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Facts
The assessee, engaged in garment manufacturing, claimed a deduction of Rs. 1,50,70,662 under Section 80JJAA for additional employee costs for AYs 2016-17 and 2017-18. The Assessing Officer (AO) disallowed this claim, which was upheld by the CIT(A), primarily on the grounds that no new employees were hired in the current year and previous years' claims were disallowed.
Held
The Tribunal held that the deduction under Section 80JJAA, once fulfilled in the first year for additional employees who meet the 300-day employment criteria, is available for three subsequent assessment years. The proviso to the section and subsequent amendments clarify that continuous hiring or an increase in workforce every year is not a prerequisite for claiming the deduction in subsequent years.
Key Issues
Whether the disallowance of deduction under Section 80JJAA for additional employee costs for AY 2018-19 is justified, considering the claim pertains to employees hired in prior years (AY 2016-17 and 2017-18) who met the statutory criteria.
Sections Cited
80JJAA, 234A, 234B, 143(2), 142(1)
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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SMT BEENA PILLAI & SHRI LAXMI PRASAD SAHU
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order dated 19.03.2024 passed by NFAC, Delhi for A.Y. 2018-19 on following grounds of appeal:
1. General ground: 1.1 The learned Commissioner of Income-tax Appeals, National Faceless Appeal Centre, Delhi NIT(A)1 has erred in sustaining the disallowance made by the Assessing Officer, National E-Assessment Centre (hereinafter referred to as the 'AO') to the extent prejudicial to the interest of the Appellant. The order passed in a cryptic manner bereft of proper disposal of the grounds urged is bad in law and is liable to be quashed.
2. Grounds relating to deduction under section 80JJAA: 2.1 The learned CIT(A) has erred in confirming disallowance of deduction under section 80JJAA amounting to Rs 1,50,70,662 made by the AO which was claimed by the Appellant in respect of employee costs of additional employees pertaining to preceding assessment years 2016-17 (of Rs. 16,36,826) and 2017-18 (of Rs.1,34,33,836). 2.2 The learned AO had erred in disallowing the claiming deduction under section 80JJAA on the premise that (i) there were no new employees employed during the previous year; and (ii) the deduction claimed under section 80JJAA for the assessment years 2016-17 and 2017-18 were disallowed by the AO. The learned CIT(A) has erred in mechanically confirming the addition made by the AO on the premise that the deduction claimed in earlier years were disallowed by the AO. 2.3 The learned CIT(A) has erred in not considering the decision of the High Court in the Appellant's case for assessment years 2013-14 to 2016-17 wherein the claim of the Appellant as regards the deduction under section 80JJAA was upheld. 2.4 The learned CIT(A) has erred in confirming the disallowance of Rs.1,34,33,836 under section 80JJAA for assessment year 2017-18 which is: (a) based on a legally incorrect conclusion by the AO that deduction under section 80JJAA is dependent upon completion of 300 days of services during the said year; and (b) made without taking cognizance of the statutory amendment made to the provision whereby the said number of days was reduced to 150 days for textiles industry with effect from assessment year 2017-2018. 2.5 The learned CIT(A) has erred in not appreciating that all the conditions specified under section 80JJAA of the Act are satisfied for being entitled to the deduction.
3. Grounds relating to levy of interest under section 234A and 234B: 3.1. The learned AO has erred in levying interest under sections 234A and 234B of Rs. 80,296 and Rs. 13,65,062 respectively. On facts and circumstances of the case, the interest of under sections 234A and 234B is not leviable. The appellant denies its liability to pay the interest under 234A and 234B.
4. Prayer: 4.1. In view of the above and other grounds to be adduced at the time of hearing, the Appellant prays that the order passed by the learned CIT(A) be quashed Or in the alternative: (a) Claim of deduction under section 80JJAA amounting to Rs 1,50,70,662 as claimed in the return of income be accepted and the disallowance as made be deleted; and (b) Interest levied under sections 234A and 234B of Rs. 80,296 and Rs. 13,65,062 respectively is to be deleted. The Appellant prays accordingly.” 2. The only issue that has been raised by the assessee is in respect of the disallowance of deduction u/s. 80JJAA of the act amounting to Rs.1,50,70,662/- that was claimed in respect of the additional employee cost.
