2012 (11) TMI 622 - AT - Income Tax

Benefit of Deduction u/s 80 IB Whether casual,contract labour and electrician be considered as Employee of Co. - held that - the casual and contract employees including electrician has to be taken into account for the purpose of calculating number of employees. Once the contract and casual employees are taken into account, the number of employees would be more than 10, therefore, the assessee is eligible for deduction u/s 80IB of the Act. - Decided in favor of assessee. Burning Loss Held that - Theoretical research made by the universities may be to some extent nearer to the actual burning loss suffered by the companies but there cannot be any standard formula to fix the burning loss. - the burning loss would depend upon the nature of the raw material and the process adopted for conversion of scrap into iron ingots. - There may be various factors which would reduce the burning loss or increase the burning loss. Unless specific materials are available with the assessing officer to say that the burning loss claimed by the assessee is highly excessive or there was no loss at all - the disallowance made by the assessing officer cannot be sustained. - Decided in favor of assessee.

Issues Involved:
1. Deduction under Section 80IB of the Income-tax Act.
2. Claim of burning loss in the manufacturing process.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB of the Income-tax Act:

The primary issue revolves around the eligibility for deduction under Section 80IB of the Income-tax Act. The assessee claimed this deduction, which was disallowed by the assessing officer on the grounds that the assessee had not employed more than 10 workers in the manufacturing process. The department argued that the majority of workers were employed through contractors and, thus, could not be counted towards the required number of employees.

The Commissioner of Income-tax(A) allowed the deduction, referencing a previous Tribunal decision in the assessee's case for the assessment years 2002-03 and 2005-06, which considered casual and contract workers, including electricians, as part of the workforce. This decision was based on the judgment of the Gujarat High Court in Commissioner of Income-tax vs. Prithviraj Bhoorchand, which stated that contract and casual workers could be considered if the overall control of activities rested with the assessee.

The Tribunal upheld this view, noting that the ultimate control over the workers was with the assessee, and therefore, these workers should be included in the employee count for Section 80IB deduction. The Tribunal also referenced conflicting judicial opinions from various High Courts and followed the Supreme Court's directive in Commissioner of Income-tax vs. Vegetable Products, which favored the assessee in cases of conflicting views. Consequently, the Tribunal confirmed that the casual and contract workers, including electricians, should be counted, making the assessee eligible for the deduction under Section 80IB.

2. Claim of Burning Loss in the Manufacturing Process:

The second issue pertains to the claim of burning loss by the assessee in the manufacturing of iron ingots. For the assessment year 2004-05, the assessee claimed a burning loss of 16%, which was contested by the department, arguing that the industrial average for burning loss ranged from 4.46% to 10.51%. The department contended that the use of imported scrap should result in a lower burning loss.

For the assessment years 2005-06 and 2008-09, the assessee claimed burning losses of 10.53% and 10.89%, respectively, which were also contested by the department. The Commissioner of Income-tax(A) deleted the additions made by the assessing officer, who had fixed the burning loss at 5.5% based on industrial averages.

The Tribunal examined the submissions and found that the assessing officer's reliance on theoretical research papers from universities was not sufficient. The Tribunal emphasized that the burning loss depends on the raw material's impurity and the conversion process, which can vary significantly. The Tribunal noted that the assessee maintained proper registers under the Central Excise Act and for value-added tax purposes, and these were not disputed by the relevant authorities.

The Tribunal concluded that without specific evidence to suggest that the burning loss claimed by the assessee was excessive or incorrect, the book results should be accepted. The Tribunal confirmed the Commissioner of Income-tax(A)'s decision to delete the additions made by the assessing officer, thereby accepting the burning loss claimed by the assessee.

Conclusion:

The Tribunal dismissed the appeals of the revenue and upheld the decisions of the Commissioner of Income-tax(A) regarding both the deduction under Section 80IB and the burning loss claims. Consequently, the assessee's appeals against the orders of the Administrative Commissioner became infructuous and were also dismissed. Thus, all appeals by both the assessee and the revenue were dismissed.

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