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Income Tax Appellate Tribunal, BANGALORE BENCH ‘C’, BANGALORE
Before: SHRI ABRAHAM P GEORGE & SHRI VIJAY PAL RAO
PER BENCH: These appeals by the revenue and cross objection by the assessee are directed against three separate orders of the CIT(A) all dated 27-06- 2014 for the assessment years 2007-08 to 2008-09 respectively.
2. The revenue has raised the following grounds in this appeals;
“1. The order of the ld.CIT(A) is opposed to law and facts of the case.
2. On the facts and in circumstances of the case the ld.CIT(A) erred in holding that the deduction claimed by the assessee u/80JJAA o be allowed of Rs.53,10,703/- without appreciating the fact that the report of the Auditor inform 10DA as required u/s 80JJAA certifies that the deduction to be claimed is only Rs.26,37,638/- and the assessee is eligible for deduction on additional wages paid to the new workmen employed during the year.
3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the AO may be restored”.
3. The assessee company is engaged in the business of manufacturing and sale of readymade garments. The assessee claimed deduction u/s 80JJAA of the Act, in respect of the employment of new workmen. Assessee has given the details of the additional wages paid to the new workmen as under;
For employment f new workmen Addl.wags 2004-05 38,72,178 11,61,653 2005-06 50,38,040 15,11,412 2006-07 87,92,125 26,37,638 53,10,703
The AO noted that as per the auditor report in form no.10DA it is certified that deduction to be claimed by the assessee in respect of AY;2007-08 Rs.26,37,638/- while the assessee actually claimed the deduction of Rs.53,10,703/-. Thus, the AO found that the assessee computed the deduction of 30% of additional wages paid in the preceding two years was also claimed. The AO observed that this working and interpretation of Section cannot be accepted. The AO was of the view that the wages paid in the relevant previous years was alone to be taken into consideration but not the wages paid in the preceding year for computing the deduction allowable in this year. The AO was of the view that if the new workmen employed during earlier two years continue in this year, the wages paid to them constitute additional wages and qualify for deduction in this year. Thus, the AO did not agree with the claim of the assessee of deduction of 30% wages paid in the preceding years. The AO noted from the report of the auditors in form 10-DA that number of regular workmen as on 1st day of this year are 1949, while those ceased to continue in this year are 1743. The new workmen got employed during the year are 2901. The AO noted that the new workmen were employed in preceding two years ceased to be workmen during the year.
Therefore, no additional wages were paid in this year to workmen employed in the preceding two years and question of allowing deduction for additional wages paid in the preceding year does not arise. The AO held that the assessee is eligible for deduction on additional wages paid to new workmen employed during this year only. Accordingly, the AO restricted the deduction claimed u/s 80JJAA to Rs.26,37,638/- only, as against claim of Rs.53,10,703/-. The assessee challenged the action of the AO before the CIT(A)and contended that as per the provisions of section 80JJAA deduction of an amount equal to 30% of additional wages paid to new regular workmen employed by the assessee in the previous year is eligible for three assessment year including the assessment year in which such employment is provided. Thus, the assessee contended that it is entitle for the deduction equal to 30% of the additional wages paid to new regular workmen employed in the preceding two years. The assessee placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of ACIT Vs M/s Texas Instruments Pvt.Ltd., 27 SOT
The assessee explained that the deduction has been claimed in respect of the additional wages paid to the newly employed workmen during the preceding two years who have worked for 300 days or more.
Therefore, the assessee fulfilled the requisite conditions as provided u/s 80JJAA of the Act. The CIT(A) accepted the claim of the assessee and held that the claiming the eligible wages for workmen who employed and continue to be in employment from the prior years and were in employment for 300 days and therefore, the assessee fulfilled the requisite condition and criteria of deduction u/s 80JJAA of the Act.
Before us learned DR has submitted that there is no dispute that out of the total regular workmen as on 1stday of this year of 1949 workmen who cease to continue in this year are 1743. Therefore, the workmen who were employed during the last two years were not in the employment of the assessee during the year under consideration.
However, the assessee has claimed the deduction of 30% of additional wages paid to those workers in the preceding two years and not during the year under consideration. The AO had disallowed the claim of the assessee of deduction of 30% of additional wages which was not paid during the year under consideration. He has forcefully contended that the spirit of section is to allow the deduction against additional wages paid to the new workmen during the year under consideration. If the claim of the assessee is accepted, the deduction on account of additional wages would be allowed in respect of the number of workmen which would be morethan the additional number of regular workmen in the year under consideration. Thus, learned DR contended that the CIT(A) has committed an error in allowing the claim of the assessee which is against the spirit and scheme of the provisions of section 80JJAA. He has relied upon the order of the AO.
On the other hand, learned AR submitted that the AO has not disputed that the additional wages paid by the assessee in the earlier two years in respect of new workmen employed and worked for 300 days.
