Padamchand Khincha, C.A for the Appellant. Muzaffar Hussain, CIT (DR) for the Respondent.

Present appeal has been filed by assessee against order dated 19/11/2018 passed by Ld. CIT (A) 7, Bangalore for assessment year 2014-15 on following grounds of appeal:

“1. General Ground

1.1. The order passed by the CIT(A) to the extent prejudicial to the appellant is bad in law and liable to be quashed.

2. Grounds relating to disallowance under section 80JJAA - Tax Effect: (10,51,99,796*33.99%)=Rs. 3,57,57,411

2.1. The learned CIT(A) has erred in confirming the disallowance under section 80JJAA amounting to Rs. 10,51,99,796. On facts and circumstances of the case and law applicable, deduction under section 80JJAA should be allowed as claimed in the return of income.

3. Grounds relating to Foreign Tax credit - Tax Effect = Rs. 1,61,48,344

3.1. The learned CIT(A) has erred in not allowing incremental foreign tax credit amounting to Rs. 1,61,48,344 which was claimed during the assessment proceedings. On facts and circumstances of the case and law applicable, foreign tax credit should be allowed as claimed by the appellant.

4. Levy of Interest u/s 234B - Rs. 1,42,50,994

4.1. Levy of interest under section 234B is bad in law and liable to be quashed.”

Brief facts of the case are as under:

2. Assessee is a company engaged in the business of distributed systems, design and development of hardware and software and digital content creation. It filed its return of income for year under consideration on 28/11/2014 declaring total income of Rs.98,28,88,380/-. The case was selected for scrutiny and notice under section 143(2) and 142(1) of the Act were issued.

3. During the scrutiny proceedings Ld.AO noticed that assessee claimed deduction of Rs.10,51,99,796/-under section 80 JJAA of the Act. Ld.AO rejected the claim of assessee for non- fulfilment of following 2 conditions:

• that assessee is not engaged in manufacture or production of an article or thing as per the conditions laid down under section 80JJAA. And;

• the condition of 300 days to be fulfilled by the regular workmen as per the provisions does not stand fulfilled.

4. It has been submitted by Ld.AR that Ld.AO did not allow the claim following decision of Hon’ble Delhi Tribunal in case of LG Electronics India Pvt.Ltd reported in (2013) 33 Taxmann.com 465, wherein, it was held that only new workmen employed for a period of 300 days in relevant previous year are eligible for deduction under section 80 JJAA of the Act. He also placed reliance on Full Bench by decision Hon’ble Supreme Court in case of Commissioner of Customs (Import) Vs. Dinesh Kumar & Co. & Ors. reported in Civil Appeal No.3327 of 2007 by order dated.

5. In respect of the full amount of foreign tax credit claimed by assessee, it was observed by Ld.CIT(A) that assessee has not submitted any letter of claim before Ld.AO for additional foreign tax. And that assessee had only by way of written submission dated 05/07/2016 filed the claim of foreign tax credit submitted before Ld.AO. Ld.CIT(A) was of the opinion that assessee did not claim additional foreign tax credit in its return of income during the assessment proceedings till the last date of submission and that Ld.AO. He also noted that, Ld.AO, therefore did not go into the details of the foreign tax credit claimed by assessee in the written submission.

6. He therefore rejected the claim of assessee.

7. Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now.

8. The Ld.AR submitted that, Ground No.1.1 is general in nature, therefore do not require adjudication.

9. Ground No.2 is in respect of disallowance under section 80JJAA of the act amounting to Rs.10,51,99,796/-.

10. Ld.AR submitted that, for purposes of section 80JJAA of the act, gross total income of eligible assessee should include income from an industrial undertaking engaged in the manufacture or production of an article or thing. He submitted that, the term “Industrial undertaking’ is not defined in this section however it is defined in section 10(15) of the Act. He also referred to ‘The Industrial Disputes Act’, to which, substantial reference has been made in section 80JJAA of the Act, that defines ‘Industry’ as under:

Industry means any business, trade, undertaking, manufacture or calling of employers and includes all calling, service, employment, handicraft or industrial occupation or revocation of workmen.”

11. He also submitted that the term “article or things” is not defined in the income tax act and they must be understood with reference to the context. Ld.AR placed reliance on decision of coordinate bench of this Tribunal in case of Texas Instruments (India) Pvt.Ltd vs ACIT reported in (2020) 115 Taxmann.com 154, wherein, the issue regarding, whether, employees employed in software industries could be regarded as workmen has been considered in this case wherein this tribunal held that software industry has also been notified as industry for purpose of Industrial Disputes Act, 1947, by state of Karnataka, and that, the employees employed in the software development industry rendered technical services and not services in the nature of supervisory or management character.

12. Ld.AR submitted that, this is the 3rd year of claim by assessee and that the employees against whose wages the deduction has been claimed satisfies the necessary conditions.

He placed reliance on the observations of this Tribunal in Texas Instruments (India) Pvt.Ltd vs ACIT (supra) regarding allowability of claim to assessee.

