2020 (11) TMI 274 - AT - Income Tax

Deduction u/s 80JJAA - employment of new workmen - non-satisfaction with respect to additional wages paid to new employees in the 1st year of employment - HELD THAT - As relying on Texas Instruments (India) Pvt.Ltd 2020 (3) TMI 1195 - ITAT BANGALORE there is no doubt that assessee cannot be denied deduction under section 80JJAA of the Act, provided that, such employees fulfils the condition of being employed for 300 days for year under consideration , even though such employees do not fulfil the condition of being employed for 300 days in the immediately preceding assessment year. We also note that, details fulfilment of number of days of such employees, on whose salary deduction has been claimed by assessee, are not available on record. Therefore, we are unable to verify, whether necessary condition of 300 days stands fulfilled. We are therefore of opinion that the issue needs to be remanded to Ld.AO to verify these details in terms of new employees having satisfied the 300 days criteria during the year. We direct assessee to provide all details regarding number of regular workmen/employees, number of new workmen/employees added for each of the immediately three preceding assessment years to Ld.AO. Ld.AO is then directed to analyse fulfilment of the condition in respect of new employees/workmen against whom the claim has been made by assessee under section 80JJAA of the Act. Ld.AO is then directed to allow deduction under section 80 JJAA - Ground of assessee stands allowed for statistical purposes. Deduction in respect of share of loss from A2E2, USA - HELD THAT - Authorities below rejected the claim as assessee assessee was not allotted shares in the LLC wherein it was a partner but in our view this issue needs to be remanded to Ld.AO to consider the claim of assessee in light of evidences/documents, joint venture Agreements, declaration by the U.S. LLC before the tax authorities therein etc, OECD commentary is in respect of the same, the manner in which such incomes/loss as the case may be are treated in USA being the source country and the manner in which such income/loss are to be treated as per Indian income tax act. Ld.AO shall take a view based upon all the documents in light of the provisions applicable during the relevant period under the act. Ground of assessee stands allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of deduction under section 80JJAA amounting to ?8,93,19,981.
2. Disallowance of deduction claimed in respect of share of loss from M/s A Squared Elxsi Entertainment LLC (A2E2), USA amounting to ?4,11,75,000.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80JJAA:
The assessee claimed a deduction of ?8,93,19,981 under section 80JJAA, which was disallowed by the Assessing Officer (AO) on the grounds that the condition of 300 days of employment for regular workmen was not met. The CIT(A) upheld this disallowance based on the decision in LG Electronics India Pvt. Ltd., which stated that only new workmen employed for 300 days in the relevant previous year are eligible for the deduction.

The assessee argued that the term "Industrial undertaking" is not defined in section 80JJAA but is defined in section 10(15) and the Industrial Disputes Act. The Tribunal in Texas Instruments (India) Pvt. Ltd. vs ACIT had considered employees in the software industry as workmen, thus making the software industry eligible for the deduction under section 80JJAA. The assessee contended that this was the third year of the claim and that the employees met the necessary conditions.

The Tribunal noted that the AO's denial was based on the reasoning that the employees did not work for 300 days in the first year of employment. However, it was clarified that if employees fulfill the 300 days condition in the current year, the deduction should be allowed, even if they did not meet this condition in the previous year. The Tribunal directed the AO to verify the details of the employees and determine if the 300 days condition was met, thereby remanding the issue back to the AO for verification.

2. Disallowance of Deduction Claimed for Loss from A2E2:
The assessee claimed a share of loss amounting to ?4,11,75,000 from A2E2, a joint venture in the USA. The AO disallowed this claim because the assessee was not allotted shares in A2E2 during the year in question. The CIT(A) upheld this disallowance, stating that the claim was not legally sustainable without share allotment.

The assessee explained that A2E2 was a pass-through entity, and the losses were assessable in the hands of the joint venture partners. The Tribunal noted that the AO had not verified various details of the claim as it was made during assessment proceedings. The Tribunal directed the AO to consider the claim in light of the joint venture agreements, declarations by the U.S. LLC, OECD commentary, and the manner in which such incomes/losses are treated in the USA and under Indian tax law. The issue was remanded to the AO for verification, with instructions to provide the assessee an opportunity to present all requisite details.

Conclusion:
The appeal filed by the assessee was allowed for statistical purposes, with both issues being remanded to the AO for further verification and consideration based on the provided details and applicable laws.