ORDER
Narendra Prasad Sinha, Accountant Member.- This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 18.11.2024 for the Assessment Year (A.Y.) 2017-18 in the proceeding under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. There was a delay of 159 days in filing of this appeal. An affidavit has been filed by the assessee explaining the reason for delay. It is submitted that the concerned Chartered Accountant Shri Kalgi Mistry, who was looking after the taxation work of the assessee company, did not inform about the order of the Ld. CIT(A) in time for the reason that she had gone on examination leave for CPA and, thereafter, she did not resume her duties but tendered her resignation and left the service without reporting the pending work/matters. Subsequently, her successor in the office, on receiving the notice of penalty under Section 270A of the Act, had enquired about the status of the appeal against the order of the Ld. CIT(A). Thus, the assessee became aware of the order of the Ld. CIT(A) only after receiving the penalty notice and, thereafter, the appeal was immediately filed and, in the process there was this delay in filing the appeal. It is submitted that the delay was not intentional and accordingly the request was made to condone the delay. Considering the explanation of the assessee, the delay in filing the present appeal is condoned.
3. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2017-18 on 29.11.2017 declaring income of Rs.13,02,05,080/-. The case was selected for complete scrutiny. The assessee is engaged in the business of instant quick frozen of vegetables and fruits and the products are mainly exported out of India. In the course of assessment, the Assessing Officer had made the following additions: –
| (i) | | Rejection of claim of Rs.56,56,433/- towards deduction under Section 80JJAA of the Act. |
| ii | | Addition of Rs.78,23,000/- towards NHB Cold Storage Subsidy treating the same as revenue in nature. |
| (iii) | | Withdrawal of claim of Rs.21,83,404/- on duty drawback while calculating deduction under Section 80IB of the Act. |
The assessment was completed under Section 143(3) of the Act on 30.12.2019 at total income of Rs.15,09,62,527/-.
4. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
5. The assessee is now in second appeal before us. The following grounds have been taken in this appeal: –
“1.1 The order passed by U/s.250 passed on 18.11.2024 for A.Y. 2017-18 by NFAC, [CIT(A)], Delhi (for short CIT(A)” upholding the additions (revised) aggregating to Rs.1,56,62,837/- made by A.O. is wholly illegal, unlawful and against the principles of natural justice.
2.1 The Id. CIT(A), has grievously erred in law and or on facts in not considering fully and properly the explanation and documents furnished and thereby passing a non-speaking and cryptic order confirming the impugned additions which has resulted into gross violation of the principles of natural justice. Therefore, the observations made by him about non-furnishing of evidence are erroneous.
3.1 The Id. CIT(A) has grievously erred in law and or on facts in confirming the disallowance of claim of deduction u/s 80JJAA of Rs.56,56,433/- by ignoring the evidence of employment produced before him eg. Details of EPF challan-cum return.
3.2 That the in the facts and circumstances of the ld. CIT(A), ought not to have upheld the disallowance of claim of deduction u/s 80JJAA of Rs.56,56,433/ by ignoring the evidence produced.
4.1 The Id. CIT(A) has grievously erred in law and or on facts in confirming the addition of Rs.78,23,000/- towards NHB Cold Storage Subsidy as revenue receipt inspite of necessary documents produced by the appellant by way of order dtd. 18.02.2017 and corrected order dtd. 20.03.2017 from Gujarat Horticulture Mission, Govt. of Gujarat releasing the subsidy.
4.2 That in the facts and in the circumstances of the case the ld. CIT(A)has erred in confirming the addition of Rs.78,23,000/- towards MHB Cold Storage as revenue receipt.
5.1 The Id. CIT(A) has grievously erred in law and or on facts in confirming the withdrawal of deduction u/s 801B of Rs.21,83,404/-. The working of deduction u/s 80IB is erroneous.
5.2 That in the facts and in the circumstances of the case the ld. CIT(A) has erred in withdrawing deduction u/s 80IB of Rs.21,83,404/-.
It is, therefore, prayed that the additions upheld by the CIT(A) may kindly be deleted.”
6. Shri S.N. Divatia, Ld. AR of the assessee, did not press ground nos.1 & 2. Hence, these two grounds are dismissed.
7. Ground no.3 pertains to disallowance of claim of deduction of Rs.56,56,433/- made under Section 80JJAA of the Act. The Ld. AR explained that the assessee had claimed this deduction in respect of emoluments made to additional employees, employed during the year. He explained that during the year, 362 additional employees were added, out of which only 274 employees were eligible for deduction under Section 80JJAA of the Act. In the course of assessment, the assessee had produced evidences in respect of their employment, salary paid to them, provident fund deducted and also furnished all the relevant details in respect of 15 new workmen on sample basis for the reason that the consolidated file was quite voluminous. The Ld. AR submitted that considering the evidences brought on record by the assessee, the Assessing Officer was not correct in rejecting the claim for deduction under Section 80JJAA of the Act, as made by the assessee.
