JAYDEEP PETRO CHEM CO. PVT. LTD.,CHENNAI V. ITO, CORPORATE WARD-2(3), CHENNAI

ITA 180/CHNY/2025

AI Insights

The case involves Jaydeep Petro Chem Company Private Limited, which appealed against the orders of the lower tax authorities denying them deductions under section 80IB(2)(iv) for the assessment years 2006-07 and 2007-08. The primary contention was whether the company qualified as a manufacturer and employed the requisite number of workers as stipulated under the said section. The Tribunal examined the manufacturing process of the assessee, the nature of employment of workers, and previous judicial precedents, ultimately deciding in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 708605 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2007-2008
• Other Referred Cases: Jyoti Plastic Pvt Ltd, DXN Herbal Manufacturing India Private Limited, Mishra Tea Blending and Packaging Industry, Sawyer's Asia Ltd., Venus Auto (P.) Ltd., Chowgule & Co. (P.) Ltd., Shiv Datt and Sons
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. ANITHA
• Assessee Lawyers: G. BASKAR
• Keywords: Set aside; Depreciation
• Section: 143(3); 263; 80IB

Judgement Text

"आयकर अपीलीय अधिकरण, ’सी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI माननीय श्री मनु क ुमार धिरर ,न्याधयक सदस्य एवं माननीय श्री अमिताभ शुक्ला, लेखा सदस्य क े सिक्ष BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.179/Chny/2025, Assessment Years: 2006-07 आयकर अपील सं./ITA No.180/Chny/2025, Assessment Years: 2007-08 Jaydeep Petro Chem Company Private Limited, No.24/13, III Floor, Brindavan Majestic Apartments, Thygarayanagar H.O, Thygarayanagar, Chennai-600 017. [PAN: AAACJ9244J] The Income Tax Officer, Corporate Ward-2(3), Chennai. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri G.Baskar, Advocate प्रत्यर्थी की ओर से /Revenue by : Ms.R.Anitha, Addl.CIT सुनवाई की तारीख/Date of Hearing : 16.06.2025 घोषणा की तारीख /Date of Pronouncement : 18.07.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M : The below mentioned two appeals have been filed by the appellant assessee for AY-2006-07 to AY-2007-08 contesting the order of Ld. First Appellate Authority indicated Column-E, herein below:- S. No. Appeal Nos. AYs Appellant CIT(A) Order Details Respondent A B C D E F 1 ITA No. 179 / Chny / 2025 2006-07 Jaydeep Petro Chem Company Private Limited, No.24/13, III Floor, Brindavan Majestic Apartments, Thygarayanagar H.O, Thygarayanagar, Chennai-600 017. [PAN: AAACJ9244J] DIN & Order No. ITBA / NFAC / S / 250 / 2024-25 / 1071963215(1) dated 17.01.2025 The Income Tax Officer, Corporate Ward- 2(3), Chennai. 2 ITA No. 180 / Chny / 2025 2007-08 DIN & Order No. ITBA / NFAC / S / 250 / 2024-25 / 1071963609(1) dated 17.01.2025 ITA No.179 & 180 /Chny/2025 Page - 2 - of 17 Both the above appeals are centering around common issues and hence for the purposes of convenience were heard and are adjudicated together. We have taken ITA No.180 for AY-2007-08 as lead year to consider facts and figures. The decision taken in ITA No.180 shall apply mutatis mutandis in ITA No.179 for AY-2006-07. 2.0 The only issue raised through its grounds of appeal is regarding the addition of Rs.65,01,148/- made by the Ld.AO and its confirmation by the Ld.CIT(A). At the outset, the Ld.Counsel for the assessee submitted that this is the second round of litigation. It was submitted that pursuant to the directions of the Ld.PCIT, Chennai while exercising his revisionary authority u/s. 263 of the Act ,the Ld.AO had denied the assessee its claim of deduction u/s. 80IB(2)(iv). In appeal a coordinate bench of this tribunal while through its order vide ITA No.1929 and 1930 / Mds / 2015 dated 01.04.2016 for AY-2006-07 & 2007-08 reverted back the matter to the Ld.AO for re-examination afresh. It was submitted that the Hon’ble Coordinate Bench had directed that “….Accordingly, the orders of the lower authorities for the assessment years 2006-07 and 2007-08 are set aside and the entire claim of deduction u/s 80IB of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re- examine the issue afresh and bring on record the old machineries available with the assessee and the new machinery purchased by the ITA No.179 & 180 /Chny/2025 Page - 3 - of 17 assessee. The Assessing Officer shall also discuss the workers employed by the assessee on permanent basis and on contractual basis and thereafter decide the issue afresh in accordance with law after giving a reasonable opportunity to the assessee…..”