Therefore, the assesee has fulfilled the condition required u/s 80JJAA under which the criteria for claiming the deduction is new regular workmen employed by the assessee worked at last for 300 days. There is no condition under the provisions that these new workmen employed by the assessee should continue for the subsequent two years for claiming the deduction of 30% additional wages paid by the assessee is this respect. Thus, the learned AR has submitted that the only requirement for claiming the deduction is the additional wages paid by the assessee in respect of the new workmen employed who work for 300 days, the deduction is available for three years including the previous year in which the new workmen were employed. Once the condition of new workmen is employed by the assessee during the previous year s fulfilled than the deduction of 30% shall be available in each of the three years, commencing from assessment year relevant to the previous year in which such employment is provided by the assessee. He has relied on the following decisions;
1. ACIT Vs Texas instruments (Ind.)Pvt.Ltd(2009) 27 SOT 72(Bang.)
OnMobile Global Ltd Vs Addl.CIT(2014) 45 Taxman.com 346 (B’lore-Trib).
Honeywell Tech. Solutions L:ab(P)Ltd Vs DCIT(2013) 35 taxmann.com144(B’lore-Trb)
We have considered the rival submissions as well as the relevant material on record. We have also given our deep thought on the provision of Sec.80JJAA of the Act which was inserted in the statute by the Finance Act, 1998 w.e.f.01-04-199. For the sake of ready reference we quote Sec.80JJAA as it existed for the assessment 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 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 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) ‘workman’ shall have the meaning assigned to it in clause(s) of section 2 of the industrial Dispute Act, 1947 (14 of 1947).
The aforesaid provision was inserted in the statute as an incentive to encourage the industrial undertaking to generate more employment opportunities. This incentive has been provided in the form of a special deduction over and above, the actual expenditure on wages incurred by such undertakings. Though, there are various conditions and criteria to be fulfilled for availing the special deduction u/s 80JJAa of the Act, however, the issue before us in the case of the assessee is confined only with respect to the question whether such special deduction is allowable to the assessee even if the new workmen employed by the assessee and worked for 300 daysbut ceased to be the workmen of the assessee for the subsequent assessment year. The claim of the assessee is that once the condition as prescribed u/s 80JJAA of the Act is fulfilled in the first year of the employment of new workmen, than, the assessee is entitled for deduction of 30% of the additional wages each of the three assessment year commencing from the assessment year relevant to the previous year in which such employment is provided. On the contrary, he case of the revenue is that the assessee cannot avail the deduction of 30% of the additional wage paid in the earlier year to the new regular workmen employed by the assessee in those years. Thus, as
per the AO as well as the learned DR the assessee is entitled for deduction of 30% additional wage paid during the year to the new regular workmen employed by the assessee during the year as well as in the earlier two years. Hence, as per the revenue the deduction is available equivalent to 30% of the wages paid during the year and not as a standard deduction of the wages paid in the earlier years. Though, we find a logic in the argument of the learned DR that the deduction u/s 80JJAAx is allowable on an amount equal to 30%of the additional wages paid during the year to the new regular workmen employed by the assessee, who fulfill the criteria of working 300 days, however, a plain rading of Sec.80JJAA does not indicate any such condition for availing the deduction of amount equivalent to 30% of additional wages paid to the new regular workmen employed by the assessee that the new regular workmen shall continue for at least three years for availing the deduction for three assessment years including the assessment year relevant to the previous year in which such employment is provided. The provisions of fiscal statute are required to be strictly interpreted as per the language employed in the section. There is no scope of reading something into the provisions of fiscal statute therefore, even if there is a lacuna in the drafting or language of the provision the same has to be rectified by the legislation. Thus, going by the plain language of the provision of section 80JJAA of the Act, it cannot be interpreted that for availing deduction under the said section on account of additional wages paid to new regular workmen employed for three assessment years commencing from the assessment year relevant to the previous year in which such employment is provided such workmen should continue in the employment for all the three years. 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, the expression additional wages paid to new workmen employed by the assessee in the previous year is the criteria to be fulfilled and to be tested in the first year of the claim of deduction and once deduction is allowable in the first year then, 30% of such additional wages is allowable as deduction in each of the subsequent two years. As we have already discussed in the facts emerging from the record, the AO has not disputed the completion of 300 days of employment by these new regular workmen employed by the assessee during the earlier two years and therefore, once the said condition is satisfied, the condition of continuity in employment does not emanate from the provisions of section 80JJAA of the Act. Accordingly, we do not find any reason to interfere with the impugned order of the CIT(A) qua this issue.
For the assessment year 2008-09 and 2009-10, the issue raised by the revenue is identical. In view of our finding on this issue for the assessment year 2007-08, the issue raised by the revenue for the assessment year 2008-09 and 2009-10 has been disposed of in the same terms.
In the cross objection the assessee has raised common grounds which reads as under;
“1. The ld.AO has erred in invoking the provisions of explanation 3 to sec.43(1) of the Act and disallowing the depreciation claimed by the appellant on the assets purchased from M/s Trigen Apparels Ltd., and the ld.CIT(A) has erred in confirming the same. On proper appreciation of facts, the appellant’s case is not covered by the explanation 3 to sec.43(1) of the Act. The disallowance as made being contrary both to the facts and law is to be deleted.
