1989 (8) TMI 95 - AT - Income Tax

Summary

Issues Involved:

1. Addition of Rs. 2,500 to the profits as disclosed by the books of accounts.
2. Disallowance of Rs. 630 on account of stamp paper expenses.
3. Entitlement to relief under Section 80J of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 2,500 to the Profits:

The assessee declared a Gross Profit (GP) at 10.35% for the year under consideration, which was lower than the 12% declared in the previous year. The Income Tax Officer (ITO) noted the absence of a day-to-day stock register of colors and chemicals and incomplete books of accounts, leading to an addition of Rs. 2,500 to the disclosed profits. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition on similar grounds. However, the Tribunal observed that under almost identical circumstances in the assessment year 1979-80, a similar addition was deleted by the Tribunal. Given the identical facts, the Tribunal deleted the addition of Rs. 2,500, adopting the reasoning from the previous year. Therefore, Ground No. 1 was accepted.

2. Disallowance of Rs. 630 on Account of Stamp Paper Expenses:

This ground was not pressed before the Tribunal and was therefore dismissed.

3. Entitlement to Relief under Section 80J:

The assessee-firm, established on 8th March 1976, did not claim relief under Section 80J in the initial years (1977-78 to 1979-80). For the year under consideration, the relief was claimed in a revised return filed on 9th August 1982, accompanied by copies of audited accounts. The ITO proposed to reject the claim on several grounds:

(i) The claim was not made in the initial year.
(ii) The assessee-firm was not an industrial undertaking.
(iii) Not more than 9 workers were employed.
(iv) The work was done on a contract basis by contractors, not employees of the assessee.
(v) Requirements of Section 80J(6A) were not complied with in the original return.

The assessee contended that not claiming relief in the initial year did not bar claiming it in the current year, citing CIT vs. Satellite Engg. Ltd. The CIT(A) agreed that not claiming relief initially did not bar the claim in subsequent years and did not dispute the character of the assessee-firm as an industrial undertaking. However, the CIT(A) upheld the ITO's view that the contractors and their laborers could not be regarded as employees of the assessee, thus failing to meet the requirements of Section 80J(4)(iv).

The Tribunal, after considering arguments and relevant case laws, agreed with the CIT(A) that the term "employs" in Section 80J(4)(iv) required a master-servant relationship. The Tribunal referred to the Bombay High Court's decision in CIT vs. Sawyer's Asia Ltd., emphasizing the need for a direct employer-employee relationship. The Tribunal found that the assessee employed only 6-7 workers and the major work was done by contractors, who employed their own laborers. There was no employer-employee relationship between the assessee and the contractors' laborers. Thus, the assessee did not meet the requirement of employing 10 or more workers as stipulated in Section 80J(4)(iv), and the claim for relief under Section 80J was denied.

Conclusion:

The appeal was partly allowed. The addition of Rs. 2,500 to the profits was deleted, the disallowance of Rs. 630 on stamp paper expenses was dismissed, and the claim for relief under Section 80J was denied.