2011 (12) TMI 150 - AT - Income Tax

Eligibility of deduction u/s 80IB rejected on basis that the number of workers working in the manufacturing process was less than 10 deduction of expenses towards salary & wages benefit of indexation on UTI-deep discount bonds - Held that - A.O. has not considered workers engaged in another washing unit of same activity. Workers engaged in all the units are required to be considered while computing total number of workers employed by the assessee. Though the name of workers engaged in bottle washing unit were not entered into muster roll but were in the wages register and attendance register. This issue has been decided by the Tribunal in Cavour of the assessee in his own case thereby, assessee is eligible for deduction u/s 80IB and expenses towards salary & wages are also allowed. - Decided against the Revenue It is also held that UTI-MIP-99 is a bond & hence, the assessee is not eligible for indexation in view of 3rd proviso to Section 48. - Decided in favor of Revenue.

Summary

Issues Involved:

1. Eligibility for Deduction under Section 80IB.
2. Disallowance of Salary and Wages.
3. Indexation on UTI Deep Discount Bonds for Capital Gains Calculation.

Issue-wise Analysis:

1. Eligibility for Deduction under Section 80IB:

The primary issue was whether the assessee was eligible for a deduction under Section 80IB. The Assessing Officer (A.O.) had disallowed the deduction, asserting that the number of workers employed by the assessee was less than ten. However, the CIT(A) deleted the addition of Rs. 2,06,49,280/-, and this decision was challenged by the revenue. The Tribunal found that in the previous assessment years (2003-04 and 2006-07), the same issue was decided in favor of the assessee. The Tribunal had previously determined that the A.O. had not considered the workers in the bottle washing unit. The CIT(A) had analyzed various records, including the factory inspector's and ESI inspector's reports, which supported the conclusion that the assessee employed more than ten workers. The Tribunal upheld the CIT(A)'s decision, stating, "We do not find any reason to take a contrary view in the present year and hence, respectfully following the precedent, we decline to interfere in the order of Ld. CIT(A) on these two issues and ground No.1 is rejected."

2. Disallowance of Salary and Wages:

The second issue involved the disallowance of Rs. 1,50,000/- each towards salary and wages. The A.O. had disallowed these expenses, but the CIT(A) deleted the disallowance. The Tribunal noted that since it had already been established that the assessee employed more than ten workers, the actual salary paid to them was allowable. The Tribunal stated, "On the same reasoning as given in ground No.1 of the department's appeal, we do not find any infirmity in the order of the CIT(A) for allowing the claim of deduction on account of salary expenses of the employees." Thus, the Tribunal upheld the CIT(A)'s decision on this issue as well.

3. Indexation on UTI Deep Discount Bonds for Capital Gains Calculation:

The third issue concerned the allowance of indexation on UTI deep discount bonds while computing income from capital gains. The A.O. had disallowed the indexation benefit, arguing that the bonds were debt instruments similar to FD/NSC, and thus, the third proviso to Section 48 applied, which excludes bonds and debentures from indexation benefits. The CIT(A) had allowed the indexation benefit, following the Tribunal's decision in Maanaraj Trading (P.) Ltd. v. DCIT. However, the Tribunal in the present case examined whether UTI MIP-99 could be classified as a bond. The Tribunal referred to various definitions and concluded, "In our considered opinion, UTI, MIP-99 is also a bond as per this definition of bond." Consequently, the Tribunal held that the assessee was not eligible for indexation benefits under the third proviso to Section 48, stating, "As per above discussion, we hold that UTI-MIP-99 is a bond & hence, the assessee is not eligible for indexation in view of 3rd proviso to Section 48." Therefore, this ground of the revenue was allowed.

Conclusion:

In conclusion, the Tribunal upheld the CIT(A)'s decision on the first two issues, affirming the eligibility for deduction under Section 80IB and the allowance of salary and wages. However, on the third issue, the Tribunal reversed the CIT(A)'s decision, disallowing the indexation benefit on UTI deep discount bonds, thereby partly allowing the revenue's appeal.