IT CUBE SOLUTIONS PRIVATE LIMITED,PUNE vs. DCIT, CIRCLE 1(1), PUNE

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ITA 1359/PUN/2025Status: DisposedITAT Pune25 June 2026AY 2020-2114 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the Assessing Officer and CIT(A) may have misconstrued the eligibility conditions for Section 80JJAA. The matter was restored to the Assessing Officer for fresh adjudication.

What were the facts?

The assessee claimed deduction under Section 80JJAA for additional employee cost. The Assessing Officer disallowed the claim, finding no substantiation for additional employment and the 240-day condition. The CIT(A) upheld this disallowance.

What were the issues?

Whether the assessee fulfilled the conditions for deduction under Section 80JJAA, specifically regarding the increase in employee headcount and the 240-day employment rule.

Which sections of the Income-tax Act were involved?

Section 80JJAA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

Before: SHRI R. K. PANDA & Ms. ASTHA CHANDRA

For Appellant: Shri Kishor B Phadke
For Respondent: Shri Mukul Kulkarni (through virtual)

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND Ms. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.1359/PUN/2025 Assessment year : 2020-21 IT Cube Solutions Private Limited DCIT, Circle 1(1), Pune 7th Floor, Godrej Castlemaine, Vs. Bund Garden Road, N.W. College S.O., Pune – 411001 PAN: AABCI1951J (Appellant) (Respondent) Assessee by : Shri Kishor B Phadke Department by : Shri Mukul Kulkarni (through virtual) Date of hearing : 08-04-2026 Date of pronouncement : 25-06-2026 O R D E R PER R.K. PANDA, VP:

This appeal filed by the assessee is directed against the order dated 13.03.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2020-21.

2.

Facts of the case, in brief, are that the assessee is a domestic company incorporated on 30.12.2003 primarily involved into Information Technology Enabled Services (ITES) including providing managing and assisting business process outsourcing services. It also involved in research and development, design and manufacture of software solutions and other related services and products thereof. It filed its return of income on 28.12.2020 declaring total income of Rs.5,58,50,200/-. The case was selected for scrutiny under CASS for the reason

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“deduction from total income under Chapter VI-A”. Accordingly, statutory notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee. Subsequently notice u/s 142(1) along with a questionnaire was issued and served on the assessee in response to which the assessee filed the requisite details.

3.

During the course of assessment proceedings the Assessing Officer observed that the assessee has claimed deduction of Rs.96,52,467/- u/s 80JJAA of the Act. On being asked by the Assessing Officer to submit the details of employees, additional employees, details of additional employment created along with the payments made to the employees along with justification for claim of such deduction during the year under consideration, the assessee filed the list of employees and their salaries without any supporting proof and documents to cross verify the same. The Assessing Officer referred to the provisions of section 80JJAA according to which the business should not be formed by splitting up or reconstitution of any existing business. He noted that the assessee has started its business from the year 2003. However, the assessee has not submitted any details with related reasons for creation of additional employment and appointed the additional employees. The Assessing Officer further noted that on being asked to furnish the details of additional employees along with the details of the additional employees joined during the year and the last two years for which the assessee claimed deduction the assessee gave only partial reply mentioning the number of employees without any supporting documents like appointment date, employee

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register etc to substantiate that the assessee company has created employment and given employment during the year under consideration. The assessee was also asked to submit the payment details along with supporting bank statement and ledger copies. However, the assessee did not submit any payment details and its reconciliation with the bank accounts.

4.

The Assessing Officer noted from the submissions made by the assessee that in one submission the assessee has submitted that it has employed 65 employees each year during the year and last year i.e. total additional employees are 130 on which the assesseee claimed deduction u/s 80JJAA for additional employee cost paid by the assessee. He, therefore, asked the assessee to reconcile the same along with supporting documents. The assessee furnished the details of the employees registered with the recognised PF for the period of financial year 2017-18 naming 962 employees, for the period of financial year 2018-19 naming 981 employees and for the period of financial year 2019-20 naming 1147 employees. The list also contains the date of joining of the employees from where the number of days rendered could be drawn up. The Assessing Officer on analysis of the same observed that there were 235 employees who have worked for less than 240 days as per the date of joining and were having salary upto Rs.25,000/- and 16 employees who have worked for less than 240 days as per the date of joining and were having salary more than Rs.25,000/-. He, therefore, observed that the total employees after excluding the number of employees rendering less than 240 days, the number of employees at the end of the day of previous year comes to 896.

