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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN
PER SHRI B.R. BASKARAN, AM :
The appeal filed by the assessee is directed against the order dated 27.09.2017 passed by the Ld. CIT(A)-1, Bengaluru and it relates to the A.Y 2013-14. The assessee is aggrieved by the decision of the Ld. CIT(A) in confirming the disallowance of deduction u/s 80JJAA of the Act made by the A.O.
The assessee is engaged in the business of manufacture of garments. The assessee claimed the deduction u/s 80JJAA of the Act to the tune of Rs. 72.86 lakhs. The A.O, however, restricted the deduction to Rs. 4.50 lakhs and accordingly disallowed the deduction to . M/s. Aquarelle India Pvt Ltd, Bangalore. the tune of Rs. 68.35 lakhs. The Ld. CIT(A) confirmed the order passed by the A.O and hence the assessee has filed this appeal before us.
The controversy revolves around the interpretation of Sec. 80JJAA of the Act as it existed at the relevant point of time. This section has been amended several time and hence, for the sake of convenience, we extract below Sec. 80JJAA of the Act applicable to the year under consideration: ‘80JJAA. (1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent. of additional wages paid to the new regular workmen employed by the assessee during the previous year.
(2) No deduction under sub-section (1) shall be allowed– (a) if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking; (b) unless the assessee furnishes alongwith the return of income the report of the accountant, as defined in the Explanation below sub-section (2) of section 288 giving such particulars in the report as may be prescribed.
. M/s. Aquarelle India Pvt Ltd, Bangalore. Explanation.—For the purposes of this section, the expressions,– (i) “additional wages” means the wages paid to the new workmen in excess of one hundred workmen employed during the previous year: Provided that in the case of an existing undertaking, the additional wages shall be nil if the increase in the number of regular workman employed during the year is less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; (ii) “regular workman”, does not include– (a) a casual workman; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year; (iii) “wages” means the minimum rate of wages fixed under section 3 of the Minimum Wages Act, 1948; (iv) “workman” shall have the meaning assigned to it in clause (s) of section (2) of the Industrial Disputes Act, 1947.’.
It can be noticed that the definition of “regular workman” given under Explanation to Sec. 80JJAA of the Act excludes workman employed for a period of less than 300 days during the previous year. The A.O noticed that only 24 workman has completed 300 days of employment during the year under consideration and accordingly restricted the deduction to Rs. 4.50 lakhs.
. M/s. Aquarelle India Pvt Ltd, Bangalore.
Before Ld. CIT(A) the assessee submitted that the objective of prescribing the period of 300 days in the definition of “regular workman” given under the Section is only to exclude “temporary workman”. Accordingly it was submitted that if a workman is appointed on permanent basis, the deduction u/s 80JJAA of the Act should be allowed even if he has not completed 300 days during the previous year but have achieved the timeline in the immediately following the year before the due date for filing return of income, i.e., salary paid to employees who have completed 300 days prior to the date of filing of return of income should be considered as eligible for deduction u/s 80JJAA of the Act. In this regard, the assessee placed its reliance on the decision rendered by the Hon’ble Supreme Court in the case of CIT Vs. JH Gotla, 153 ITR 323 and also on other case laws to contend that the beneficial provisions should be interpreted in a liberal manner.
The Ld. CIT(A) noticed that the provisions of Sec. 80JJAA of the Act has been interpreted by the Bangalore Bench of Tribunal in the case of ACIT Vs. Texas Instruments (India) Pvt Ltd, in & 274/ Bang/2005 and Bosch Ltd Vs. ACIT [2016] 74 taxmann.com 161. Accordingly by following the above decision the Ld. CIT(A) rejected the contentions of the assessee and upheld the disallowance made by the A.O with the following observations. “From the above judicial pronouncements it is clear that as per provisions of Sec. 80JJAA, the deduction is allowable for three years including the year in which the employment is provided. Hence, in each of such three years it has to be seen that the workmen was employed for at least 300 days during the previous year and that such work men was not a casual workmen or . M/s. Aquarelle India Pvt Ltd, Bangalore. workmen employed through contract labour. Therefore, if some work men were employed for a period less than 300 days in the previous year then no deduction is allowable in respect of payment of wage to such workmen in the present year even if such work men was employed in the preceding year for more than 300 days but in the present year, such work men was not employed for 300 days or more. In view, of the above, I am of the view that the Assessing Officer is justified in restricting the claim of the appellant under the special provisions of Sec. 80JJAA of the Act, and accordingly, the grounds of appeal
2-10 are rejected”.
7. We noticed that the provisions of Sec. 80JJAA of the Act have been interpreted by the Coordinate Bench in the case of Bosch Ltd., (supra) as under: “23. In our considered opinion, as per provisions of Sec. 80JJAA as reproduced above, the deduction is allowable for three years including the year in which the employment is provided. Hence, in each of such three years it has to be seen that the workmen was employed for at least 300 days during that previous year and that such work men was not a causal workmen or workmen employed through contract labour. Therefore, if some work men were employed for a period less than 300 days in the previous year then no deduction is allowable in respect of payment of wage to such work men in the present year even if such work men was employed in the preceding year for more than 300 days or more. In this view of the matter, we find no infirmity in the order of the Ld. CIT(A) on this issue”.