. The Ld.Counsel informed that the Ld.AO repeated the impugned addition which was later confirmed by the Ld.First Appellate Authority as result of which the assessee is in appeal before us. 3.0 The Ld.Counsel for the assessee informed us brief factual matrix of the case stating that the appellant assessee is engaged in the business of manufacture of paints, varnish and thinners having its factory located at Puducherry. The appellant had claimed deduction u/s 80IB(2)(iv) of the Act for AY-2007-08 amounting to Rs.65,01,140/- which was denied by the Ld.AO on the premise that the appellant was not a manufacturer and that he did not employ more than 10 workers. The Ld. Counsel submitted that during the course of second round of proceedings before the Ld.CIT(A), a remand report dated 25.10.2024 was requisitioned from the Ld.AO and that the additions made by the Ld.AO was sustained in consideration of the said remand report (supra). The Ld. Counsel for the assessee informed that before the lower authorities including during the remand proceedings the assessee had extensively explained its manufacturing process which apparently got omitted to be understood in the right perspective. On the issue of number of workers ITA No.179 & 180 /Chny/2025 Page - 4 - of 17 employed it was submitted that though admittedly the assessee was having less than 10 employees on its payrolls, it had obtained services of outscourced contractual workers and therefore the combined strength of its employees was more than 10. The Ld. Counsel argued that in the preceding year i.e. for AY-2005-06 vide order u/s. 143(3) dated 05.12.2007, the Revenue has allowed its claim of deduction u/s 80IB(2)(iv) of the Act and that in subsequent year also its claim of deduction u/s 80IB(2)(iv) of the Act stands allowed by the Revenue. The Ld. Counsel vehemently argued that the facts of the case as available in AY-2005-06 as also in subsequent year are identical. The Ld.Counsel for the assessee further relied upon the judicial precedent laid down by the Hon’ble Bombay High Court in the case of Jyoti Plastic Pvt Ltd dated 15.11.2011 as at 16 taxmann.com 172. In support of its contentions, the Ld. AR has filed a voluminous paper book comprising documents, inter-alia, including agreement / invoices for contract labour, register of wages, copies of return of income / balance sheet / profit & loss account for AY-2006-07 and 2007-08, remand report and its rejoinders etc, all of which were available before the lower authorities. 4.0 Per contra, the Ld.DR relied upon the order of the lower authorities. It was argued that the decision of Jyoti Plastic Pvt Ltd (Supra) is not applicable in this case since the same pertain to issue of contractual workers in manufacturing process and that in the present ITA No.179 & 180 /Chny/2025 Page - 5 - of 17 case the contracted workers were not engaged in manufacturing process. The Ld. DR urged that the distinguishment made by the Ld.AO on the issue of absence of any manufacturing process was well founded. On the issue of allowance been made in earlier and subsequent years, the Ld. DR argued that principles of res judicata do not apply to direct taxes and that therefore no reliance can be placed upon the decision taken in earlier and subsequent years. 5.0 We have heard rival submissions in the light of material available on records. Before proceeding further, we deem it appropriate to reproduce the statutory provisions of section 80IB(2)(iv) which are at the center of the controversy: “…….Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. 25 26 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from 27 any business referred to in sub-sections (3) to 28[(11), (11A) and (11B) 29] (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (i) it is not formed by splitting up, or the reconstruction 30, of a business already in existence : Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it 30manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) ITA No.179 & 180 /Chny/2025 Page - 6 - of 17 shall apply as if the words “not being any article or thing specified in the list in the Eleventh Schedule” had been omitted. Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2.-Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with; (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking 31employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power…..” 