Section 80JJAA – Assessee cannot be denied deduction u/s 80JJAA, provided that such employees fulfil the condition of being employed for 300 days for the year under consideration, even though such employees do not fulfil the condition of being employed for 300 days in the immediately preceding assessment year

9. Tata Elxsi Ltd. vs. JCIT B.R. Baskaran (A.M.) and Beena Pillai (J.M.) ITA
No.3445/Bang/2018 A.Y.: 2014-15 Date of order: 29^th October, 2020
Counsel for Assessee / Revenue: Padamchand Khincha / Muzaffar Hussain

Section 80JJAA
– Assessee cannot be denied deduction u/s 80JJAA, provided that such employees
fulfil the condition of being employed for 300 days for the year under
consideration, even though such employees do not fulfil the condition of being
employed for 300 days in the immediately preceding assessment year

FACTS

The assessee, a
company engaged in the business of distributed systems, design and development
of hardware and software and digital content creation, filed its return of
income for the assessment year under consideration declaring total income of
Rs. 98,28,88,380. In the return of income, the assessee claimed deduction of
Rs. 10,51,99,796 u/s 80JJAA.

The A.O. rejected the claim of the assessee for non-fulfilment of the
following two conditions:

i)          that the assessee is
not engaged in the manufacture or production of an article or thing as per the
conditions laid down u/s 80JJAA; and

ii)         the condition of 300
days to be fulfilled by the regular workmen as per the provisions does not
stand fulfilled.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed
the action of the A.O.

The aggrieved
assessee then preferred an appeal to the Tribunal where it was submitted that
this was the third year of such a claim by the assessee and that the employees
against whose wages the deduction has been claimed satisfy the necessary conditions.
Reliance was placed on the observations of the coordinate bench of the Tribunal
in Texas Instruments (India) Pvt. Ltd. vs. ACIT (2020) 115 Taxmann.com
154 regarding allowability of the claim to the assessee.

HELD

The Tribunal noted that the A.O. denied benefit to the assessee on the
reasoning that the assessee was denied benefit against the employees in the
first year of their employment and that the assessee being a software
development company was not eligible for deduction.

The Tribunal noted the view of the Tribunal in the case of Texas
Instruments (India) Pvt. Ltd. vs. ACIT (Supra)so far as the first
objection of the A.O. regarding non-satisfaction with respect to additional
wages paid to new employees in the first year of employment is concerned. The
Tribunal held that from the observations of the Tribunal in that case, there is
no doubt that the assessee cannot be denied deduction u/s 80JJAA provided that
such employees fulfil the condition of being employed for 300 days for the year
under consideration even though such employees do not fulfil the condition of
being employed for 300 days in the immediately preceding assessment year.

However, since
the details of fulfilment of the number of days of such employees, on whose salary
deduction has been claimed by the assessee, was not available on record, the
Tribunal was unable to verify whether the necessary condition of 300 days stood
fulfilled. It agreed with the DR that nothing on record placed before the bench
reveals that this is the third year of claim by the assessee as has been
submitted at page 223 of the paper book. The Tribunal, therefore, remanded the
issue to the A.O. to verify these details in terms of new employees having
satisfied the 300 days’ criterion during the year. It directed the assessee to
provide all details regarding number of regular workmen / employees, number of
new workmen / employees added for each of the immediately three preceding
assessment years to the A.O. who shall then analyse fulfilment of the condition
in respect of new employees / workmen against whom the claim has been made by
the assessee u/s 80JJAA and allow deduction under that section.

This ground of
appeal filed by the assessee was allowed.

Contributors’ comments: The Finance Act, 2018 has
added a second proviso to the definition of additional employee in
Explanation (ii) to section 80JJAA. So, the ratio of the above decision
would be relevant for the period prior to the amendment by the Finance Act,
2018.