2. The authorities below have erred in not appreciating the fact that the purchase of assets are duly supported by valuation reports and there being no enhanced cost the disallowance is erroneous and is liable to be deleted.
3. The appellant has rightly claimed the depreciation o the assets purchased from M/s Trigen Apparels Ltd., and the same is to be allowed as such.ost the disallowance is erroneous and is liable to be deleted.
4. In view of the above and on other grounds to be adduced at the time of hearing it is requested that the disallowance as made by invoking explanation 3 to sec.43(1) of the Act is to be deleted”.
During the previous year relevant to AY: 2007-08, the assessee purchased various fixed assets worth Rs.2,21,81,957/- from its sister concern M/s treason Apparels Pvt.Ltd., out of the said purchase the plant & machinery constitute major item of purchase amounting to Rs.2,07,11,032/-. The AO noted that the assessee has shown excess cost of purchase of the machinery in comparison to the written down value(w.d.v.) in the books of M/s treason Apparels Pvt.Ltd and accordingly, the AO invoked the explanation 3 to sec.43(1) and adopted the cost of the fixed assets purchased by the assessee at Rs.1,66,24,735/- being the W.D.V in the hand of the seller company.
Accordingly, the AO disallowed the depreciation on the balance amount of Rs.55,57,222/-. The assessee challenged the action of the AO before the CIT(A), but could not succeed.
Before us, learned AR of the assessee submitted that valuation of the fixed asset is based on valuation report dated 20-03-2007 of M/s Kulkarni & Associates, charter Engineers and approved valuer. The valuation was carried out by the professional valuer after taking into due consideration of depreciation, working condition of machine and replacing value. The machineries were sold to the assessee at the value arrived at by the approved valuer, therefore, there is nothing on record to show that the purpose of transfer of these assets to the assessee was to reduce liability of the income-tax by claiming depreciation. The learned AR has further contended that the AO has simply adopted the w.d.v. in the books of the seller without without contradict ting the value furnished by the assessee. In support of his contention, he has relied upon the following decisions;
Nirma Industries (P)LTd Vs DCIT (2013) Taxmann.com 89 (Ahmd.-Trib) 2. Ashwin Vanaspati Industries Vs CIT(2002) 125 Taxman.59(Guj.) (2002) 255 ITR 26 (Guj.) (2002) 174 CTR 90(GUj.) 3. ACUIT Vs Vinod Kumar Agarwal(2002) 82 ITD 1 (Hyd/(2002) 77 TTJ 943(Hyd.)
On the other hand, the learned DR submitted that the w.d.v. in the books of the seller is a tangible material before the AO on the basis on which the AO has determined the actual cost of the asset to the assessee. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as the relevant material on record. The assessee has claimed deprecation on the fixed asset purchased by the assessee amounting to Rs.2,21,81,957/- the purchase price of these assets were paid by the assessee on the basis of the valuation of the Charted Engineers and approved valuer. The AO has restricted the claim of depreciation on these fixed assets acquired by the assesssee from M/s Treason Apparels Pvt. Ltd. which was stated to be family concern of the Directors of the assessee company, as observed by the AO. The AO invoked the Explanation-3 to provisions of sec.43(1) which reads as under; “43(1) In sections 28 to41and in this section, unless the context otherwise requires;- “actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority:
Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967 , 2 but before the 1st day of March, 1975 ,] and is used otherwise than in a business of running it on hire for tourists, exceeds twenty- five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty- five thousand rupees.]
Explanation 3.- Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the 5 Assessing] Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income- tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the 6 Assessing] Officer may, with the previous approval of the 7 Deputy] Commissioner, determine having regard to all the circumstances of the case.
The above explanation stipulates the situation where the assessee acquired an asset which was used by other person for the purpose of business or profession and in such a case if, the AO is satisfied that the main purpose of transfer of the asset directly or indirectly was the reduction of liability to income tax than the actual cost to the assessee shall be the amount which is determined by the AO having regard to all the circumstances of the case. In the case in hand, the AO did not undertake any exercise of examination of the valuation report produced by the assessee or to determine the actual cost of the assets to the assessee. The AO has simply adopted the w.d.v. of the assets in the books of the seller being the actual cost to the assessee and consequently, restricted the claim of depreciation. When the assesee has submitted the valuation report of an expert than without having conducting a proper enquiry and examination to substitute experts opinion, the AO is not justified to brush aside the valuation produced by the assessee. Accordingly, in the facts and circumstances of the case, we set aside the orders of the authorities below qua this issue and remit the matter to the record of the AO to decide this issue afresh in the light of various decisions, as relied upon by the assessee .
In the result, the appeals of the revenue are dismissed and the cross objection by the assessee are allowed for statistical purposes.
Pronounced in the open Court on 24-07-2015.