6.0 The only issue in the appeal is as to whether the assessee is entitled for award of deduction u/s 80IB(2) or not. On perusal of the statutory provisions extracted hereinabove, we have noted that broadly speaking section 80IB(2) postulates that for grant of deduction an appellant must satisfy three basic conditions. Thus, firstly the appellant assessee should be engaged into some manufacturing activity, secondly the machinery used should not be an old machine and thirdly the assessee must employ 10 or more workers if using power and twenty if not using power. As far as the first limb of the controversy is concerned we have noted that the assessee had vide reply dated 18.09.2024, during ITA No.179 & 180 /Chny/2025 Page - 7 - of 17 remand proceedings explained to the Ld.AO in great detail the process of manufacturing under taken by it. The Ld.AO however in its remand report dated 25.10.2024 concluded that as the assessee is merely producing varnish, thinner etc by mixing of certain raw materials and which does not require any expert knowledge therefore the same cannot be taken as manufacturing activity qua 80IB(2). The conclusions drawn by the Ld.AO have been found to be unwarranted. Etymologically understood manufacturing is the process of transforming raw materials into finished goods, typically on a large scale, using machinery, labor, and often, industrial processes. It encompasses a wide range of activities, from initial product design and material selection to the final assembly and packaging of the product. It is a process of making a product using raw materials through hands or by machinery. It is the act or process of producing something. Thus when two or more independent chemicals or other raw materials are combined using human labour and machines and the end product is chemically, physically different from the original two or more independent chemical ingredients then it can be safely said that process of manufacturing has taken place. The primary test is that the end product should be totally different from the original ingredients. This process of manufacturing can be simple like a mere mixing of two items or a complex process involving mechanical, electrical and other ITA No.179 & 180 /Chny/2025 Page - 8 - of 17 attributes. In the present case, the Ld.AO has admitted in his remand report(supra) that the assessee is engaged in the activity of mixing of certain raw materials. It is another thing that according to the Ld.AO, the same does not require any expert knowledge. In the process of manufacturing, it is not necessary that there should be any involvement of any expert knowledge. The basic requirement is that two ingredients should be united to give birth to another new ingredient which is fundamentally different from the consequents. It is not the case of the Revenue that the assessee has not joined different chemicals to give birth to vanish and thinners. This proposition finds favour in the decision of Hon’ble Madras High Court in the case of DXN Herbal Manufacturing India Private Limited 96 taxmann.com 299 holding as under:- “……23. The factual matrix clearly demonstrates that what has been done by the assessee is manufacture. Thedecision relied on by the Revenue in the case of Sacs Eagles Chicory v. CIT [2002] 123 Taxman 221/[2003]255 ITR 178 (SC) is distinguishable on facts as the activity which was the subject matter of the said case wasmaking powder from chicory roots and the appeal by the assessee was dismissed as the assessee failed tosatisfy the test laid down in Aspinwall & Co. Ltd.'s, case (supra). The learned counsel for the Revenue reliedupon the decision of the Division Bench of this Court in CIT v. Madurai Pandian Engg. Corpn. Ltd. [1999]239 ITR 375 (Madras). The question was whether the business of tyre retreading done by the assesseeamounts to production of a new article and whether the assessee was entitled to relief under Sections 80J and80HH of the Act. 24. This Court held that the common thread which runs in all the decisions is that only when a new distinctcommodity commercially accepted as such, comes into existence as a result of processing, that a commoditycan be said to have been manufactured and in the said context, retreading of tyres did not result in theproduction of an articles for the purpose of Section 80HH of the Act. The said decision is clearlydistinguishable on facts. In the assessee's case, the product which emerges after the process of manufacture iscommercially a distinct commodity, can be of consumption as such containing a requisite amount ofingredients in the appropriate percentage, preserved in proper form as contained in the licence issued underthe authorised enactments as well as the technical logo shared by the foreign company…..” ITA No.179 & 180 /Chny/2025 Page - 9 - of 17 7.0 Similarly on the issue of what constitutes manufacturing we have noted that the Hon’ble Apex Court in the case of Mishra Tea Blending and Packaging Industry 158 taxmann.com 590 have held that : “……..8. Having heard learned senior counsel for the respective parties at the outset, we extract the definition of'manufacture' as it appears in Section 2(e-1) of the Act: \"2.