EIH ASSOCIATED HOTELS LIMITED EIH Associated Hotels Limited received orders from DCIT Central Circle, confirming penalty on the disallowance of claim of education cess as an allowable deduction for the Financial Years 2016-17 and 2017- 18. The Company had claimed education cess as an allowable expenditure u/s 37(1) in its return of income, based on the clarification provided by the CBDT in its Circular No 91/58/66-ITJ (19) dated 18th May 1967 and various favourable judicial decisions. In the said Circular as well as the Court rulings, it was held that cess is not a ?tax?, and hence does not come under the ambit of disallowance mentioned u/s 40(a)(ii).
The claims were disallowed in regular assessment, u/s 143(3) in the respective years. The assessee preferred an appeal before the CIT(A) based on the above judicial principles. The Ld CIT(A) confirmed the action of the AO, in light with the amendment in Section 40(a)(ii) introduced by the Finance Act 2022, wherein it was clarified that the term tax had included and always have been deemed to have included the terms surcharge", "additional surcharge" and "cess".
The said clarification became retrospectively effective since AY 2005-06. Though this view was nonexistent at the time of passing of assessment order, the AO initiated the penalty proceedings and levied penalty u/s 270A with the observation that the assessee had under reported its income. Tax and fine impose is as per following details: Financial Year 2016-17, Assessment Year 2017-18- Amount of alleged under-reporting: 12,625,121.
Tax amount INR 5,561,886. Penalty (50% of Tax amount) INR 2,780,943. Financial Year 2017-18, Assessment Year 2018-19- Amount of alleged under-reporting: 6,923,907.
Tax amount INR 2,396,226. Penalty (50% of Tax amount) INR 1,198,113. The Company has decided to file an appeal against the orders.
The financial impact of the aforesaid orders is to the extent of the fine levied. Intimation of the penalty orders for Fiscal Year 2016-17 (AY 2017-18) was received on 25th March 2024 and penalty orders Fiscal Year 2017-19 (AY 2018-19) was received on 25th March 2024.
