Robert Bosch Engineering and Business Solutions Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Conclusion: An employee should be employed for 300 days or more during the previous year should be applied cumulatively across the year of hiring and the following year, rather than restricting it to the first year. The overall increase in employment exceeded 10% when using the correct interpretation and assessee was eligible for the deduction under Section 80JJAA. Further, computers used for software development were essential to the production process and should be classified as plant and machinery for depreciation purposes. Thus, both the 80JJAA deduction and additional depreciation was allowable.
Held: Assessee-company was engaged in software development, IT-enabled services, and embedded software development for automobile components. It had claimed a deduction of Rs.21.16 crore under Section 80JJAA for wages paid to new regular workmen and additional depreciation on computers used for software development. AO disallowed the 80JJAA deduction, stating that the company did not meet the requirement of increasing its workforce by at least 10% over the previous year, as required under the Act. AO also argued that only employees who completed 300 days of work in the year of hiring should be considered. AO concluded that the company failed to meet the threshold. CIT(A) upheld this view, leading the company to file an appeal before the ITAT. The questions arose for consideration was whether assessee qualified as an industrial undertaking, and whether the development of computer software and IT-enabled services amounted to the manufacture or production of an article or thing under Section 80JJAA, whether assessee was claiming double benefits by first availing exemptions under Sections 10A and 10AA and subsequently under Section 80JJAA, whether the condition that an employee should be employed for 300 days or more during the previous year must be met in the particular assessment year or cumulatively over two assessment years. It was held that Karnataka High Court judgment in Aquarelle India Ltd. vs. DCIT ruled that the 300-day requirement should be applied cumulatively across the year of hiring and the following year, rather than restricting it to the first year. It found that the overall increase in employment exceeded 10% when using the correct interpretation. Based on this finding, ITAT ruled that assessee was eligible for the deduction under Section 80JJAA. The company also claimed additional depreciation on computers used for software development, arguing that software development qualified as “production of an article or thing” under Section 32(1)(iia). AO disallowed the claim, stating that software was not a tangible article or thing and that computers did not qualify as plant and machinery. The software development required significant technical effort and qualified as production under various Supreme Court and High Court rulings. Tribunal also observed that computers used for software development were essential to the production process and should be classified as plant and machinery for depreciation purposes. Tribunal allowed both the 80JJAA deduction and additional depreciation, directing the AO to recompute the tax liability.