(e-1) 'manufacture' means producing, making, mining, collecting, extracting, altering, ornamenting,finishing or otherwise processing, treating or adapting any goods; but does not include such manufactureor manufacturing processes as may be prescribed;\" 9. A reading of the said definition would indicate that the expression 'manufacture' is defined to mean certainprocedures or processes. The definition is an exhaustive definition and not an expansive one. The proceduresare in the nature of producing, making, mining, collecting, extracting, altering, ornamenting, finishing orotherwise processing, treating or adapting; but the definition does not include such manufacture ormanufacturing processes as may be prescribed. On a reading of the said definition of 'manufacture' we notethat it does not use the expression 'includes'. This clearly indicates that the intention of the Legislature is togive a strict or a restricted meaning to the expression 'manufacture' and not an expansive meaning. That isexactly what has been held by a three Judge Bench of this Court in the case of M/s Shiv Datt and Sons(supra)wherein, the question was, whether, the process where the plates of the battery are immersed in asolution of sulfuric acid and distilled water and connected together by a direct current and then connected tothe two terminals of as source of supply and thereafter the plates are dried in the ordinary way, the electrolytewhich is formed is thrown out and the plates assembled in the battery manufactured by the manufacturers aredried and sold would amount to a manufacturing process within the meaning of the definition. In the saidcase, this Court was considering the definition as was found in Section 2(17) of the Bombay Sales Tax Act,1959, and Rules made thereafter, which reads thereunder: \"'manufacture' with all its grammatical variations and cognate expressions, means, producing, making,extracting, altering, ornamenting, finishing or otherwise processing, treating, or adapting any goods; butdoes not include such manufacturer or manufacturing processes as may be prescribed.\" 10. The said definition is in pari materia with the definition of manufacture which is under consideration. ThisCourt also referred to a judgment of the Bombay High Court in Nilgiri Ceylon Tea Supplying Co. v. State ofBombay (1959) 10 STC 500 (BOM HC) (\"Nilgiri Ceylon Tea Supplying Co.\") wherein the very process of theassessee therein purchasing in bulk different brands of tea and without the application of any mechanical orchemical process mixing up the brands of tea so purchased and selling it as a tea mixture, came up forconsideration on a reference before the Bombay High Court wherein it was observed as under: ITA No.179 & 180 /Chny/2025 Page - 10 - of 17 \"3.. In our view, the quantities of tea purchased by the assessees cannot, since the date of the purchases,be regarded as 'purchased within the meaning of proviso to clause (a) of Section 8 of the Act. There isnot even application of mechanical force so as to subject the commodity to a process, manufacture,development, or preparation. The commodity has remained in the same condition,. It is true that in thepreparation of the tea mixture which is marketed, there may be some skill involved. But that, in ourjudgment, cannot be regarded as processing within the meaning of the proviso... 4.. It cannot however be said that in the preparation of tea mixture there is any alteration in the goods.Undoubtedly by mixing up the different varieties of tea purchased by the assessees there resulted amixture in which the individoulity of the components was obscured, but that in our judgment, is notalteration within the meaning of the Act. The alteration contemplated by the legislature is some alterationin the nature or character of the goods.