TaxTMI 
TaxTMI 
2025 (9) TMI 1861
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....the Act by arbitrarily challenging the employer-employee relationship between the assessee and its employees, without appreciating the fact that all the eligibility tests laid down for claim of deduction u/s 80JJAA of the Act is satisfied by the assessee. 1.1. The AO and DRP have arbitrarily disregarded the existence of employer-employee relationship existing between the assessee and its employees without providing any reasonable basis or logical reasoning and thus, this ad-hoc disallowance warrants vacation. 1.2. The AO and DRP have disregarded the fact that the assessee satisfies all the eligibility criteria prescribed under the provisions of Section 80JJAA of the Act and accordingly is eligible for the claim of deduction. 2. That on the facts and in the circumstances of the case and in law, the AO and DRP have erred in not allowing the deduction claimed u/s 80JJAA of the Act on a technical ground that filing of Form 10DA was delayed by I day, without appreciating the fact that the reason of marginal delay was bonafide and due to the reasons beyond the control of the assessee and a procedural delay of 1 day should not be the basis for disallowance u/s 8....
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....n; 5.4. Conducting a fresh comparability analysis and cherry picking a set of high margin companies engaged in diverse activities unrelated to the functions performed by the Assessee viz. IT and ITes services; 5.5. Not considering the functionally comparable companies selected by the Assessee in its TP documentation which are engaged in similar functional profile with some of the comparables proposed by the TPO; 5.6. Without prejudice to the above grounds, the DRP/TPO disregarded the fresh benchmarking analysis undertaken by the Assessee and comparables proposed functioning as KPO service provider; 6. That on the facts and in the circumstances of the case, the assessee is eligible for Set off of brought forward MAT Credit entitlement u/s 115JAA of the Act which should have been allowed while cell computing the net tax payable. 7. That on the facts and in the circumstances of the case, where the above-mentioned grounds are decided in favor of the assessee, it is eligible for consequential relief from interest u/s 234D. 8. That on the facts and in the circumstances of the case and in law, the AO has erred in initiating penalty pro....
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....yees hired by the assessee are deputed on assignment or let out to customers for working at customer's premises under their supervision and instructions, per normal working hours and rules and regulations of the customers. c) Attendance sheet is maintained primarily by the customers which is then submitted to the assessee for payment of salary by the assessee. d) There is no element of continuity. If no assignment is available or if the customer to whom the employees are deputed stops paying, the employee's service may be terminated by the assessee by giving one day notice. e) The Ld. AO held that the fixed term employment contract with the employees are not same as signed with the regular employees. f) The Ld. AO held that Employer-employee relationship does not exist between the assessee and the employees hired by the assessee and disallowed the deduction u/s 80JJAA. 9. Aggrieved by the Final order as approved by the DRP, the assessee is in appeal before us. 10. Before us, the ld. counsel for the assessee vehemently stated that the assessee complies with all the requirements of the amended Section 80JJAA of the Act and is eligible....
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....er contra, the ld DR stressed the fact that there doesn't exist any employer-employee relationship and is based on long term contract between two principals i.e., the assessee and the employee. The ld DR also submitted that PF/ESIC deduction is not the criteria for establishing employee-employer relationship. There is no master servant relationship and that the AO has to calculate the period of 240 days for each employee. With respect to filing of Audit report under Rule 19 AB in Form 10DA, the ld DR pointed out that there is a delay of one day, and since filing Form 10DA is a mandatory requirement and not merely procedural, the assessee is not eligible for deduction u/s 80JJAA. The ld DR relied on the hon'ble Supreme Court in the case of Wipro Ltd and the case of Dilip Singh. 13. We have heard the rival submissions and have perused the relevant material on record. A Co-joint reading of the terms of service agreements between the assessee and its customer and the fixed term employment contract between the assessee and its employees shows that the assessee, in its capacity of the employer of its employees, has the authority to deploy/assign employees for provision of serv....
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....hing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B; (b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation; (c) unless the assessee furnishes alongwith the return of income the report of the accountant, as defined in the Explanation to section 288 giving such particulars in the report as may be prescribed. Explanation .- For the purposes of this section,- (i) "additional employee cost" means the total emoluments paid or payable to additional employees employed during the previous year: Provided that in the case of an existing business, the additional employee cost shall be nil, if- (a) there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year; (b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system throu....
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....and its scope was limited to regular workman employed by industrial undertakings. Subsequently the provisions of Section 80JJAA of the Act were relaxed vide Finance Act 2016 to extend the scope of deduction to all taxpayers. Following relaxations were made in Sec. 80JJAA of the Act effective from AY 2017-18: a. The deduction is not limited to the manufacturing activity, rather it is allowed to every assessee having profits and gains from business; b. The words 'additional wages' and 'new regular workman' has been replaced by 'additional employee cost' and 'additional employee'; c. The earlier requirement of new workman in excess of 50 workmen is dispensed with. After the amendment, the deduction is allowable in respect of additional employee cost i.e., total emoluments paid to additional employees. d. The section before amendment specifically provided that a regular workman does not include: i. A casual workman or ii. A workman employed through contract labor or iii. Workman employed for a period of less than 300 days. e. After the amendment the term additional employees mean an ....
