TaxTMI 
TaxTMI 
2026 (8) TMI 1823
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.... brief 2.1. Briefly stated, the assessee filed its return of income for the assessment year 2022-23 on 29.09.2022, declaring total income of Rs. 1,94,43,690/-. The case was selected for scrutiny and, during the assessment proceedings, the Assessing Officer specifically examined, inter alia, the assessee's claim of deduction of Rs. 1,23,89,236/- under section 80JJAA of the Act. In response to the notices issued under section 142(1), the assessee furnished Form No. 10DA, employee-wise particulars and other supporting documents. The Assessing Officer thereafter issued a show-cause notice dated 08.03.2024 proposing, among other variations, disallowance of the deduction claimed under section 80JJAA. After considering the assessee's reply dated 13.03.2024 and the documents furnished in support of the claim, the Assessing Officer accepted the returned income and completed the assessment under section 143(3) read with section 144B of the Act on 20.03.2024, determining the total income at Rs. 1,94,43,690/-. 2.2. Subsequently, the learned PCIT initiated revisional proceedings under section 263 of the Act on the ground that the Assessing Officer had allowed the deduction under section 8....
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....mission, the learned AR invited our attention to the copy of the assessment order for assessment year 2020-21 placed at pages 22 and 23 of the paper book and, more particularly, to the specific portion thereof wherein the details relating to the deduction claimed under section 80JJAA were examined. It was therefore submitted that the claim was recurring in nature and had been accepted upon examination in the earlier assessment year. 5. In respect of the assessment year under consideration, the learned AR submitted that the Assessing Officer had made a specific enquiry into the claim under section 80JJAA. He invited our attention to pages 7 and 8 of the assessment order and pointed out that the Assessing Officer had issued a show-cause notice proposing the disallowance of the deduction of Rs. 1,23,89,236/- claimed under section 80JJAA. In response thereto, the assessee furnished its detailed reply dated 13.03.2024, along with Form No. 10DA and employee-wise particulars in the format prescribed by the Assessing Officer. The assessee had also furnished the details of employee benefit expenses, salary payments, employer's contributions to provident fund and ESIC and other supporting....
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....on was also engaged in providing staffing services to its customers and its employees were deputed at the premises of its clients. The deduction claimed under section 80JJAA was disallowed on the ground that the employees were not regular employees and that no employer-employee relationship existed between the staffing company and the personnel deputed at the clients' premises. The Co-ordinate Bench, after examining the amended provisions of section 80JJAA and the nature of the employment and service arrangements, allowed the claim. 9. On the jurisdictional ground, the learned AR first placed reliance upon the judgment of the Hon'ble jurisdictional Bombay High Court in Commissioner of Income-tax v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.). The learned AR submitted that, in the said case, the Assessing Officer had raised a specific query regarding the allowability of the expenditure claimed by the assessee, considered the written explanation furnished in response thereto and allowed the claim. The assessment order, however, did not contain a detailed discussion of the enquiry made or the explanation furnished. The Commissioner invoked section 263 on the ground that the absenc....
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....g to the learned DR, it was necessary to examine whether the employees in question were, in substance, employees of the assessee's own business and whether the assessee had incurred any real additional employee cost within the meaning of section 80JJAA. 14. The learned DR particularly relied upon paragraph 22 at page 6 of the impugned revisional order. The said paragraph reads as under: "22. The material available on record shows that certain documents such as Form 10DA and employee-wise details were furnished. However, there is nothing on record to show that the Assessing Officer examined the service agreements with clients, the actual nature of employer-employee relationship, the extent of supervision and control over the deployed personnel, or the salary reimbursement arrangement. These were central issues in the facts of the case. In the absence of examination on these issues, it cannot be said that the claim was properly verified." 15. The learned DR submitted that the mere calling for and furnishing of Form No. 10DA and employee-wise particulars did not establish that the Assessing Officer had examined the essential conditions for allowing the deduction. The As....
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....that, although certain details had been called for, no enquiry was made into the material aspects concerning the service agreements, employer-employee relationship, supervision and control, salary reimbursement and fulfilment of the employee-specific conditions under section 80JJAA. 19. The learned DR also placed reliance upon the judgment of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). Referring to the principle governing the exercise of jurisdiction under section 263, he submitted that an order passed without application of mind and resulting in the loss of tax lawfully payable is erroneous and prejudicial to the interests of the Revenue. 20. The learned DR submitted that the above ratio applied to the present case because the deduction of Rs. 1,23,89,236/- was allowed without examining the material facts necessary to determine the assessee's eligibility. He further pointed out that complete identifying particulars were not available in respect of some of the employees included in the employee-wise details. This deficiency also required verification before allowing the substantial deduction claimed by the assessee. 21. According....
