2025 (11) TMI 1901 - AT - Income Tax

Tax deduction claims under Sections 80JJAA and 80IB sent back for fresh verification of employment and subsidy conditions

ITAT remanded all disputed issues to the AO for fresh verification. On deduction u/s 80JJAA, ITAT held that the AO was wrong in disallowing the entire ... Disallowance of claim of deduction u/s 80JJAA - deduction of 30% of additional employee cost is allowable to the assessee for three assessment years - HELD THAT:- Considering these specific conditions, the onus was squarely on the assessee to establish that its claim was not hit by the mischief of above provisions. In order to prove that all the conditions as stipulated under Section 80JJAA of the Act were fulfilled, the assessee was required to furnish the details in respect of all the new employees. Merely on the basis of submission of the documentary details of 15 employees on sample basis, the satisfaction of the conditions in respect of all 274 new employees could not have been verified. The assessee has brought on record a list of employees eligible for deduction under Section 80JJAA of the Act in the paper-book filed. It is found that out of 274 new employees in respect of whom the deduction pertained, most of the employees were employed during the year for less than 240 days and, therefore, the emoluments paid to them was not eligible for deduction. AO was not correct in disallowing the entire claim of deduction under Section 80JJAA of the Act without verifying the requisite details vis-a-vis the evidences brought on record by the assessee. Even if the offer letter of all the employees were not brought on record, the AO could have verified the monthly emoluments paid to them from the gross pay of the employees and the communication made by the assessee to the bank for payment of their salary through the specified mode or from the bank statements. We deem it proper to set aside the matter to the file of the Jurisdictional Assessing Officer with a direction to verify the satisfaction of the conditions as specified in Section 80JJAA of the Act and, thereafter, allow the deduction in respect of those employees who had worked for more than 240 days during the year. Satisfaction of other conditions as specified in the Act may also be verified in respect of such employees. The assessee is also directed to produce all the relevant details in respect of satisfaction of the conditions under Section 80JJAA of the Act in respect of all the new employees employed during the year and also respond to the queries of the Assessing Officer in this regard. Accordingly, the ground taken by the assessee is allowed for statistical purpose. Disallowance on account of NHB Cold Storage subsidy - AR explained that the assessee had received this subsidy from the Government of Gujarat for meeting the expenditure relating to new cold storage project under expansion during the year AND that since the subsidy was towards the cost of capital asset, it was capital in nature and the subsidy amount was deducted from capital work-in-progress on gross basis - AO had made the disallowance for the reason that he was not satisfied with the treatment of the subsidy in the books of account of the assessee - HELD THAT:- The ledger account of the capital work-in-progress was not filed and, therefore, it could not be verified as to whether the subsidy amount was reduced from capital work-in-progress on gross basis. The assessee has not brought on record the ledger of capital work-in-progress even before us and the copy of ledger account is not found appearing in the paper-book. In order to treat this subsidy as a capital receipt, the treatment given by the assessee in its books of account is required to be verified. We, therefore, deem it proper to set aside the matter to the file of the Jurisdictional Assessing Officer with a direction to allow another opportunity to the assessee to explain the treatment of subsidy received of Gujarat Government in its books of account. The assessee is directed to furnish the copy of the ledger account of capital work-in-progress for the current year as well as for the subsequent years in which the cold storage was finally constructed and put to use. The assessee is also directed to bring on record the evidences to establish that no depreciation was claimed in respect of this subsidy amount from the block of cold storage. Accordingly, the ground taken by the assessee is allowed for statistical purpose. Disallowance of deduction u/s 80IB - AO has given a categorical finding that the amount of duty drawback disclosed in the Profit & Loss Account was Rs. 1,28,28,423/-, whereas an amount of Rs. 55,50,409/- only was reduced from income while computing the deduction u/s 80IB - contention of the assessee is that the amount was not duty drawback but it was transportation subsidy from Government of India - HELD THAT:- As no evidence in this regard was brought on record. Further, the actual amount of duty drawback received by the assessee has also not been certified by the Auditor. Since the case of the assessee has been set aside to the AO in respect of other two grounds, we deem it proper to