\" 11. Applying the aforesaid dicta, this Court noted that the blending and packing of tea did not involve aprocess within the meaning of the expression 'manufacture.' It was accordingly held that the words used by thestatute namely \"processed or altered in any manner after such purchase\" were very wide, and there was needto read down the scope of the expression and therefore, the purpose of the definition that there should be somealteration in the nature or character of the goods had to be construed accordingly. It was also categoricallyheld that if the expression \"process and manufacture\" is given too wide a definition than what is necessary itmay result in an absurd or an impractical consequence. The said conclusion was recorded in paragraph 10 ofthe judgment. \"10. But, on careful consideration, we are of the opinion that the terms of section 2(17) should not begiven such a wide interpretation. If such a wide interpretation is given there may be very absurd resultsflowing as a consequence thereof. For instance, the definition includes the word 'ornamenting'. If a dealerpurchases certain goods and merely adds some decorative material thereto, according to the State'sinterpretation, there will be a 'manufacture'. For instance, if a car is purchased and some lights or somespecial gadgets are added thereto, the interpretation will result in rendering the resale of the same car theresale of a different commodity. Again, if a piece of furniture is sold in a dismantled condition and thedistributor puts the parts together and sells it, the definition, if construed as widely as interpreted by theState, can be said to amount to manufacture and render the furniture sold a different item of goods fromthe furniture purchased. This clearly is not the intention of the legislature. The purpose of Section 8 isthat, where substantially the goods purchased are resold, there should be a deduction of the turnover onwhich purchase tax has already been paid. This provision should be interpreted in a practical andworkable manner. The mere fact that the words used in the definition of manufacture are very wideshould not lead us to so widely interpret them as to render the provision practically meaningless and so asto treat the goods sold as different merely because some slight additions or changes are made in the goodswhich are purchased before they are sold. It is true that under the section it is not necessary that thereshould be 'manufacturer' in the sense that a new commodity has been brought into existence as wouldhave been required if that word is interpreted in its literal sense. But, at the same time, the section shouldbe so interpreted to mean only such of the various processes referred to in the definition and applied tothe goods as are of such a character as to have an ITA No.179 & 180 /Chny/2025 Page - 11 - of 17 impact on the nature of the goods. This is indeed madeclear by the closing words of the definition which refer to 'manufacture or manufacturing processes'.\" 12. As far as the judgment of this Court in Chowgule & Co. (P.) Ltd. (supra) is concerned it is necessary topoint out that in the said case the facts were that there was an agreement for sale of a particular type of ore. Inorder to sell the contracted produce, namely the contracted ore, it was necessary to mix different quantities ofore by a process in order to bring about the product which was contracted for. It was in those circumstancesthat this Court held that a commercially different and distinct commodity was agreed to be sold whichrequired processing of different types of ores in a particular quantity. Hence, in that context, this Court heldthat the judgment in Nilgiri Ceylon Tea Supplying Co.(supra) did not lay down the correct law. 13. However, we wish to state that the nature of the product that was contracted for in Chowgule & Co. (P.)Ltd. namely, a particular combination of ore, was the pertinent point which actually distinguished the casefrom the facts in Nilgiri Ceylon Tea Supplying Co. (supra) from Chowgule & Co. Private Ltd. (supra). 14. Since another three-Judge Bench of this Court has considered the ramifications of the order of reference ofthe Bombay High Court in Nilgiri Ceylon Tea Supplying Co., although without reference to Chowgule & Co.Private Limited (supra), we find that the judgment of this Court in Chowgule & Co. Private Limited (supra)as well as M/s Shiv Datt and Sons proceed on different sets of facts and therefore, in that context, theperception of respective three judge Benches on the order of reference made by the Bombay High Court isdistinct as it is with reference to the particular factual matrix under consideration. 