Court affirms ITAT decision on Section 80 IB (2) (iv) compliance, includes Manager & Supervisor as workers. Memoranda books deemed regular.

The court upheld the ITAT's decision regarding the assessee's compliance with Section 80 IB (2) (iv) of the Income Tax Act, including the Manager and Supervisor as workers. It also supported the inclusion of memoranda books as regular books of accounts, dismissing the revenue's appeal and directing each party to bear their own costs.

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Issues Involved:
1. Whether the assessee fulfills the provisions of Section 80 IB (2) (iv) of the Income Tax Act, 1961, regarding the employment of ten or more workers.
2. Whether the ITAT was correct in including the Manager and Supervisor as workers for the purpose of Section 80 IB (2) (iv).
3. Whether the memoranda books could be considered as regular books of accounts explaining the discrepancy of cash found during the search.

Detailed Analysis:

Issue 1: Compliance with Section 80 IB (2) (iv)
The primary issue was whether the assessee met the requirement of employing ten or more workers in a manufacturing process to qualify for deductions under Section 80 IB (2) (iv) of the Income Tax Act, 1961. The revenue argued that the assessee employed only eight workers as certified in Form No. 10 CCB, and the inclusion of the Manager and Supervisor, who were also working partners in sister concerns, was an afterthought to meet the requirement. The court noted that the ITAT upheld the CIT (A)'s decision that the manufacturing process includes various stages from raw material purchase to the sale of finished goods, and thus, the employment of the Manager and Supervisor could be counted towards the ten workers required. The court referenced cases such as CIT vs. Sultan and Sons Rice Mill and CIT vs. Hanuman Rice Mills to support the view that managerial and supervisory roles are integral to the manufacturing process.

Issue 2: Inclusion of Manager and Supervisor as Workers
The revenue contended that the Manager and Supervisor, being working partners in sister concerns and drawing salaries from them, could not be considered as workers under Section 80 IB (2) (iv). The court disagreed, stating that the Manager and Supervisor's roles were integral to the manufacturing process, and their inclusion was justified. The court cited the jurisdictional High Court's decision in M/s Ansysco's case, which held that workers involved in allied activities related to manufacturing should be treated as employed in the manufacturing process. The court concluded that the ITAT's decision to include the Manager and Supervisor as workers was correct and upheld the findings of the CIT (A).

Issue 3: Consideration of Memoranda Books as Regular Books of Accounts
The revenue challenged the deletion of the addition of Rs. 6,55,270/- under Section 69A, arguing that memoranda books are not regular books of accounts and should not be relied upon as evidence. The court noted that the ITAT upheld the CIT (A)'s decision, which found that the Assessing Officer had not pointed out any defects or discrepancies in the memoranda books. The CIT (A) had concluded that the memoranda books, although not admissible as evidence under the Evidence Act, were relevant in the context of income tax assessments. The ITAT observed that the Assessing Officer had accepted part of the entries in the memoranda books, such as the availability of Rs. 25,000/- with each family member, and there was no justification in partly accepting and partly rejecting the entries. The court agreed with the ITAT's conclusion that the addition of Rs. 6,55,270/- was not justified and upheld the deletion.

Conclusion:
The court found no infirmity in the ITAT's order and answered all the substantial questions of law against the revenue and in favor of the respondent assessee. The appeals filed by the revenue were dismissed, and the parties were directed to bear their own costs.

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