Despite strong opposition from India Inc, Income Tax Department has come out with mechanism for re-computation of income for assessees who took cess and surcharge as deduction.  Using this mechanism can help the assesssee avoid penalty.

The Finance Act 2022 has an explanation which says the term “tax” includes and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. This has been made retrospectively from Assessment Year 2005-06. This was done to clarify that deduction claimed for surcharge and cess will be treated as under-reported income and consequently shall attract penalty of 50 per cent of tax payable on such under-reported income. A further clause was added to provide that if the taxpayer makes an application for reversal of the said surcharge/cess within prescribed time, the penalty consequence with respect to such “under-reported income” would not apply.

Form 69 released

According to Vishwas Panjiar, Partner with Nangia Andersen LLP, the government has now released Form 69 that a taxpayer is required to file with the Assessing Officer for re-computing total income after excluding deduction of such surcharge/cess. The form needs to be filed by March 31, 2023. The form will be furnished electronically. Then the Assessing Officer, will recompute the total income by amending the relevant order and issue notice for payment of tax.

According to Vishwas Panjiar, Partner with Nangia Andersen LLP, while a taxpayer may have validly claimed the deduction in the respective year relying on the Hight Court rulings, the amendment has rather conveniently put onus on the taxpayer to do the heavy-lifting and file for re-computation of income suo moto. Ever since the amendment was announced in this Finance Act, the industry has been raising concerns about implementation of the same. “In most cases, collation and verification of records of past 17 years, especially when no case is pending and/or assessment has been closed, is fraught with practical difficulties considering that the taxpayer is largely statutorily required to maintain records for 8/10 years only,” he said.

On cess issue

Amit Maheshwari, Tax Partner with AKM Global, says the claim for deduction of education cess prior to the amendment made by Budget 2022 was a controversial issue because there were many judicial rulings in favour of the taxpayers such as the Bombay High court ruling in Sesa Goa Limited. The tax department on the other hand, in most of the cases, made additions on the cess amount taken as a deduction and sometimes, penalty proceedings were initiated as well. The Union Budget 2022 made it clear that cess is non-deductible and shall form part of “tax”. Now with the new procedure post re-computation, “the taxpayer is required to make the payment of tax and intimate the same to the income-tax officer in Form 70 within 30 days of making the payment,” he said.