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....al 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 services at its customer's premises. Post assignment, the customer of the assessee, has the authority restricted only to supervise and instruct the work of the deployed employee. The customer cannot take any disciplinary action against the erring employee and can only seek replacement of such employees from the assessee. As per Service Contract, the supervision and control of the employees lies with the assessee company. Upon completion of the task at the customer's premise or under any other circumstances, the employees return to the assessee, who may then reassign them to a different location or customer premise." 25. The learned AR further submitted that reimbursement of salary by the clients did not alter the employer-employee relationship. The employees were recruited and appointed by the assessee; their sala....
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.... 91,82,204/-. The assessment order further records that the assessee furnished details of eligible employees and the working of the total salary paid. The learned AR also invited our attention to pages 27 to 68 of the paper book, stated to contain Form No. 10DA and the supporting employee-wise particulars. 29. The concluding portion of the assessment order shows that the Assessing Officer was conscious of the precise nature of the assessee's business. He recorded that the assessee was engaged in providing complete payroll outsourcing and payroll management services and had multiple clients across different segments to whom it provided human resource and staffing services. The Assessing Officer further recorded that the deduction under section 80JJAA was claimed in respect of the employment of new employees and that details of eligible employees and the working of the total salary paid had been furnished. It was after considering these replies and documents that the Assessing Officer accepted the returned income. 30. These facts establish that the claim was not allowed without enquiry. The Assessing Officer raised a specific query, called for the statutory audit report and emp....
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.... in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the ITO to re-examine the matter that, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interests of the revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal." 33. The ratio of the aforesaid judgment applies to the facts before us. The Assessing Officer had made a specific enquiry into the deduction claimed under section 80JJAA and had considered the assessee's written explanation and supporting documents. The learned PCIT has not demonstrated that the particulars furnished ....
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....IT himself acknowledged that Form No. 10DA and employee-wise details were furnished during the assessment proceedings. His objection was that the Assessing Officer did not additionally examine the agreements with the clients, the actual nature of supervision and control and the salary reimbursement arrangement. Thus, the impugned order itself demonstrates that this is not a case where the Assessing Officer omitted to enquire into the deduction altogether. It is a case where the learned PCIT considered that the enquiry should have been conducted in a different and more extensive manner. 36. We have also examined whether the view adopted by the Assessing Officer was legally unsustainable. Section 80JJAA, as applicable to the assessment year under consideration, allows a deduction equal to thirty per cent of the additional employee cost incurred in the course of business, subject to the conditions specified therein. Explanation (ii) defines "additional employee" and excludes employees whose monthly emoluments exceed Rs. 25,000/-, employees in respect of whom the entire contribution is paid by the Government under the Employees' Pension Scheme, employees who do not satisfy the presc....
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....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." 39. Upon examining the relevant facts and statutory compliances, the Co-ordinate Bench concluded in paragraph 25 as under: "25. In view of the above discussion, we are of the considered view that the assessee is the employer qua the employees employed by it and there is an established relationship of employer-employee between them. The fact is established from the declaration by customer acknowledging deputed personnel as employees of assessee. The payments towards salaries to the employees is subject to Tax withholding u/s 192 of the Income Tax Act, 1961 and TDS certificate in Form 16 is issued by the assessee to its employees on an annual basis. Not only salary, the accompanied obligations of employees towards Provident Fund and Employee State Insurance are discharged by the assessee. We also note that the Department accepted the claim of 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 cr....
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....ess could not render the assessment order erroneous. It was incumbent upon the learned PCIT to demonstrate, on the basis of the material on record, which particular statutory condition was violated and how the deduction allowed by the Assessing Officer was inadmissible. The impugned order does not record any such concluded finding. It merely directs the Assessing Officer to make further enquiries and decide the claim afresh. 44. The fact that the same deduction had been claimed and allowed in the scrutiny assessment for assessment year 2020-21 is not, by itself, conclusive of the assessee's entitlement for the year under consideration. It is nevertheless a relevant circumstance demonstrating that the Assessing Officer's view was not an isolated or manifestly untenable view. The copy of the assessment order for assessment year 2020-21 was placed before the Assessing Officer during the present assessment proceedings and was again referred to before us at pages 22 and 23 of the paper book. 45. The learned DR relied upon Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). There is no dispute regarding the proposition that an order passed without application of mind or with....