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....e purposes of this section, - i "additional employee cost" means total emoluments paid or payable to additional employees employed during the previous year: Provided that in the case of an existing business, the additional employee cost shall be nil, if a) there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year; b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account: ii. "additional employee" means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include,) a) an employee whose total emoluments are more than twenty-five thousand rupees per month; or b) an employee for whom the entire contribution is paid by the Government under the Employees' Pension Scheme notified in accordance with the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19....
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....was entitled to have an opinion or say in ensuring effective utilization of resources, monetary or otherwise. The said supervision is merely to ensure due maintenance of standards and quality in the said canteen. Thus, it was held that contractor's workmen could not be said to be under effective and absolute control of Air India, as Air India merely had the control of supervision over the working of the contractor's employee. ● Hon'ble Supreme Court also referred to its earlier decision in the case of Haldia Refinery Canteen Emps. Union & others - vs .- M/s. Indian Oil Corporation Ltd. 2005 (5) SCC 51 wherein under similar circumstances it was held that the control exercised by the respondent management is to ensure that the canteen is run in an efficient manner, however, this does not mean that the employees working in the canteen have become the employees of the management. Relevant extracts of the order of Hon'ble Supreme Court are produced as under: "14. no doubt, the respondent management does exercise effective control over the contractor on certain matters in regard to the running of the canteen but such control is being exercised to e....
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....oyer's concern or remained independent of it. Thus, where the contractor had the power to select, dismiss, pay remuneration, deduct insurance contributions, organize the work, and the establishment merely had the 'control to supervise' and not complete control, it was held that the contractor was the employer of the employees and not the establishment. 23. In the present factual matrix of the case in hand of the assessee, all the relevant criteria to establish the employer-employee relationship such as the right to appoint, pay remuneration, work schedule regulation, relocation, reassignment, disciplinary actions and termination is undertaken by the assessee. The assessee also fulfills obligations related to statutory withholdings, and social security contributions. Further, the administrative control over such employees is exercised by the assessee and it is merely the supervision and instruction, which is exercised by the customers in order to ensure that the work assigned is given effect to in an efficient manner. In fact, the assessee appoints a coordinator to facilitate supervision and instruction at the customer's premises which further supports the assesse....
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....deduction u/s 80JJAA in the immediately preceding AY 2019-20 after due enquiry u/s 143(3). We therefore hold that the assessee satisfies all the eligibility criteria under amended section 80JJAA of the Act and the AO is directed to allow the deduction u/s 80JJAA. Ground 1 is allowed. 26. Regarding technical Ground No. 2 the Assessing Officer found that the assessee has not filed Form No. 10DA before the due date of filing of the return of income and there is delay of one day. The ld. counsel for the assessee submitted that A. Y 2020-21 was an exceptional year as it was plagued with Covid, hence the delay of only one day and, therefore, could not comply with the provisions of Section 80 JJAA of the Act. 27. We have heard the rival submissions and have perused the relevant material on record. The statutory extended due date of filing of return of income was 15 February 2021. Accordingly, as per the amended Section 80JJAA, filing of Form 10DA r.w. Rule 19AB of the Income Tax Rules, 1962 for AY 2020-21, was due to be filed by 15 January 2021. The appellant filed Form 10DA claiming deduction u/s 80JJAA on 16 January 2021 with a minor delay of 1 day. The reasons for this inadverten....
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....t the assessee is eligible for deduction u/s 80JJAA. As per assessee, the carry forward of deduction claims u/s 80JJAA for AY 2018-19 and 2019-20 has not been allowed. We are of the considered view that the assessee, being eligible for deduction u/s 80JJAA, the AO needs to verify the claim as per the requirements of the provisions of section 80JJAA with regard to the 3rd and 2nd year of claim u/s 80JJAA and allow the same upon verification. The ground 3 is allowed for statistical purpose. 30. The next grievance of the assessee vide Ground No. 5 is the enhancing the income of the assessee by Rs. 97,97,336/- on account of Transfer Pricing adjustment u/s 92CA(3) of the Act. 31. Brief facts relating to this ground are that the Assessing Officer in his final order enhanced the income of the assessee by Rs 97,97,336/- on account of Transfer Pricing adjustment u/s 92CA(3) of the Act by holding that the international transaction pertaining to provision of Information Technology ("IT") services and Information Technology enabled services ("ITeS") to its associated enterprise ("AE") are in the nature of Knowledge Process Outsourcing ("KPO") services and do not satisfy the arm's len....
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....hi High Court in the case of Rampgreen Solutions P Ltd (2015) 60 taxmann.com 355(Del) for the proposition that KPO are only ITeS where the service providers have to employ advanced level of skills and knowledge. The ld DR emphasized that the assessee is making value addition and the dominant service provided is that of KPO. 36. We have heard the rival submissions and perused the materials on record. We find that the assessee main grievance is that the assessee be considered as ITeS and not KPO. The assessee however, without prejudice, contends that the comparables identified by the AO which are KPO service provider and are also undertaking functions of IT and ITeS services, be compared with companies with similar functions identified by the assessee as well. The assessee has filed a revised list of comparables including assessee's TP study comparables as follows: List 1: Company Name Weighted Average Selected by 1. Digical Global Private Limited (10.39%) Appellant 2. Rhea Software Limited (5.08%) Appellant 3. KALS Information Systems Limited (1.58%) Appellant 4. Cameo Corporate Services Limited 1.73%....