2023 (3) TMI 1099 - AT - Income Tax

Deduction u/s 80IB - Claim denied as assessee did not have 10 workers during the year - employment of 10 workers was not verifiable before the AO who has examined the Manager and also obtained report of PF department - HELD THAT - As seen that the statement of Sh. Rohit Sharma, Manager was taken in isolation and the assessee has not been granted an opportunity to cross examine in rebuttal and hence, the evidentiary value of such statement without cross examination is in nullity in the eyes of law. Report of PF department, did not make it clear that on which particular day there were 8 workers excluding watchman/ckaukidars for day and night and the frequently of such day on monthly basis, so as to understand the working strength/man power/workers employed in view of the requirement of the provisions of section 80IB(iv) - CIT(A) was justified in approving the claim of the appellant assessee that there were 10 and more workers were employed during the year under consideration. The attendance register of the appellant, that on that particular day the number of employees were less than ten, as some of them were absent on account of leave etc. These facts have not been appreciated by the AO while passing the assessment order as it was not the case of the AO that the Department has undertaken an independent enquiry to find out as to whether ten or more workers were working and have found that the actual numbers of workers were actually less than ten. The sole reliance on the report of PF department is not tenable. AO had not pointed out any specific defect in the salary register, wages register attendance register and payment of wages register produced before him during the assessment proceedings to rebut the claim of the appellant assessee that 10 or more workers were working in the factory unit of the assessee. Thus the matter is remanded to the AO on the limited issue whether, there were 10 or more workers employed in the factory unit of the assessee to qualify for claim of deduction u/s 80IB(iv) - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB of the Income Tax Act.
2. Verification of employment of 10 workers as a condition for deduction.
3. Consistency in allowing deductions in previous and subsequent assessment years.

Summary:

1. Eligibility for Deduction under Section 80IB:
The Revenue appealed against the CIT(A)'s order allowing the assessee's claim for deduction under section 80IB for the Assessment Year 2013-14. The assessee, engaged in manufacturing poultry feed supplements, declared a net profit of Rs. 5.56 crores and filed a 'NIL' income return after claiming a 100% deduction under section 80IB. The AO disallowed the deduction, citing non-fulfillment of the condition of employing at least 10 workers.

2. Verification of Employment of 10 Workers:
The AO recorded the statement of the assessee's Manager, who stated that only 6 to 7 employees were working. The AO also obtained a report from the PF department, which indicated that 7 to 8 employees were present during inspections. Consequently, the AO concluded that the assessee did not meet the mandatory condition of employing 10 workers. However, the CIT(A) found that the assessee had provided sufficient evidence, including attendance and wage registers, showing employment of more than 10 workers. The CIT(A) noted that the term 'workers' under section 80IB includes casual, permanent, and temporary workers, and relied on judicial precedents supporting this interpretation.

3. Consistency in Allowing Deductions:
The CIT(A) observed that the assessee had been granted the deduction under section 80IB in the preceding (AY 2012-13) and succeeding (AY 2014-15) years. The principle of consistency, as upheld by the Supreme Court in Radhasoami Satsang and CIT vs. Excel Industries Ltd., was applied. The CIT(A) rejected the AO's reliance on the PF department's report and the Manager's statement, noting that the assessee was not given an opportunity to cross-examine the Manager and that the PF report did not conclusively prove non-compliance with the conditions of section 80IB.

Conclusion:
The Tribunal remanded the matter to the AO to verify whether 10 or more workers were employed in the factory unit to qualify for the deduction under section 80IB. The appeal was allowed for statistical purposes, and the order was pronounced on 14.03.2023.