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Thus, there was no additional employment during the year. He, therefore, held that the assessee does not qualify for the deduction u/s 80JJAA. In view of the above and rejecting the various explanation given by the assessee the Assessing Officer rejected the claim of deduction u/s 80JJAA of the Act by observing as under:

“9. From the above discussion, it is clear that the assessee has not substantiated its claim made u/s 80JJAA i.e. deduction of 30% on additional employee cost. Thus, the claim of deduction u/s 80JJAA is disallowable and thus, claim of deduction u/s 80JJAA of Income Tax Act, 1961 is disallowed for the sum of Rs.96,52,467/-. Therefore, the entire deduction of Rs.96,52,467/- is disallowed and added to the total income of the assessee for the A.Y. 2020-21.”

5.

In appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under:

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6.

Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal by raising the following grounds: 1. The learned CIT(A), NFAC erred in law and on facts in confirming the total income at Rs.5,58,50,200/- instead of returned income of Rs.6,55,05,667/-, by upholding the disallowance of deduction u/s 80JJAA of the Income Tax Act, 1961 made by the learned Assessing officer. 2. The Learned CIT(A) has erred both in law and on facts in disallowing the deduction claimed u/s 80JJAA of the ITA, 1961, on the ground that there was no net increase in the number of employees during the year under consideration. The CIT(A) failed to appreciate that the primary condition for eligibility u/s 80JJAA is an increase in the number of regular employees during the relevant previous year, with emoluments paid through banking channels as prescribed. The appellant respectfully submits the following - considering the facts and records of the case, there was a net increase, during the year under consideration, in the number of regular employees, - all requisite conditions u/s 80JJAA have been fulfilled, and hence the appellant is eligible for the deduction as claimed. 3. The learned CIT(A) has erred in law and on facts in upholding the disallowance made by the learned AO with respect to the brought forward deduction amount of Rs.42,17,248 pertaining to past years of FY 2019-20 and FY 2018-19. The IT authority fails to appreciate that the allowance of

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the brought forward deduction needs to be allowed irrespective of the fulfillment of eligibility criteria of section 80JJAA in the current years. 4. Appellant craves leave to add/alter/modify/amend/delete all or any of the grounds of appeal.

7.

The Ld. Counsel for the assessee made extensive arguments and filed the following written synopsis: “1. Key Issue involved The Appellant has preferred the present appeal against the order passed u/s 250 of the Income-tax Act, 1961, by the learned CIT(A), dated 13/03/2025, in which, disallowance u/s 80JJAA of the ITA, 1961, amounting to Rs.54,35,219 made by the learned AO has been upheld. Vide the impugned order, the learned DCIT has upheld the addition made by the learned AO in denying the appellant's deduction claimed u/s 8011AA on the ground that the appellant has not satisfied the conditions prescribed in the section, particularly with respect to the requirement of an increase in employee headcount and the applicability of the 240-day employment condition. Further, the learned AO and CIT(A), while disallowing the deduction for AY 2020-21, have also disallowed the claim of Rs.42,17,248 pertaining to eligible employees of earlier AYs, which had been duly allowed in those respective years, without any fresh material or basis on record. The Appellant is, thus, aggrieved for disallowance u/s 80JJAA for Rs.96,52,467 (ie. Rs.54,35,219 + Rs.42,17,248), and is challenging the same vide present appeal. 2. Factual Matrix: The appellant is a domestic company incorporated on 30/12/2003. It is an IT/ITES company engaged in business process outsourcing, software development, and related services. By the nature of its business, the Appellant employs a large number of personnel to provide software / IT enabled service. For AY 2020-21, the Appellant filed its ROI on 28/12/2020, declaring a total income of Rs.5,58,50,200/-. The case was selected for limited scrutiny under CASS for the reason "Deduction from total income under Chapter VI-A." Appellant had claimed two deductions under Chapter VI-A:  deduction u/s 80G of Rs.10,00,000/- for donation to PM Cares Fund (which was accepted by the AO); and  deduction u/s 80JJAA of Rs.96,52,467/- on account of additional employee cost (which is disputed in the present appeal). The deduction u/s 8011AA was duly certified by a Chartered Accountant in Form 10DA, which was filed within the prescribed time. The deduction represents 30% of the emoluments paid to eligible additional employees, covering the current year