13. On the contrary Ld.CIT.DR placed reliance on observations of Ld.CIT(A) and para 4.2 of impugned order. He submitted that Ld.CIT(A) relied on his order for assessment year 2012-13. He thus submitted that nothing on record establishes the submission of Ld.AR that this is the 3rd year of claim. Ld.CIT.DR submitted that details with regard to employees on salary deduction has been claimed under section 80JJAA of the act has not been produced in the paper book. He thus requested for the issue to be remanded to authorities below for verification. 14. We have perused submissions advanced by both sides in light of records placed before us.

15. We note that the Ld.AO denial of benefit to assessee is based on the reasoning that assessee was denied benefit against these employees in the 1st year of their employment and that assessee being a software development company is not eligible for deduction.

16. We note that the 1st of objection of Ld.AO regarding non- satisfaction with respect to additional wages paid to new employees in the 1st year of employment is concerned, this Tribunal has expressed following view in case of Texas Instruments (India) Pvt.Ltd vs ACIT (supra):

“9. We have given a very careful consideration to the rival submissions. The only reason given by the AO for denying the benefit of deduction u/s.80JJAA of the Act, which is the reason that survives for consideration by the Tribunal is according to the AO since the additional wages paid to these 287 employees were not eligible to deduction u/s.80JJAA of the Act because these employees did not work for more than 300 days in FY 2006- 07 relevant to AY 2007-08, the wages paid to these employees in AY 2008- 09 will also not qualify for deduction u/s.80JJAA of the Act. In other words according to the AO if the condition for grant of deduction u/s.80JJAA of the Act is not satisfied with reference to additional wages paid to new employees in the first year of their employment, then the additional wages paid to such new employees will not allowed in the second and third Assessment Years also. As pointed out by the learned counsel for the Assessee, this approach of the revenue authorities is contrary to the AO's stand on claim for similar deduction u/s.80JJAA of the Act in AY 2007-08.

In the order of assessment passed by the AO for AY 2007-08, he has while disallowing the claim for deduction u/s.80JJAA of the Act for that AY, accepted the position that on additional wages paid to new workmen employed during the previous year relevant to AY 2005-06 who have worked more than 300 days during the previous year relevant to AY 2007- 08, the Assessee is entitled to deduction u/s.80JJAA of the Act. In the decision rendered in the case of Bosch Ltd. (supra) the Bangalore ITAT at paragraph 23 of the aforesaid order the Tribunal observed that the deduction u/s.80JJAA of the Act is allowed for three years including the year in which the employment is provided. Hence, in each year it has to be seen that the workmen was employed for at least 300 days during that previous year and that such workmen was not a casual workmen or workmen employed through contract labour. Therefore, if some workmen were employed for a period of less than 300 days in the previous year then no deduction is allowable in respect of payment of wages to such work men in the present year even if such workmen was employed in the preceding year for more than 300 days but in the present year, such workmen was not employed for 300 days or more. By the very same reasoning the fact that in the first year of employment the additional wages paid is not allowed deduction for the reason that the workmen did not work for 300 days or more but if the next two Assessment years, if he works for more than 300 days each, then the deduction u/s.80JJAA of the Act has to be allowed. It is not proper to say that if the deduction is refused in the first year of employment of the new employee then for the next two succeeding Assessment Years also, the benefit of deduction will not be available. Such an approach defeats the very purpose for which deduction u/s.80JJAA of the Act is allowed for three consecutive Assessment years. This aspect has now been clarified in the Finance Act, 2018 by adding a second proviso to the definition of additional employee in Explanation (ii) to Sec.80JJAA of the Act. Even prior to such curative or clarificatory amendment, we are of the view that the claim for deduction u/s.80JJAA of the Act cannot be and ought not to have been disallowed on this ground. We therefore direct that the deduction claimed by the Assessee should be allowed.”

17. From the above observations, 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.

18. 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 also agree with Ld.CIT.DR that nothing on record placed before us reveals that this is the 3rd year of claim by assessee as has been submitted at page 223 of paper book. 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.

19. 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 of the Act.

Accordingly this ground raised by assessee stands allowed for statistical purposes.

20. Ground number 3 is in respect of not allowing incremental foreign tax credit amounting to Rs.1,6148,344/- that was claimed during assessment proceedings.

21. At the outset, both parties admit that various details in respect of the claim has not been verified by Ld.AO as the same was made by way of submissions during assessment proceedings.

22. We note that Ld.AO rejected the claim as assessee had made the additional FTC, by way of written submission without any evidences. In our view this issue needs to be remanded to Ld.AO to consider the claim of assessee in light of evidences/documents filed by assessee.

23. Accordingly, the issue too is remanded to Ld.AO. Assessee is directed to file all requisite details in support of its claim in accordance with law which shall be considered by Ld.AO upon verification.

Accordingly, this ground raised by assessee stands allowed for statistical purposes.

In the result appeal filed by assessee stands allowed for statistical purposes.

Order pronounced in open court on 29th Oct, 2020

Sd/- Sd/-

(B. R. BASKARAN) (BEENA PILLAI)

Accountant Member Judicial Member

Bangalore,

Dated, the 29th Oct, 2020.