The above said decision has been followed by Ld CIT(A) in order to confirm the disallowance made by the AO. The assessee is aggrieved.
We heard the parties and perused the record. We notice that the deduction u/s 80JJAA is allowed for three years. Accordingly, during the year under consideration, the assessee shall be eligible for deduction in respect of wages paid to new regular workmen employed in the financial year relevant to assessment year 2011-12, as the present assessment year is the third year. Similarly, the assessee shall be eligible for deduction in respect of wages paid to new regular workmen
. M/s. Aquarelle India Pvt Ltd, Bangalore. employed in the financial year relevant to assessment year 2012-13, as the present assessment year is the second year. Hence the assessee should be eligible for deduction u/s 80JJAA of the Act in respect of eligible regular workmen employed in Financial years relevant to AY 2011-12, 2012-13 and 2014-15, provided they continue to qualify under the definition of “regular workman” during this year also.
The Ld A.R submitted that the period of 300 days should be computed by considering the date of filing of return of income. We are unable to agree with his view, as the reference to the period of employment is in respect of “employment during the previous year”. The expression “previous year” has been defined in sec.2(34) r.w.s. 3 of the Act. According to section 3 of the Act “previous year” means the financial year immediately preceding the assessment year. Hence the period cannot be extended beyond the financial year, as contended by Ld A.R.
We noticed earlier that Section 80JJAA of the Act has undergone many changes. The section applicable to the year under consideration was inserted by Finance (No.2) Act, 1998 w.e.f. 1.4.1999. It was amended by Finance Act, 2013 w.e.f. 1.4.2014 and again by Finance Act, 2015 w.e.f. 1.4.2016. It was substituted by a new section by Finance Act,2016 w.e.f. 1.4.2017.
The substituted section 80JJAA, which is made applicable from assessment year 2017-18, has reduced the period of minimum employment to 240 days and further to 150 days for business of manufacturing of apparels.
The Ld A.R submitted that the assessee herein is engaged in the business of manufacture of apparels. Accordingly, by placing reliance upon the substituted sec.80JJA, the Ld A.R submitted that the period fo employment should be considered as 150 days in order to become
. M/s. Aquarelle India Pvt Ltd, Bangalore. eligible as “new regular workman”. The Ld A.R so contended on the ground that the substituted section 80JJAA is clarificatory in nature and hence the same should be made applicable for the year under consideration, i.e., for assessment year 2013-14. If it is made applicable, then the period of minimum employment should be taken as 150 days for the assessee, as it is engaged in the business of manufacturing of apparels. In this regard, he placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of Vatika Township Private Limited (2014)(367 ITR 466). He also submitted that such kind of clarificatory amendments have been held to be retrospective in the case of Bhagwan Dass Khanna Enterprises (P) Ltd vs. ACIT (2001)(78 ITD 151) in the context of section 80HHD of the Act, which provision also falls in Chapter VI-A, as section 80JJAA.
We are unable to agree with the contentions of Ld A.R. The sub- section (3) of substituted sec.80JJAA reads as under:- “(3) The provisions of this section, as they stood immediately prior to their amendment by the Finance Act, 2016, shall apply to an assessee eligible to claim any deduction for any assessment year commencing on or before the 1st day of April, 2016.” In our view, the Legislature has made its intention clear in sub.sec.(3) of substituted sec.80JJAA, which is made applicable from AY 2017-18. Hence the provisions of sec.80JJAA as it stood at the relevant point of time alone are applicable for determining the quantum of deduction. Hence the provisions of sec.80JJAA as applicable to AY 2013-14, which was extracted in the earlier paragraphs, alone should be considered for examining the claim of the assessee.
The Ld A.R submitted that the assessing officer has not furnished the workings made by him in order to arrive at the figure of Rs.4.50 lakhs, being the amount allowed by him as deduction. He submitted that the assessing officer has also not allowed deduction in respect of eligible regular workmen employed in the financial years relevant to AY
. M/s. Aquarelle India Pvt Ltd, Bangalore. 2011-12 and 2012-13. We find force with the submission of the assessee. In our view, the AO should have confronted the workings made by him. Since the same was not furnished, it was also not clear as to whether the AO has allowed deduction on the wages paid to new regular workmen employed in the earlier two years. Since all these aspects require examination, we restore this issue to the file of the AO for determining the correct quantum of deduction in the light of discussions made supra. We also direct the AO to furnish the workings made by him and also allow opportunity to the assessee to present its case. The order passed by Ld CIT(A), to the above said extent, would stand modified.
In the result, the appeal of the assessee is treated as partly allowed for statistical purposes.
Order pronounced on this 03rd April, 2019.