set aside this issue also to the file of the Jurisdictional Assessing Officer with a direction to allow another opportunity to the assessee to explain the nature of the receipt of Rs. 72,78,014/- in respect of which deduction under Section 80IB of the Act has been disallowed. The assessee will be free to bring on record the evidences to establish the actual nature of this receipt and also to produce certificate from the Auditor about the actual amount of duty drawback income received by the assessee. Further, an explanation for mistake of duty drawback amount as reported in the audited account, if any, should also be brought on record. Thereafter, the Assessing Officer will be free to examine the evidences brought on record by the assessee in respect of the sum of Rs. 72,78,014/- which has been claimed as transportation subsidy by the assessee and, thereafter, re-adjudicate the claim of deduction under Section 80IB of the Act in respect of this amount. The ground of the assessee is treated as allowed for statistical purpose. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether delay of 159 days in filing the appeal before the Tribunal was liable to be condoned on the explanation furnished. 1.2 Whether disallowance of deduction under Section 80JJAA in respect of emoluments to additional employees was justified, having regard to the evidences produced and statutory conditions. 1.3 Whether subsidy of Rs. 78,23,000/- received under NHB/Gujarat Horticulture Mission for cold storage project was a capital receipt or revenue receipt, and whether its treatment in the books required verification. 1.4 Whether withdrawal of deduction under Section 80IB on an amount of Rs. 21,83,404/- (linked to Rs. 72,78,014/- shown as duty drawback/claimed as transportation subsidy) was sustainable in the absence of clarity and evidence regarding the true nature of such receipt and actual duty drawback. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Condonation of delay in filing appeal Interpretation and reasoning 2.1 The assessee explained on affidavit that the concerned Chartered Accountant, who was managing tax matters, went on examination leave for CPA, did not resume duty, resigned, and left without reporting pending matters, including the order of the first appellate authority. The assessee claimed to have become aware of the impugned order only upon receipt of notice of penalty under Section 270A, after which the appeal was filed without further delay. 2.2 The Tribunal accepted that the delay was not intentional and that sufficient cause was shown explaining the inability to file the appeal in time. Conclusions 2.3 Delay of 159 days in filing the appeal was condoned. Issue 2: Disallowance of deduction under Section 80JJAA Legal framework (as discussed) 2.4 The Tribunal noted that Section 80JJAA allows deduction of 30% of additional employee cost for three years, subject to fulfilment of conditions in sub-section (2), including the definition of 'additional employee'. The explanation to Section 80JJAA(2) (as reproduced) excludes from 'additional employee' those: (a) drawing emoluments exceeding Rs. 25,000 per month; (b) for whom entire pension contribution is paid by Government; (c) employed for less than 240 days during the previous year (subject to exceptions/provisos); and (d) not participating in recognised provident fund. It also contemplates the requirement that emoluments be paid through specified banking modes. Interpretation and reasoning 2.5 The assessee claimed deduction in respect of 274 out of 362 additional employees, asserting that evidence of employment, salary, PF deduction, and related details were submitted, including details of 15 new workmen on sample basis due to voluminous records. 2.6 The Revenue contended that the assessee failed to furnish complete details for all employees and that satisfaction of conditions under Section 80JJAA must be examined employee-wise, not on sample basis. 2.7 The Tribunal held that, given the specific statutory conditions (emolument cap, PF participation, minimum 240 days of employment, payment through specified banking modes), the onus was on the assessee to demonstrate compliance for each additional employee. Furnishing evidences for only 15 employees on sample basis was insufficient to verify satisfaction of conditions for all 274 employees. 2.8 On examination of the list of 274 employees in the paper-book, the Tribunal observed that most of them had worked for less than 240 days in the year and hence their emoluments were not eligible for deduction. However, it held that the Assessing Officer was also not justified in disallowing the entire claim without verifying the details and evidences on record. The Assessing Officer could have verified monthly emoluments and prescribed modes of payment from gross pay records, communications to banks, or bank statements even in the absence of all offer letters. Conclusions 2.9 The entire disallowance of deduction under Section 80JJAA was not sustained outright; the matter was remitted to the Assessing Officer to: * Verify satisfaction of all conditions under Section 80JJAA, including the 240 days requirement and other statutory conditions, employee-wise; and * Allow deduction only in respect of those employees who satisfy the statutory requirements. 