2019 (12) TMI 1671 - AT - Income Tax

Deduction u/s. 80JJAA - workmen as employed for more than 300 days - AO disallowed deduction relating to the workmen who have not completed 300 days in the year under consideration - definition of regular workman Excluding workman employed for a period of less than 300 days - AO was of the view that the deduction u/s. 80JJAA is allowable from the profits and gains derived by the assessee to the extent of 30% of the additional employee cost incurred in the course of business during the previous year in respect of the additional wages paid to the new employees who are employed on regular basis and completed 300 days of employment - assessee submitted that deduction should not be restricted to the employees joined before 5th June but should be extended in respect of the employees completed 300 days on or before filing the return HELD THAT - The identical issue has been considered by the ITAT in the assessee s own case for the assessment year 2013-14 2019 (4) TMI 2120 - ITAT BANGALORE and held that the assessee is eligible for deduction u/s 80JJAA on additional wages paid to the new regular workmen employed in the financial year relevant to the assessment year 2012-13 provided they continue to be qualified under the regulation of regular workmen. Thus we consider it is deem it fit to remit the matter back to the file of AO to examine the issue in the light of the decision of this Tribunal and direct the AO to allow the deduction as per the direction given in the order supra. The assessee has to furnish the details of new workmen employed and the additional wages incurred before the AO. Accordingly the order of the lower authorities are set aside and the issue is remitted back to the file of the AO to decide the issue afresh on merits. Assessee ground is allowed for statistical purpose. Disallowance of commission - disallowance u/s. 40(a)(ia) as well as colourable device to inflate the expenses - HELD THAT - With regard to the disallowance made u/s 37(1) of the Act the AO issued the notice under section 142(1) of the Act directing the assessee to establish the marketing services rendered by the assessee and made the addition holding that the assessee did not establish the marketing services rendered by the holding company M/s. Aquarelle International Ltd. However in subsequent paragraphs though without prejudice the AO made the addition under section 40(a)(ia) of the Act. While making the disallowance under section 40(a)(ia) of the Act the AO made the observation that payment was genuine and the agents have rendered the services. Therefore as rightly argued by the Ld. AR there was a contradictory finding in respect of the services rendered by the foreign agent to the assessee. CIT(A) rejected the application of the assessee for admission of additional evidence however the Ld. CIT(A) reached conclusions on the basis of additional evidence produced by the assessee without even calling for the remand report. Having rejected the application for admission of additional evidence the Ld. CIT(A) ought not to have placed reliance on the same additional evidence for concluding that the M/s. Aquarelle International Ltd. has not rendered the marketing services to the assessee. CIT(A) also ought to have called for the remand report and made verification of the facts submitted in the additional evidence before taking the additional evidence as basis for coming to conclusions - entire issue needs to be re-examined by the AO to establish whether the M/s. Aquarelle International Ltd. has rendered the services for receipt of commission or not and whether the payment is in the nature of technical services or not. Assessee ground allowed for statistical purposes.

Summary

Issues Involved:

1. Addition of Rs. 91,18,238/- under Section 80JJAA of the Income Tax Act, 1961.
2. Disallowance of commission amounting to Rs. 4,76,55,888/- under Section 40(a)(ia) of the Act and as a colorable device to inflate expenses.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 91,18,238/- under Section 80JJAA of the Income Tax Act, 1961:

The assessee, engaged in manufacturing garments, claimed a deduction of Rs. 1,23,12,539/- under Section 80JJAA for the Assessment Year (AY) 2014-15. The deduction under Section 80JJAA is allowable for additional employee costs incurred in the regular course of business. The Assessing Officer (AO) found that out of 381 employees, only 186 had completed 300 days of employment, and thus allowed the deduction for only 24 employees amounting to Rs. 31,94,301/-, disallowing Rs. 91,18,238/-.

The CIT(A) upheld the AO's decision, stating that the deduction is only for employees who completed 300 days of employment during the relevant year, and not for those employed for less than 300 days. The Tribunal referred to previous judicial pronouncements and concluded that the deduction is allowable only if the new workmen were employed for at least 300 days during the relevant year. The Tribunal remitted the matter back to the AO to examine the issue afresh in light of its previous decisions, directing the AO to allow the deduction if the conditions under Section 80JJAA are met.

2. Disallowance of commission amounting to Rs. 4,76,55,888/- under Section 40(a)(ia) of the Act and as a colorable device to inflate expenses:

The assessee debited Rs. 4,76,55,888/- as commission to its holding company, Aquarelle International Ltd., for marketing services. The AO disallowed the deduction under Section 40(a)(ia) for non-deduction of tax at source, and also questioned the genuineness of the commission, suspecting it as a colorable device to inflate expenses. The CIT(A) upheld the AO's decision, rejecting additional evidence submitted by the assessee.

During the appeal hearing, the Tribunal noted contradictory findings by the AO regarding the genuineness of the commission payment. The Tribunal observed that the CIT(A) relied on additional evidence without calling for a remand report, and concluded that the entire issue needs re-examination by the AO to verify the services rendered and the nature of the payment. The Tribunal remitted the matter back to the AO for a fresh examination of the facts and directed the AO to decide the issue afresh on merits.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine both the issues of deduction under Section 80JJAA and the disallowance of commission under Section 40(a)(ia) and Section 37(1) of the Act, ensuring a thorough verification of the facts and conditions stipulated under the relevant provisions of the Income Tax Act.