8. Per contra, Shri Abhijit, Ld. Sr. DR submitted that all the conditions as specified under Section 80JJAA of the Act were not fulfilled by the assessee. Further that, the satisfaction of the conditions was required to be verified in respect of all the new employees and the details in this respect was not furnished by the assessee. The Ld. Sr. DR submitted that the assessee had furnished documentary evidences in respect of 15 employees only on the basis of which deduction for all 274 new employees could not have been allowed. He, therefore, strongly supported the orders of the Assessing Officer and the Ld. CIT(A) on this issue.
9. We have considered the rival submissions. As per the provisions of Section 80JJAA of the Act, deduction of 30% of additional employee cost is allowable to the assessee for three assessment years. However, this deduction is admissible subject to fulfilment of condition as specified in sub-section-2 of section 80JJAA of the Act. The explanation to Section 40JJAA(2) of the Act, defines additional employee as under :-
(ii) “additional employee” means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include—
(a) an employee whose total emoluments are more than twenty-five thousand rupees per month; or
(b) an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or
(c) an employee employed for a period of less than two hundred and forty days during the previous year; or
(D) an employee who does not participate in the recognised provident fund:
Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather products, the provisions of subclause (c) shall have effect as if for the words “two hundred and forty days”, the words “one hundred and fifty days” had been substituted:
Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly;
9.1 Thus, in order to be eligible for deduction u/s 80JJAA of the Act the assessee was required to establish that the new employees were not paid emoluments of more than Rs.25,000/- per month, they had participated in recognised provident fund and pension scheme and they had worked for not less than 240 days during the year. Another condition to be satisfied in respect of this claim was that the emoluments were paid through account payee cheque/account payee draft or by way of electronic clearing system through bank account. Considering these specific conditions, the onus was squarely on the assessee to establish that its claim was not hit by the mischief of above provisions. In order to prove that all the conditions as stipulated under Section 80JJAA of the Act were fulfilled, the assessee was required to furnish the details in respect of all the new employees. Merely on the basis of submission of the documentary details of 15 employees on sample basis, the satisfaction of the conditions in respect of all 274 new employees could not have been verified. The assessee has brought on record a list of employees eligible for deduction under Section 80JJAA of the Act in the paper-book filed. It is found that out of 274 new employees in respect of whom the deduction pertained, most of the employees were employed during the year for less than 240 days and, therefore, the emoluments paid to them was not eligible for deduction. At the same time, the Assessing Officer was not correct in disallowing the entire claim of deduction under Section 80JJAA of the Act without verifying the requisite details vis-a-vis the evidences brought on record by the assessee. Even if the offer letter of all the employees were not brought on record, the Assessing Officer could have verified the monthly emoluments paid to them from the gross pay of the employees and the communication made by the assessee to the bank for payment of their salary through the specified mode or from the bank statements.
9.2 In view of the above facts, we deem it proper to set aside the matter to the file of the Jurisdictional Assessing Officer with a direction to verify the satisfaction of the conditions as specified in Section 80JJAA of the Act and, thereafter, allow the deduction in respect of those employees who had worked for more than 240 days during the year. Further, satisfaction of other conditions as specified in the Act may also be verified in respect of such employees. The assessee is also directed to produce all the relevant details in respect of satisfaction of the conditions under Section 80JJAA of the Act in respect of all the new employees employed during the year and also respond to the queries of the Assessing Officer in this regard. Accordingly, the ground taken by the assessee is allowed for statistical purpose.
10. Ground no.4 pertains to disallowance of Rs.78,23,000/- on account of NHB Cold Storage subsidy. The Ld. AR explained that the assessee had received this subsidy from the Government of Gujarat for meeting the expenditure relating to new cold storage project under expansion during the year. He explained that since the subsidy was towards the cost of capital asset, it was capital in nature and the subsidy amount was deducted from capital work-in-progress on gross basis. He further submitted that as the cold storage project was not put to use, no depreciation was claimed during the year. Further, that the subsidy amount being capital in nature, was not credited to Profit & Loss account. The Ld. AR submitted that considering the specific purpose for which the subsidy was received, the Assessing Officer was not correct in treating the same as revenue receipt.
11. Per contra, Ld. Sr. DR submitted that the assessee did not furnish the working of the capital work-in-progress before the Assessing Officer and, therefore, the contention of the assessee that the subsidy amount was reduced from the capital work-in-progress could not be verified. Further that the assessee had also failed to establish the final treatment of the subsidy granted to it by the Government of Gujarat. It was not established that the subsidy was finally utilised for construction of cold storage and whether the depreciation was claimed thereon after reducing the subsidy amount.
