revenue, he submitted that the Co-ordinate Bench of Tribunal vide interim order dated 26.07.2018 in ITA No.2128/Del/2011 had held the additional ground to be not admissible and against the order of Tribunal, Revenue had carried the matter before Hon’ble Delhi High Court. The Hon’ble High Court in order dated 04.12.2019 in ITA No.88/2019 declined to interfere with the order of Tribunal which according to Ld. AR would mean that the order of Tribunal on that ground has attained finality.

16. We have heard the rival submissions and perused all the materials available on record. The grievance of the Revenue is that CIT(A) has decided the issue in favour of the assessee by considering the supplementary TNMM analysis and other documents filed before her and those documents were not made available to AO and secondly on merits, the order of TPO should have been upheld by CIT(A).

17. We find that CIT(A) while deciding the issue in favour of the assessee has given a finding that assessee had received the services received from its US parent company to whom the royalty was paid by the assessee. She has further given a finding that the TPO’s conclusion that “when the Revenue was split on the basis of FAR analysis, then no further payment would have been made by the assessee. Therefore, I am holding that ALP of royalty payment as nil” was without any basis or analysis on record. She has further given a finding that no evidence or analysis was made by TPO to hold that the arm’s length price for royalty transaction stands subsumed by the gross profit split on revenue received from logistics services on a predetermined basis. She has further given a finding that TPO has not providing any analysis or evidence to support his findings that no material benefit has been received by the assessee and no evidence has been brought on record to demonstrate that assessee’s business could be managed and operated by exclusion of various technical, operating and strategic services extended by the AE to the assessee. She has further noted that assessee was following the same business model, the royalty paid since 2001 has been found to be on an arm’s length basis and no adjustments were made in the past by TPO. It is a fact that CIT(A) has also considered the supplementary TNMM analysis to check the impact of royalty payment on assessee’s profit margin that of independent comparable companies to come to a conclusion that the ratio of 19 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 operating profit to cost at sales of the assessee is comparable to that of uncontrolled entities but we are of the view that her decision to grant relief is not based solely on the aforesaid supplementary analysis furnished by the assessee at the behest of CIT(A). We find that CIT(A) has taken into consideration various other factors (which are extracted herein above) to come to the conclusion that the AO/TPO was not justified in making the addition. Considering the totality of aforesaid facts, we are of the view that as far as merits of the deletion of addition is concerned, no fallacy in the findings of CIT(A) has been pointed by the Revenue. Even on the issue of alleged violation of provisions of Rule 46A of I.T. Rules, we are of the view that deletion of addition was not based solely on the basis of the alleged additional evidence filed by the assessee but various other material factors as noted in the order. We find no reason to interfere in the order of CIT(A) and thus the grounds of Revenue are dismissed.”

GROUNDS NO.7 & 8 OF (AY 2006-07) FILED BY THE TAXPAYER GROUND NO.2 OF ITA NO.2639/DEL/2012 (AY 2007-08) FILED BY THE REVENUE GROUND NO.2 OF ITA NO.2231/DEL/2014 (AY 2008-09) FILED BY THE REVENUE GROUNDS NO.2 & 3 OF (AY 2008-09) FILED BY THE TAXPAYER

22.1 However, in AYs 2007-08 & 2008-09, ld. CIT (A) by following the order passed by the Tribunal and confirmed by Hon’ble Delhi High Court for AYs 2001-02 & 2003-04 in taxpayer’s own case deleted the addition on account of global account management expenses & lease line expenses.

“23. We have heard the rival submissions and perused all the relevant materials available on record. The issue in the present ground is with respect to disallowance of GAM expenses by invoking the provision of Section 40(a) of the Act. We find that CIT(A) while deciding the issue in assessee’s favour has given a finding that the payments made by the assessee as GAM charges cannot be treated as payment of salary to non-resident but were in the nature of reimbursement of expenses and therefore assessee was not required to deduct TDS on such payments. We further find that in A.Y. 2001-02 & 2004-05 identical issue arose in assessee’s own case and the issue was decided in assessee’s favour by the Co-ordinate Bench of Tribunal and the order of the Tribunal has been upheld by the Hon’ble Delhi High Court. Before us, no distinguishing feature in the facts of the case in the year under consideration and that of A.Y. 2001-02 & 2004-05 has been pointed out by the Revenue. Further no fallacy in the findings has been pointed out by the Revenue before us. Revenue has also not placed any material on record to demonstrate that the order of the Tribunal in assessee’s own case in earlier years has been set aside/overruled or stayed by higher judicial forum. In such a situation, we find no reason to interfere in the order of CIT(A). Thus the ground of appeal of the Revenue is dismissed. …….

25. So, following the order passed by the coordinate Bench of the Tribunal in taxpayer’s own case for AY 2005-06 (supra) and by following the order passed by the coordinate Bench of the Tribunal in AYs 2001-02 & 2003-04 confirmed by Hon’ble Delhi High Court, we are of the considered view that the amount paid by the taxpayer to M/s. Expeditors International of Washington Inc. on account of global account management expenses cannot be treated as payment of salary to non-resident but it was in the nature of reimbursement of expenses which cannot be subjected to deduction for TDS, provision u/s 40(a) of the Act being not applicable. expenses incurred by the taxpayer on account of VSAT charges cannot be treated as charges for consultancy or technical services and as such, cannot be subjected to deduction of tax under section 40(a) of the Act. Consequently, order passed by the AO/DRP in AY 2006-07 is not sustainable, hence ordered to be set aside and addition made on account of global account management charges and VSAT charges are ordered to be deleted.

