2011 (2) TMI 1390 - AT - Income Tax

Summary

Issues: Disallowance of claim for deduction u/s 80IB of Rs. 6,75,41,495 and consideration of contractual workers for fulfilling the condition of minimum number of workers u/s 80IB.

The appeal pertained to the disallowance of a deduction u/s 80IB of Rs. 6,75,41,495 for the Assessment Year 2006-07. The Assessing Officer (A.O.) required the assessee, engaged in manufacturing essential oils, to employ 10 or more workers in the manufacturing process. The A.O. disallowed the claim as the number of workers employed was 8 or 9, falling short of the requirement. The assessee contended that casual workers should be included in the count, but the A.O. rejected this argument.

On appeal, the CIT(A) considered the inclusion of contract labor and workers involved in purchasing raw materials. The CIT(A) observed that workers engaged in various processes integral to manufacturing should be counted. Referring to legal precedents, the CIT(A) held that workers involved in the entire manufacturing process, from raw material procurement to finished goods, should be considered employed in the manufacturing process. The CIT(A) concluded that the A.O. erred in disallowing the claim.

During the hearing, the CIT DR argued that the contractual workers did not establish an employer-employee relationship with the assessee, thus not fulfilling the conditions of Section 80IB(2)(iv). Conversely, the A.R. supported the CIT(A)'s decision, emphasizing the holistic consideration of the manufacturing process. The Tribunal noted that the assessee had engaged 10 or more workers in certain months, including contractual labor and staff for raw material purchase, meeting the statutory requirement. Citing legal interpretations, the Tribunal upheld the CIT(A)'s decision to allow the deduction.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the deduction u/s 80IB. The judgment was pronounced on 18th Feb., 2011.