Brief facts of the case leading to this issue are as under: 3.1 The assessee is engaged in the business of manufacturing garments. The assessee filed its return of income for the year under appeal on 30.11.2018 declaring total income of Rs.5,39,40,550/-.
3.2 The said total income was computed after claiming deduction of Rs.1,50,70,662/- under section 80JJAA of the Act. Deduction under section 80JJAA was computed at 30 percent of salary paid to eligible workmen amounting to Rs. 5,02,35,540/-. The assessee submitted that the said salary payment consisted of payments made to:- Workmen employed in financial year (FY) 2016-17- Rs.4,47,79,453/-. Workmen employed in the FY 2015-16 - Rs. 54,56,087/-.
3.3 Form 10DA evidencing the claim of deduction under section 80JJAA was filed along with the return of income. Notice under section 143(2) was issued on 22.09.2019 under the Act by the Ld.AO. The return of income of the assessee was selected for complete scrutiny for the following reasons: a) Duty Drawback. b) Deduction from Total Income tinder Chapter Vl-A.
3.4 Subsequently various notices under section 142(1) were issued on 13.11.2020, 31.12.2020 and 13.01.2021, calling for details. The details called by the Ld.AO from time to time were furnished. The assessee submitted copies of Form 10DA filed for assessment years('AY) 2016-17 and 2017-18 along with the list of additional employees for AY 2016-17 and AY 2017-18. The Assessee also submitted that section 80JJAA allows a deduction in respect of wages paid to additional employees for a period of three consecutive years. Accordingly, it is eligible to claim deduction in respect of wages paid to additional employees, employed during the past two assessment years (i.e. AY 2016-17 and AY 2017-18).
3.5 The assessee furnished detailed explanation along with computation of deduction under section 80JJAA during the assessment vide letters dated 04.12.2020, 03.01.2021, 05.01.2021 and 15.01.2021.
3.6 Subsequently, a show cause notice dated 22.01.2021 was issued stating that the assessee did not claim any deduction under section 80JJAA for AY 2018-19, and that, the claim made was for additional employees employed in AY 2016-17 and AY 2017-18. In reply to the above SCN on 28.01.2021 the assessee sought for reasonable time to respond, considering the days following the issue of SCN was a weekend and a national holiday. The assessment was however completed and the order u/s. 143(3) dated 29.01.2021 was passed assessing Rs. 6,90,11,212/- [as against the returned income of Rs.5,39,40,550/-] whereby making disallowance of deduction u/s. 80JJAA amounting to Rs.1,50,70,662/-.
3.7 Aggrieved by the order of the Ld.AO, assessee filed appeal before the Ld.CIT(A).
3.8 The Ld.CIT(A) after considering various arguments filed by the assessee observed and held as under: “5. Findings: The Grounds of appeal, the facts and circumstances of the case, the submissions of the assessee and the case law adduced have been carefully considered. The facts are that the assessee claimed Rs. 1,50,70,662/- in respect of wages paid in earlier two assessment years A.Y.2016-17 and AY 2017-18 under section 80JJAA.
The AO disallowed the claim inter-alia citing that in the immediate proceeding A.Y., claim of assessee u/s 80JJAA of the I.T Act, 1961 was disallowed and the factual position remains unchanged. In view of the said facts, the order of the AO is hereby upheld. Grounds of appeal are accordingly dismissed.”
3.9 Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this Tribunal.
At the outset, the Ld.AR submitted that for A.Y. 2016-17, this Tribunal considered identical issue and allowed the claim of assessee. The Ld.AR submitted that once the condition prescribed u/s. 80JJAA of the act is fulfilled in the first year of amendment of the new workmen then the assessee is entitled for deduction of 30% of the additional wages paid, for each of the 3 subsequent assessment years commencing from the assessment year, relevant to the previous year, in which such employment was provided. The Ld.AR further submitted that there is no restriction in claiming the deduction equivalent to 30% of the wages, even if, there is no new workmen employed by the assessee during the previous year, or even if there is a discontinuation of the employees on whose wages the deduction was claimed in the previous year.