25.2 At the same time, we find no illegality or perversity in the order passed by the ld. CIT (A) in AYs 2007-08 & 2008-09 and thereby upheld the impugned order challenged by the Revenue.

So, grounds no.7 & 8 of for AY 2006-07 filed by the taxpayer are determined in favour of the taxpayer.

Ground No.2 of for AY 2007-08 & Ground No.2 of ITA No.2231/Del/2014 for AY 2008-09 filed by the Revenue are determined against the Revenue.

28. In view of the decision rendered by Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT (2021) 432 ITR 472 (SC) wherein it is held that unilateral amendment as made in the domestic law cannot be read into Treaty. Hon’ble Apex Court decided that Explanation 6 to section 9(1)(vi) is not applicable to the facts and circumstances of the case.

It is also brought on record by the taxpayer that in AYs 2010-11 & 2012-13 in taxpayer’s own case, the ld. CIT (A) has deleted this addition by following the decision rendered by Hon’ble Delhi High Court in DIT vs. Infrasoft Ltd. (2013) 220 taxman 273 (Del.) by applying the same principle enunciated by Hon’ble Apex Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT (supra) that a unilateral amendment in Act cannot be by the AO and confirmed by the ld. CIT (A) in AY 2008-09 is ordered to be deleted and grounds no.2 & 3 of for AY 2008-09 filed by the taxpayer are determined in its favour.

GROUND NO.9 OF (AY 2006-07) FILED BY THE TAXPAYER

This issue is also no longer res integra because in taxpayer’s own case for AY 2005-06 (supra) it has been decided in favour of the taxpayer by returning following findings :-

“39. We have heard the rival submissions and perused all the materials available on record. The issue in the present ground is with respect to deleting the addition of Rs.3,32,634/- on account of excess claim of depreciation on computer accessories. We find that identical issue of excess claim of depreciation arose in assessee’s own case in A.Y. 2001-02, 2003-04 & 2004-05, wherein the Co-ordinate Bench of Tribunal has decided the issue in favour of the assessee. Before us, no distinguishing features in the facts of the case and that of the earlier years has been pointed out by the Revenue. Revenue has also not placed any material on record to demonstrate that the order of the tribunal in assessee’s own case in earlier years has been set aside/overruled or stayed by higher judicial forum. In such a situation, we find no reason

GROUND NO.10 OF (AY 2006-07) FILED BY THE TAXPAYER

GROUND NO.4 OF (AY 2008-09) FILED BY THE TAXPAYER

GROUND NO.1 OF FILED BY THE TAXPAYER ADDITIONAL GROUND NO.6 OF (AY 2008-09) FILED BY THE TAXPAYER

“ADDITIONAL GROUND NO.11 OF (AY 2006-07) 11. That on the facts and circumstances of the case and in law, the Assessing Officer ought to have considered that the education cess paid on the income tax was an allowable deduction for computing total income given the fact that the same was not hit by the provisions of section 40(a)(ii) of the Income-tax Act, 1961.” “ADDITIONAL GROUND NO.6 OF (AY 2008-09) 6. That on the facts and circumstances of the case and in law, the Assessing Officer ought to have considered that the education cess (EC) and Secondary and Higher Education Cess (SHEC) paid on the income tax was an allowable deduction for computing total income given the fact that the same was not hit

31 ITA No.16/Del/2021 ITA No.2639/Del/2012 CO No.260/Del/2012 ITA No.2231/Del/2 40(a)(ii) of the Income-tax Act, 1961.” 34. Keeping in view the fact that the additional ground sought to be raised by the taxpayer, which is a legal ground and can be raised at any stage of the proceedings and is otherwise necessary for complete adjudication of the controversy at hand, the application for additional ground is hereby allowed.

35.1 Hon’ble High Court in Sesa Goa Ltd. case (supra) held that education cess or any other cess is not included in clause (ii) of section 40(a) of the Act so there is no prohibition in claiming deduction of such amounts while computing the income of the assessee under the head ‘profits & gains of business or profession’.

Bombay High Court is extracted for ready perusal as under :-

27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression cess" ought not to be read or included in the expression "any rate or tax levied" as appearing in section 40(a)(ii) of the IT Act.

28. In the Income-tax Act, 1922, section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression "cess" is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression "cess" and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, "cess" and consequently, "cess" whenever paid in relation to business, is allowable as deductable expenditure.”

Coordinate Bench of the Tribunal in case of Sicpa India 36.

Private Ltd. vs. Addl.CIT in 1586/Kol/2016 & 7048/Kol/2017 also decided the identical issue by holding that education cess on income-tax, dividend distribution tax and fringe benefit tax is not a disallowable expenditure under section 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) of the Act.