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and the carry-forward component for employees from AY 2018-19 and AY 2019- 20, in accordance with the three-year deduction period u/s 80JJAA(1). 3. Disallowance of "additional employee cost" relating to earlier years Rs.42,17,248 (Ground No. 3) Total deduction u/s 80JJAA for AY 2020-21 consists of AY 2020-21 - Rs. 54,35,219 AY 2019-20 - Rs. 16,09,221 AY 2018-19 - Rs. 25,27,027 Rs.42,17,248 Now, the issue discussed in the scrutiny assessment was whether the assessee had fulfilled the conditions of additional employees, total employees, etc., for AY 2020- 21. There was never any issue /objection w.r.t. deductions of the past two years. As such, 80JJAA deduction emanating from AY 2019-20 (ie. Rs.16,09,221) and from AY 2018-19 (Rs.25,27,027) was outside any deliberations of increase in employees in AY 2020-21. In other words, irrespective of the fate of deduction for AY 2020-21 per se (w.r.t. it's own facts relating to headcount, etc.), the learned AO ought to have granted deduction of Rs.42,17,248 (i.e. Rs.16,09,221 + Rs.25,27,027) in any case. The learned AO raised objections about headcounts of employees for AY 2020-21, and applied the same even to the past two years on some incorrect analogies. Such an approach is wholly incorrect, and, as such, Ground of appeal No.3 may please be allowed. 4. Disallowance of "additional employee cost" relating to AY 2020-21 Rs. 54,35,219 (Ground No. 2) 4.1. Net Increase in Headcount on an Overall Basis: The appellant submits that the AO and CIT(A) have misconstrued the eligibility condition u/s 80JJAA. The Explanation provides that the additional employee cost shall be nil "if there is no increase in the total number of employees employed as on the last day of the current year in comparison with last date of the preceding year." This condition for entry into Section 80JJAA is to be tested on an overall/gross headcount basis, comparing the total employees at the close of the current year against the total employees at the close of the preceding year. In the present case:  Total employees as on 31/03/2019 (close of preceding year): 676  Total employees as on 31/03/2020 (close of current year): 807  Net increase: 807-676=131 employees Out of the above 131, 1 employee has been stated to have completed exact 240 days, thus, the additional employees have been claimed by the appellant at 130 Employees. The appellant submits that there is clearly a net increase in headcount. The employment of new employees has had the

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effect of increasing the total number of employees employed. The eligibility condition is, therefore, satisfied. 4.2. Incorrect analogy drawn from the EPF-ESIC data; The learned AO (at page no. 14 to 15 of the Assessment order) and learned CIT(A) (at Para 5.7 of the CIT-A order) have reworked the "Total Employees" head-count figures, as so stated in Form 10DA, in an incorrect manner. In particular, learned I-T authorities adopted the EPF-ESIC records figures, - firstly, to work out "days of service" in the current year (ie. whether more than 240 days or not), and then, - secondly, to rework the number of "Total Employees" It is submitted that such an approach of reworking of "Total Employees" is not mandated by the said section 80JJAA. Further, the EPF-ESCI listing of employees is akin to a Master file keeping all details of employees (since the beginning), and the said EPF-ESIC listing includes even such employees who have left the company. The said section prescribes 'Form 10DA (given on pages 30 to 32 of the Paper-book) as an essential compliance for claiming deduction. As such, the adoption of EPF-ESIC register data is wholly incorrect. 4.3. Ignoring Form 10DA: As per the requisite compliance of section 80JJAA, the assessee is required to file details of the headcount of "Total Employees" vide form 10DA. The figures in the said Form 10DA relate to the "actual head-count" of "Total Employees working in the company, as of a particular date. Learned AO ought to have confined to such figures of "Total Employees" head-count on an actual basis, instead of culling out the figures from EPF-ESIC records. As submitted, the EPF-ESIC register is not, per se, a record of active employees on any given date. It includes employees who have resigned or left service, whose PF accounts remain open, or who have left but whose exit formalities have not been completed in the system. A headcount drawn from such data is therefore an unreliable and inaccurate figure that cannot form the basis of any determination u/s 80JJAA. The appellant had furnished primary evidence in the form of payroll records, employee lists as on 31/03/2019 (Pages 78 to 98 of Paper-book-1) and 31/03/2020 (Pages 99 to 122 of Paper- Book-1), sample appointment letters, bank salary records, etc., all of which were disregarded by the AD without providing any valid or cogent reasoning. 4.4. Illogical comparison: Learned AO had erred in applying the 240-day filter to arrive at an effective head- count of "Total Employees as on 31/3/2020 as 549; and then, comparing this reworked figure against the head-count of "Total Employees" as on 31/3/2019 as 676 (i.e. last date of preceding year). This comparison is flawed; the AD is not comparing like with like.