He submitted that section 80JJAA does not indicate any such condition for availing the deduction equivalent to 30% of additional wages paid to the new regular workmen employed by the assessee and that the new regular workmen employed shall continue for the three subsequent years to avail the deduction.
The Ld.AR submitted that, the only condition provided under the explanation being the regular workmen that the workmen should be employed for not less than 300 days, during the previous year. Therefore he submitted that the additional wages paid to such employees who have fulfilled the criteria of 300 days in the first year of the claim (in the present case A.Ys. 2016-17 & 2017-18) is the only basis to be decided for claiming the deduction from that year consecutively to subsequent two more years. The Ld.AR submitted that in respect of the claim that stood satisfied in A.Y. 2016-17, the present year under consideration is the third year and for the those workmen who satisfied the required condition in A.Y. 2017-18, the year under consideration is the second year of claim.
On the contrary, the Ld.DR submitted that the Ld.AO has disallowed the deduction as there was no additional workmen or increase in the number of workmen during the previous year and therefore in the year under consideration, the deduction cannot be granted to the assessee. We have perused the submissions advanced by both sides in the light of records placed before us.
For the sake of ready reference, the section 80JJAA is quoted as under: “80JJAA. (1) where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertakings 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 percent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. (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 along with 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. Explanation - For the purposes of this section, the expressions; (i) 'additional wages' means the wages paid to the new regular 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 workmen employed during the year is less than ten percent of existing number of workmen employed in such undertaking as on the last day of the preceding year; (ii) 'regular workmen' does not include- a) a casual workmen; or (a) a workman employed through contract labour; or (b) any other workman employed for a period of less than three hundred days during the previous year: (iii) 'workman' shall have the meaning assigned to it in clause(s) of section 2 of the industrial-Dispute Act, 1947 (14 of 1947).”
Admittedly, the assessee claimed benefit u/s. 80JJAA for the additional employees employed in A.Ys. 2016-17 and 2017-18. Further, the Ld.AO/CIT(A) is nowhere disputing the completion of 300 days of employment by such workmen. On plain reading of the provisions, it is clear that, the benefit is to be allowed to the assessee for three years starting from the previous year in which the amendment is provided. The proviso to section does not estop assessee from claiming such deduction, once the necessary criteria is fulfilled in the first year. It is also brought to the notice of this Tribunal that, the legislature subsequently reduced the period of employment to 240 days and in case of certain specified industries, period of employment criteria to be fulfilled is 150 days.
9.1 We further note that, as Form 10DA [which is the form to provide the details in respect of the workmen employed during the year] did not have the column to provide the details in respect of the workmen employed in the preceding year, a subsequent amendment vide 5th amendment to Income Tax Rules, 2019 was brought into w.e.f. 18.12.2019. As per this amendment, the emoluments paid to the employees employed during the year and employed during immediately preceding year has been incorporated. This amendment clearly envisages that benefit available to an assessee under 80JJAA cannot be restricted only upon satisfying if additional workmen are employed every year who complete the no. of days required as per the section. This Tribunal already analysed the requirement being satisfied for A.Y. 2016 in respect of the workmen who were employed in the previous year, the benefit will be available to the assessee for subsequent two assessment years being 2017-18 and 2018-19 in respect of those workmen who were employed in the preceding year to A.Y. 2016-17. Same will be the situation for those who were employed for A.Y. 2017-18, the benefit will be available for subsequent two years including the year under consideration. As the authorities below have already admitted that there is no denial of exemption for A.Y. 2017-18, the present assessment year being the 3rd year, the benefit cannot be denied to the assessee. We accordingly, allow the claim of assessee for the year under consideration. Accordingly, the grounds of appeal raised by the assessee stands allowed. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 27th June, 2024.