2012 (12) TMI 410 - AT - Income Tax

Deduction u/s 80IA - AO disallowed the claim on the ground that assessee has not employed 10 or more persons AO however held that the assessee has employed only 4 to 5 workers and has disallowed the part of salary - Held that - The ITAT, Pune, vide its order dated 30-06-2008 held that the claim of the appellant about employment of workers is correct and accordingly the disallowance out of salary to workers was deleted. Not carried out any activity of manufacturing Held that - As there was no conclusive evidence to prove this to the hilt, but there is no evidence to dislodge the claim of the assessee supported by excise and other statutory records as also by the evidence of purchase of raw material etc. that the production of PCB took place in Silvassa. Deduction allowed. In favour of assessee Addition on account of payment to labour contractors Assessee contended that the incorrect noting was made by the supervisor and appellant is not concerned with the same - Held that - As the noting in the seized material about an amount of Rs. 3,60,000/- is receivable from the contractors. The contention of the appellant in respect of the said amount is not acceptable in view of the noting found in seized material. Delete the balance addition made by AO as confirmed by ITAT, Pune. Appeal partly allowed in favour of assessee

Issues Involved:

1. Deduction under Section 80IA of the Income Tax Act.
2. Employment of 10 or more workers.
3. Use of electric power in manufacturing.
4. Nature of manufacturing activities.
5. Disallowance of labor charges and wages.
6. Payments to labor contractors.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IA of the Income Tax Act:

The Revenue challenged the assessee's eligibility for deduction under Section 80IA, claiming the assessee did not meet the criteria for employing the required number of workers and did not conduct manufacturing activities. The Tribunal noted that the entire basis for disallowance was findings from survey proceedings during Diwali vacations, where the supervisor was absent, and the assessee was not allowed to cross-examine the employee whose statement was used against them. The Tribunal held that statements taken at the back of the assessee cannot be used as evidence unless the assessee is confronted and allowed to cross-examine the person. The Tribunal remitted the matter to the AO for fresh adjudication based on material on record and applicable legal positions.

2. Employment of 10 or More Workers:

The AO claimed the assessee did not employ the required number of workers. The Tribunal found that the AO's findings were based on subjective perceptions and statements retracted and inconsistent upon cross-examination. The Tribunal noted that workers employed through labor contractors should be included in the definition of employees. The CIT(A) confirmed the employment of 10 or more workers based on salary payments and employment through labor contractors, aligning with the Tribunal's earlier findings.

3. Use of Electric Power in Manufacturing:

The AO argued the assessee did not use electric power, citing low electricity bills. The Tribunal and CIT(A) found that the manufacturing process required minimal power for soldering and testing, and the electricity usage was consistent with the industrial zone's low rates. The Tribunal upheld that the manufacturing activity was conducted with the aid of power, requiring a minimum of 10 workers.

4. Nature of Manufacturing Activities:

The AO contended that the assessee only conducted stitching and assembling activities and not actual manufacturing. The Tribunal noted excise records and statutory documents supported the claim that manufacturing of PCBs took place at Silvassa. The Tribunal found no evidence to dislodge the assessee's claim and upheld the manufacturing activities at Silvassa.

5. Disallowance of Labor Charges and Wages:

The AO disallowed labor charges and wages, alleging they were bogus and based on findings from survey proceedings. The Tribunal found the AO's findings were not supported by substantial evidence and were based on retracted statements. The Tribunal and CIT(A) upheld the assessee's claim of employing workers and making genuine payments, dismissing the disallowance.

6. Payments to Labor Contractors:

The AO claimed payments to labor contractors were returned to the assessee, making them bogus. The Tribunal found no substantial evidence supporting this claim, and the CIT(A) allowed the payments, noting that similar payments in earlier years were deemed genuine by the Tribunal. The CIT(A) confirmed the disallowance of Rs. 3,60,000 based on seized material but allowed the remaining amount of Rs. 9,25,634 as genuine payments.

Conclusion:

The Tribunal upheld the CIT(A)'s order allowing the deduction under Section 80IA, confirming the employment of the required number of workers, use of electric power, and genuine nature of labor charges and payments to labor contractors. The appeals filed by the Revenue were dismissed.

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