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He is comparing  Preceding year (676): All employees, regardless of tenure (no 240-day filter applied)  Current year (549): Only those employees who completed 240 days (240- day filter applied) Such an illogical comparison cannot form the basis of disallowance. If the 240- day filter is to be applied to the current year count, it must equally be applied to the preceding year count for any meaningful comparison. When the correct comparison is made (total vs. total), the increase is 130 employees, which satisfies the threshold eligibility condition. 4.5. Error of glossing over the new proviso to the Explanation: The Finance Act, 2018, introduced the following proviso to Section 801JAA: "Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly." This proviso introduces a deeming provision of critical importance:  An employee who joined during AY 2019-20 but did not complete 240 days in those years;  But who completes 240 days in the immediately succeeding year,  Shall be deemed to have been employed (and qualifying as an 'additional employee') in the succeeding year. Going strictly by learned AO's own analogy of reworking the head-count of "Total Employees", the figure of head-count as of 31/3/2019 ought to have been reworked by removing all such employees who have not completed the stipulated period of 240 days as of 31/3/2019. As per facts, there were many such employees who ought to have been removed from the headcount of "Total Employees as at 31/3/2019. 4.6. Disparity between the approaches of learned AO and learned CIT(A): Learned AO, though started the exercise of reworking of "Total Employees" on the basis of EPF-ESIC listing, finally decided the issue on the basis of a reworking of "Total Employees" based on figures in Form 10DA. On the other hand, learned CIT(A) preferred the approach of reworking the headcount of "Total Employees as at 31/3/2020 on the basis of EPF-ESIC data. With utmost respect, both these approaches are besides the mandate of the section, and also illogical, as stated above.

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5.

Prayer Considering the above submission and facts, the appellant requests the Honorable ITAT Bench to kindly- Allow the deduction of Rs.96,52,467/- in full under Section 80JJAA of the Income Tax Act, 1961 for AY 2020-21; and/or At the very least, allow the sum of Rs. 42,17,248/- attributable to the continued deduction for employees from AY 2018-19 and AY 2019-20, which had been accepted in those years and forms part of the lawful three-year deduction entitlement under Section 80JJAA(1); and Pass such further order(s) as the Hon'ble Tribunal deems fit based on the facts and circumstances of the case, along with appropriate directions.”

8.

The Ld. DR on the other hand supported the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.

9.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case, rejecting the explanation given by the assessee disallowed the claim of deduction u/s 80JJAA of the Act of Rs.96,52,467/-. We find the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the Assessing Officer and the Ld. CIT(A) / NFAC have misconstrued the eligible conditions u/s 80JJAA of the Act. According to him, the Assessing Officer re- worked the total employees head-count figures in an incorrect manner by adopting

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the figures of EPF-ESIC. It is his submission that such an approach of reworking of total employees is not mandated by the said section 80JJAA. It is also his submission that EPF-ESCI listing of employees is akin to a Master file keeping all details of employees since the beginning and the said EPF-ESIC listing includes even such employees who have left the company. Further it is his submission that as per the provisions of section 80JJAA the assessee is required to file details of the headcount of "Total Employees" vide form 10DA. The figures in the said Form 10DA relate to the "actual head-count" of "Total Employees” working in the company, as of a particular date. Since the Assessing Officer has not confined to such figures of "Total Employees" head-count on an actual basis, instead of culling out the figures from EPF-ESIC records, therefore, the same is not correct. It is also his submission that the Assessing Officer had erred in applying the 240-day filter to arrive at an effective head-count of "Total Employees” as on 31/3/2020 as 549. Comparing this reworked figure against the head-count of "Total Employees" as on 31/3/2019 as 676 is flawed. It is his further submission that the Assessing Officer has glossed over the new proviso to the Explanation. It is his submission that even going by the AO's own analogy of reworking the head-count of "Total Employees", the figure of head-count as of 31/3/2019 should have been reworked by removing all such employees who have not completed the stipulated period of 240 days as of 31/3/2019. According to him, there were many such employees who ought to have been removed from the headcount of "Total Employees” as at 31/3/2019. In view of the above submission of the Ld. Counsel for the assessee and considering the totality of the facts of the case and in the interest of justice, we

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deem it proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh and in accordance with law after providing due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

10.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the open Court on 25th June, 2026.

Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 25th June, 2026 GCVSR Gajjala Chinna Digitally signed by Gajjala Chinna Venkata Subba Reddy Venkata Subba Reddy Date: 2026.06.29 11:47:34 +05'30' आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘A’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune

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S.No. Details Date Initials Designation 1 Draft dictated on 25.06.2026 Sr. PS/PS 2 Draft placed before author 25.06.2026 Sr. PS/PS Draft proposed & placed before 3 JM/AM the Second Member Draft discussed/approved by 4 AM/AM Second Member Approved Draft comes to the 5 Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to 9 the Office Superintendent Date on which file goes to the 10 A.R. 11 Date of Dispatch of order

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