15. We find that having regard to what has been opined by the three-Judge Bench of this Court in M/s ShivDatt and Sons vis a vis the order on reference made by the Bombay High Court in Nilgiri Ceylon TeaSupplying Co. and bearing in mind similar facts of the present case with that of Nilgiri Ceylon Tea SupplyingCo. (supra), the observations of this Court in M/s Shiv Datt and Sons would squarely apply to the presentcase. The observations of this Court in Chowgule & Co. (P.) Ltd. (supra) with reference to order of referencein Nilgiri Ceylon Tea Supplying Co. must be construed in the distinct factual matrix and different goodsinvolved. The order of the Bombay High Court was not applicable to the facts of the case in Chowgule & Co.Private Limited as in the former the case concerned blending of tea which is also the subject matter of thiscase; whereas the goods involved in Chowgule & Co. (P.) Ltd. (supra) was a particular kind of ore contractionwhich required a mixing up of several type of ores in particular quantities and in a particular manner and a procedure which involved a process and hence the same was covered within the definition of manufacture. However, in the instant case, mere mixing of different types of tea only for the purpose of marketing as tea and not a particular type of tea does not involve any process/manufacture within the meaning of the definition. Therefore, judgment and observations in Shiv Datt and Sons are squarely applicable to the present case. 16. In the circumstances, we find that the High Court rightly answered the questions of law raised before it in favour of the respondent-assessee and consequently, sustained the orders of the Commissioner appeals and Tribunal which had rightly set aside the order of the Assessing officer.….” ITA No.179 & 180 /Chny/2025 Page - 12 - of 17 Thus, there is no doubt in this case that the assessee is not engaged in the business of manufacturing. The first limb of section 80IB(2) regarding an assessee being engaged in the activity of manufacturing is therefore is satisfied. 8.0 Coming to the next limb as to whether the assessee has used new machinery or the old machinery we have noted that the Ld.AO in his remand report dated 25.10.2024 has given a categorical finding that the assessee has used new plant and machinery and that no case of use of any old plant and machinery is made out. Accordingly, second limb of section 80IB(2) regarding an assessee using new plant and machinery for its manufacturing activity is also therefore satisfied. 9.0 This brings us to the third and final limb of 80IB(2) that the assessee engaging 10 or more persons in its undertaking while using power. The Ld.AO in his remand report has stated that the assessee is having only six regular employees comprising a factory manager, a quality controller, an accountant, a receptionist, an office boy and a driver. It is the case of the Ld.AO that the contractual workers utilized by the assessee from a contractor namely one Mr.R.Sivakolundhu cannot be taken as part of assessee’s employees. During the course of present hearing the Ld.Sr.DR Ms.R.Anitha, submitted that the said contractual workers are not engaged in the business of manufacturing ITA No.179 & 180 /Chny/2025 Page - 13 - of 17 and therefore the assessee will not get benefit of the ruling of Hon’ble Bombay High Court in the case of Jyoti Plastic (supra). It was argued that they are engaged in activities of gardening, housekeeping etc. As far as the controversy as to whether the contractual workers can be considered for the numerical satisfaction prescribed in section 80IB(2)(iii), we have noted that Hon’ble Bombay High Court in the case of Jyoti Plastic (supra) has deliberated upon the matter extensively to hold that contractual workers have to be included in the condition of 10 workers. Thus, the Hon’ble Bombay High Court has ruled as under:- “……12. As regards the second question is concerned, the dispute is whether the assessee has fulfilled the conditions set out in Section 80IB(2) (iv) of the Act. Section 80IB(2)(iv) of the Act reads thus : 80-IB (2) This Section applies to any industrial undertaking which fulfils all the following conditions, namely(i) to (iii) ******(iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. 