2.10 The assessee was directed to furnish complete details for all new employees and to cooperate in verification. The ground was allowed for statistical purposes. Issue 3: Character of NHB/Government cold storage subsidy and its treatment Interpretation and reasoning 2.11 The assessee contended that subsidy of Rs. 78,23,000/- received from the Government of Gujarat under the Gujarat Horticulture Mission/NHB for a cold storage project under expansion was a capital subsidy, reduced from capital work-in-progress on a gross basis, with no credit to Profit & Loss account and no depreciation claimed as the project was not yet put to use. 2.12 The Revenue argued that the assessee did not furnish the working or ledger of capital work-in-progress; hence it could not be verified whether the subsidy had actually been reduced from capital work-in-progress or how it was finally treated when cold storage was constructed and depreciation claimed. 2.13 The Tribunal examined the communication dated 14.02.2017 from the CEO, Gujarat Horticulture Mission, placed in the paper-book, and found that the subsidy was released for a cold storage project, disbursed to the participating bank with a stipulation that it be utilised only for the sanctioned purpose. On this basis, it accepted that the subsidy was in the nature of a capital receipt intended for construction/expansion of cold storage. 2.14 However, the Tribunal noted that the assessee had not produced the capital work-in-progress ledger either before the Assessing Officer or before the Tribunal, and therefore the correctness of the accounting treatment-reduction from capital work-in-progress on gross basis and non-claim of depreciation on the subsidised amount-could not be verified. Conclusions 2.15 While recognising the capital nature of the subsidy in principle, the Tribunal remitted the matter to the Assessing Officer to: * Verify the treatment of the subsidy in the books of account, including ledgers of capital work-in-progress for the relevant and subsequent years; and * Confirm that no depreciation was claimed on the portion of the block relatable to the subsidy. 2.16 The assessee was directed to produce the requisite ledgers and evidences. The ground was allowed for statistical purposes. Issue 4: Withdrawal of deduction under Section 80IB in relation to duty drawback / transportation subsidy Interpretation and reasoning 2.17 For computing deduction under Section 80IB, the assessee had reduced Rs. 55,50,409/- as duty drawback from business profits. The Assessing Officer noted that the Profit & Loss account disclosed duty drawback of Rs. 1,28,28,423/- and held that the entire amount should have been excluded for the purpose of Section 80IB, thereby withdrawing deduction on the balance Rs. 72,78,014/-. 2.18 By rectification, the Assessing Officer disallowed deduction at 30% of Rs. 72,78,014/-, i.e., Rs. 21,83,404/-. 2.19 The assessee contended that Rs. 72,78,014/- was not duty drawback but transportation assistance/subsidy from Government of India for promotion of export of fruits, vegetables and other products, and being integral to the business, it was eligible for deduction under Section 80IB. It argued that only the actual duty drawback amount should be excluded. 2.20 The Revenue countered that the entire Rs. 1,28,28,423/- was shown as duty drawback in the audited Profit & Loss account; no evidence was filed to segregate or re-characterise Rs. 72,78,014/- as transportation subsidy, nor was any auditor's certification furnished regarding the actual amount of duty drawback. 2.21 The Tribunal observed that: (i) the audited Profit & Loss account disclosed duty drawback of Rs. 1,28,28,423/-; (ii) only Rs. 55,50,409/- was reduced in the working of deduction under Section 80IB; and (iii) the assessee's assertion that the balance Rs. 72,78,014/- represented transportation subsidy was unsupported by evidence. The actual duty drawback amount had not been certified by the auditor, nor had any explanation been placed on record regarding the apparent misclassification or error in the audited accounts. 2.22 Given that the Tribunal was already remanding the other two substantive issues, and in view of the evidentiary gaps on this issue as well, it considered it appropriate to remit this matter for fresh examination. Conclusions 2.23 The issue of withdrawal of Section 80IB deduction on Rs. 21,83,404/- was set aside to the Assessing Officer with directions to: * Allow the assessee to produce evidences explaining the true nature of the receipt of Rs. 72,78,014/- (whether duty drawback or transportation subsidy); * Obtain and consider an auditor's certificate on the actual amount of duty drawback received; and * Consider any explanation and supporting evidence regarding errors, if any, in the depiction of duty drawback in the audited accounts. 2.24 The Assessing Officer was directed to re-adjudicate the eligibility of the amount for deduction under Section 80IB after such verification. The ground was allowed for statistical purposes.