CBDT notifies rules providing manner for filing application for re-computation of income for disallowing claim for cess deduction

 This Tax Alert summarizes a recent Notification No. 111/2022 dated 28 September 2022 issued by the Central Board of Direct Taxes (CBDT) prescribing rule and forms for taxpayers to make voluntary application with the tax authority for re-computation of total income to avoid deeming penal consequences for under-reported income on account of disallowance, on retrospective basis, of surcharge or cess as business deduction which was claimed and allowed in the past.

Finance Act, 2022 (FA 2022) has made an amendment under the Income Tax Laws (ITL) to disallow surcharge and cess as business expenditure with retrospective effect from tax year 2004-2005. FA 2022 also empowered the tax authority to pass an order recomputing total income by such disallowance where taxpayer had claimed and was allowed the deduction in the past and, in any such case, disallowance is considered as under-reported income of the taxpayer under the provisions of the ITL. However, it also provided that where a taxpayer applies to the tax authority in the prescribed form and within the prescribed time, requesting for re-computation of the total income of the tax year without allowing the claim for deduction of surcharge or cess and pays the amount due thereon within the specified time, the adverse consequences of penalty for under-reported income will not apply.

The CBDT, in deference to the powers conferred under the ITL, has notified (a) the rule containing the form for re-computation of income for disallowing surcharge and cess claimed and allowed as deduction in past tax years and (b) the form for intimating to the tax authority of payment of tax on income so recomputed.