13. The expression 'worker' is neither defined under Section 2 of the Act nor under Section 80IB(2)(iv) of the Act. As per Black's Law Dictionary, the expression 'worker' means a person employed to do work for another. Under Section 2(L) of the Factories Act, 1948, the expression 'worker' means a person employed directly or by or through any agency (including a contractor) with or without the knowledge of the principle employer, whether for remuneration or not in any manufacturing process, or in any other kind or work incidental to or connected with the manufacturing process. Therefore, in the absence of the expression 'worker' defined under the Act, it would be reasonable to hold that the expression 'worker' in Section 80IB(2)(iv) of the Act is referable to the persons employed by the assessee directly or by or through any agency (including a contractor) in the manufacturing activity carried on by the assessee. In the present case, though the workers employed by the assessee directly were less than ten, it is not in dispute that the total number of workers employed by the assessee directly or hired through a contractor for carrying on the manufacturing activity exceeded ten and, therefore, the Tribunal was justified in holding that the assessee complied with the condition set out in Section 80IB(2)(iv) of the Act. ITA No.179 & 180 /Chny/2025 Page - 14 - of 17 14. Moreover, in the case of CIT v. Sawyer's Asia Ltd.[1980] 122 ITR 259/[1979] 1 Taxman 547 (Bom), while considering similar provision contained in the erstwhile Section 84(2)(iv) of the Act has held thus : \"(5) The undertaking is not required to have ten or more regular workers and it may be said to have satisfied that requirement if the aggregate actual number of workers engaged in the manufacturing process, both regular and normal, is ten in number. However, where the undertaking employs less than ten regular workers, it cannot be heard to say that on any particular day it wanted to employ additional casual workers to enhance the figure to ten or more, but that it could not do so by reason of non-availability of casual labourers. If it chooses to have less than ten regular workers on its muster roll, it runs the risk of not satisfying the requirement on such days on which the necessary number of casual workers is not available.\" 15. In the present case, it is not the case of the Revenue that the total number of workers employed in the manufacturing were less than ten at any point of time during the relevant assessment year. Therefore, when Section 80IB(2)(iv) of the Act merely provides that the undertaking must employ ten or more workers(whether directly employed or not) in the manufacturing process carried on with the aid of power, it would not be proper to hold that Section 80IB(2)(iv) refers to ten workers employed by the assessee directly. In other words, when the language used in Section 80IB(2)(iv) does not suggest that restricted meaning must be given to the expression 'worker', it would not proper to give a restricted meaning to that expression and hold that Section 80IB deduction is allowable only if the workers directly employed by the assessee exceed ten. To put it simply, the condition imposed under Section 80IB(2)(iv) of the Act is that the assessee must employ ten or more workers in the manufacturing process / production of articles or things and it is immaterial as to whether the workers were directly employed or employed by hiring workers from a contractor. 16. Strong reliance was placed by the counsel for the Revenue on the decision of the Allahabad High Court in the case of R and P Exports (supra), which in our opinion is distinguishable on facts. In that case, the work was entrusted to the karigars / artisans and the amount paid to them were debited to the purchase account by the assessee therein as polishing charges, engraving charges, cutting charges etc. Relying upon the decision of the Apex Court in the case of Chintaman Rao v. State of Madhya Pradesh 1958 SCR 1340 and Harish Chandra Bajpai v. Triloki Singh AIR 1957 SC 444, the Allahabad High Court held that where the work is entrusted to karigars / artisans, it is a contract for service and not a contract of service and, therefore, the karigars / artisans to whom the work was entrusted cannot be said to be workers employed by the assessee. In the present case, the finding of fact recorded by the Tribunal is that the assessee had entered into a contract of service with the contractor who supplied workers to the assessee and the said workers worked in the factory of the assessee under the direct control and supervision of the assessee. Therefore, the decision of the Allahabad High Court in the case of R and P Exports (supra) is distinguishable on facts. 