12. We have considered the rival submissions. The assessee has brought on record a copy of the letter dated 14.02.2017 from the CEO, Gujarat Horticulture Mission, Gujarat State, Gandhi Nagar, in the paper book filed. It is found therefrom that the subsidy of Rs.78,23,000/- was released to the assessee for cold storage project. The amount of subsidy was released to the participating bank, State Bank of India, and the bank was required to ensure that the amount was utilised for the same purpose for which it was sanctioned. From the evidences brought on record, it is evident that the subsidy amount was in the nature of capital receipt to be utilised for construction/expansion of cold storage project. It appears that the Assessing Officer had made the disallowance for the reason that he was not satisfied with the treatment of the subsidy in the books of account of the assessee. The ledger account of the capital work-in-progress was not filed and, therefore, it could not be verified as to whether the subsidy amount was reduced from capital work-in-progress on gross basis. The assessee has not brought on record the ledger of capital work-in-progress even before us and the copy of ledger account is not found appearing in the paper-book. In order to treat this subsidy as a capital receipt, the treatment given by the assessee in its books of account is required to be verified. We, therefore, deem it proper to set aside the matter to the file of the Jurisdictional Assessing Officer with a direction to allow another opportunity to the assessee to explain the treatment of subsidy received of Gujarat Government in its books of account. The assessee is directed to furnish the copy of the ledger account of capital work-in-progress for the current year as well as for the subsequent years in which the cold storage was finally constructed and put to use. The assessee is also directed to bring on record the evidences to establish that no depreciation was claimed in respect of this subsidy amount from the block of cold storage. Accordingly, the ground taken by the assessee is allowed for statistical purpose.
13. Ground no.5 pertains to disallowance of deduction under Section 80IB of the Act. The Ld. AR explained that the assessee had furnished working of deduction claimed under Section 80IB of the Act before the Assessing Officer. While working out the deduction, the assessee has reduced duty draw back receipt of Rs.55,50,409/- from the business income. The Assessing Officer had, however, noticed that the assessee had disclosed duty drawback of Rs.1,28,28,423/- in its Profit & Loss Account and accordingly it was required to reduce the entire amount of Rs.1,28,28,423/- from the business profit. Since the assessee had reduced Rs.55,50,409/- only on account of duty drawback, the Assessing Officer had withdrawn the deduction claimed in respect of balance duty drawback of Rs.72,78,014/-. The Ld. AR explained that subsequently the Assessing Officer had passed rectification order and 80IB deduction @ 30% on the amount of Rs.72,78,014/-, which was Rs.21,83,404/-, was disallowed by the Assessing Officer.
13.1 As regarding merit of the claim, the Ld. AR submitted that the amount of Rs.72,78,014/- was received towards transportation assistance from Government of India for promotion of export of fruits and vegetable and other products and, therefore, this income was integral part of business activities and eligible for deduction under Section 80IB of the Act. Therefore, the Assessing Officer was not correct in disallowing the claim of deduction under Section 80IB of the Act in respect of this income.
14. Per contra, the Ld. Sr. DR submitted that the amount of Rs.72,78,014/- was not disclosed as transportation subsidy income in the Profit and Loss account but was shown as duty draw back. Therefore, the claim of the assessee was contrary to the audited Profit & Loss account. Further the assessee has also not filed any evidence regarding actual amount of duty drawback from the auditor.
15. We have considered the rival submissions. The Assessing Officer has given a categorical finding that the amount of duty drawback disclosed in the Profit & Loss Account was Rs.1,28,28,423/-, whereas an amount of Rs.55,50,409/- only was reduced from income while computing the deduction under Section 80IB of the Act. The contention of the assessee is that the amount of Rs.72,78,014/- was not duty drawback but it was transportation subsidy from Government of India. However, no evidence in this regard was brought on record. Further, the actual amount of duty drawback received by the assessee has also not been certified by the Auditor. Since the case of the assessee has been set aside to the Assessing Officer in respect of other two grounds, we deem it proper to set aside this issue also to the file of the Jurisdictional Assessing Officer with a direction to allow another opportunity to the assessee to explain the nature of the receipt of Rs.72,78,014/- in respect of which deduction under Section 80IB of the Act has been disallowed. The assessee will be free to bring on record the evidences to establish the actual nature of this receipt and also to produce certificate from the Auditor about the actual amount of duty drawback income received by the assessee. Further, an explanation for mistake of duty drawback amount as reported in the audited account, if any, should also be brought on record. Thereafter, the Assessing Officer will be free to examine the evidences brought on record by the assessee in respect of the sum of Rs.72,78,014/- which has been claimed as transportation subsidy by the assessee and, thereafter, re-adjudicate the claim of deduction under Section 80IB of the Act in respect of this amount. The ground of the assessee is treated as allowed for statistical purpose.
16. In the result, the appeal of the assessee is partly allowed for statistical purpose.