17. No doubt that the decision of the Allahabad High Court in the case of Venus Auto (P.) Ltd. (supra) is inconsonance with the arguments advanced by the Revenue. However, we find it difficult to subscribe to the views expressed by the Allahabad High Court in the aforesaid case. As held by this Court in the case of Sawyer’s Asia Ltd. (supra), the undertaking is not required to have ten or more regular workers and it may be said to have satisfied that requirement if the aggregate actual number of workers engaged in the manufacturing process, both ITA No.179 & 180 /Chny/2025 Page - 15 - of 17 regular and normal, is ten in number. Therefore, under Section 80IB(2)(iv) what is relevant is the employment of ten or more workers and not the mode and the manner in which the said workers are employed by the assessee. In other words, irrespective of the terms of employment, condition of Section 80IB(2)(iv) would stand fulfilled if the assessee in aggregate employs ten or more workers in its manufacturing activity. The fact that the employer - employee relationship between the workers employed by the assessee differs cannot be a ground to deny deduction under Section 80IB of the Act, so long as the workers employed by the assessee in aggregate exceed ten in number. Accordingly, we find it difficult to follow the decision of the Allahabad High Court in the case of Venus Auto Private Ltd. (supra). 18. In the result, in the facts of the present case, since the actual number of workers employed in the manufacturing process exceeded ten in number, the Tribunal was justified in holding that the condition of Section 80IB(2)(iv) have been fulfilled. Accordingly, the second question is also answered in the affirmative, that is, in favour of the assessee and against the Revenue….” 10.0 Thus placing respectful reliance upon the order of Hon’ble Bombay Higher Court (Supra) it can be concluded that the contractual workers engaged by the assessee would fulfill the condition of engaging 10 or more workers. Another part of this controversy is as to whether the said contractual workers participated in any manufacturing activity or not. We have noted from the perusal of Profit & Loss account of the assessee for AY-2006-07 and 2007-08 it has sold stock worth Rs.8.81 Crores and Rs.10.41 Crores in year ending 31.03.2007 and 31.02.2006 respectively. It is beyond any reasonable imagination that such quantity of stock, no matter how simple the process of manufacturing is can be accomplished only by two staff members being a factory manager and a quality controller. According to the Ld.AO only these two out of total six employees are ITA No.179 & 180 /Chny/2025 Page - 16 - of 17 on pay roll of assessee. Needless to say the assessee was being assisted by some other staff members of contractual nature to assist in industrial activity. The Ld.Counsel for the assessee stated that it has been provided 12 contractual staff members which were also used in its industrial activity. Countering argument of the Ld.DR of the same being engaged in gardening and house keeping activities only, the Ld. Counsel submitted that it does not has any large garden and housekeeping requirement for employing such a large number. We have also noted that the agreement between the assessee and Mr.R.Sivakolundhu provides that the contracted workers will be engaged in gardening / housekeeping and other activities. The latter being as per mutual agreement between the two parties. This goes on to indicate that the agreement postulated activities which were not specifically mentioned in the agreement. It is the case of the assessee that it has maintained a specific wages register for the workers including contractual workers. Accordingly, in the light of decision of Hon’ble Bombay High Court, in the case of Jyoti Plastic (Supra) as also other factual matrix of the case discussed hereinabove, we of the considered view that the third limb of section 80IB(2) qua the undertaking engaging 10 or more workers also stands satisfied in this case. The addition made by the Ld.AO and its confirmation by the ITA No.179 & 180 /Chny/2025 Page - 17 - of 17 Ld.CIT(A) is therefore not based upon correct understanding and appreciation of the facts on record. Accordingly, we set aside the order of lower authorities and direct the Ld.AO to delete the impugned addition of Rs.65,09.140/-. All the grounds of appeal raised by the assessee are therefore allowed. 11.0 The decision taken in ITA No.180 shall apply mutatis mutandis in ITA No.179 for AY-2006-07. 12.0 In the result, the appeals of the assessee are allowed Order pronounced on 18th , July-2025 at Chennai. Sd/- (मनु क ुमार धिरर) (MANU KUMAR GIRI) न्याधयक सदस्य / Judicial Member Sd/- (अधमताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 18th , July-2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai/Coimbatore/Madurai/Salem. 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF "