Section 80JJAA Deduction: ITAT Clarifies Eligibility, Compliance, and Verification Requirements

By CA Surekha S Ahuja

Claiming a deduction is a right; sustaining it is a responsibility.

The Income Tax Act provides relief under Section 80JJAA to encourage employment, but the recent ITAT ruling in Innovative Cuisine (P.) Ltd. v. ACIT [2025] 181 Taxmann.com 14 makes it clear that deductions are fact-sensitive, evidence-driven, and employee-specific. Blanket disallowances are impermissible, but so is casual compliance.

Case Reference:

• Assessee: Innovative Cuisine (P.) Ltd.

• Bench: ITAT Ahmedabad – T.R. Senthil Kumar & Narendra Prasad Sinha

• Assessment Year: 2017-18

• Facts:

  • Assessee claimed Section 80JJAA deduction for 274 additional employees employed during the year.

  • AO disallowed the entire claim because most employees worked less than 240 days and statutory conditions were allegedly unverified.

  • Tribunal remanded the matter, directing AO to verify employee-wise eligibility.

Legal Framework of Section 80JJAA

1 Deduction:

• 30% of additional employee cost for three assessment years (year of employment + 2 subsequent years).

2 Eligibility Conditions (Section 80JJAA(2) & Explanation):

1. Employee’s monthly emoluments ≤ ₹25,000.

2. Participation in recognized Provident Fund and Pension Scheme.

3. Employee works not less than 240 days in the financial year.

4. Salary paid via account payee cheque/draft or electronic transfer (ECS/NEFT/RTGS).

3 Burden of Proof:

• Onus is squarely on the assessee to prove compliance with all conditions.

• Verification includes: payroll, attendance, bank records, PF/pension enrollment, and employment letters.

“Merely submitting sample employee details is insufficient; AO must verify employee-wise compliance.” [ITAT]

Key Observations of the Tribunal

1. Employee-Wise Verification Mandatory:

   • AO cannot disallow the entire deduction merely because some employees worked less than 240 days.

   • Deduction should be allowed only for employees satisfying all statutory conditions.

2. Payment Mode Verification:

   • Salary must be traceable via account payee instruments.

   • Even if offer letters are missing, bank statements and salary registers can substantiate compliance.

3. Sample Evidence is Insufficient:

   • Submission of 15 employees’ details out of 274 is inadequate.

   • AO must check all employees’ eligibility before disallowance.

4. Treatment of Part-Year Employees:

   • Employees working <240 days are ineligible.

   • Partial-year service cannot be aggregated unless statutory requirement is fulfilled.

5. PF / Pension Compliance:

   • Employees not enrolled in recognized schemes are ineligible.

   • Auditor certification strengthens the claim.

6. Monthly Emoluments Limit:

   • Only employees earning ≤ ₹25,000/month are eligible.

   • Include basic + allowances; exclude non-qualifying allowances.

Compliance Checklist – All “Ifs and Buts”

Requirement	Compliance Action	Caution / Points to Avoid Disallowance
Employee Eligibility	Maintain appointment letters, payroll, attendance	Avoid claiming for employees <240 days
Salary Limit	Verify monthly salary ≤ ₹25,000	Exclude bonuses/allowances beyond limit
Payment Mode	Salary via account payee instruments	Avoid cash or untraceable payments
PF / Pension Enrollment	Maintain proof of enrollment	Non-compliance invalidates deduction
Record Maintenance	Employee-wise summary linking salary, days worked, PF	Partial or sample evidence insufficient
Auditor Support	Certificate on employee cost and eligibility	Avoid unsupported claims
AO Queries	Respond with employee-wise computation and supporting documents	Delay or incomplete response can trigger disallowance

Tax Planning Insights

1. Staggered Recruitment:

   • Hire employees to ensure they complete ≥240 days within the financial year.

2. Payroll & HR Integration:

   • Maintain digital payroll linked with attendance and PF records for real-time verification.

3. Pre-Audit Verification:

   • Auditor to certify compliance for all eligible employees before filing.

4. Bank Transfer Compliance:

   • All emoluments to be routed through account payee / ECS to prevent disputes.

5. Documentation Readiness:

   • Maintain master sheet summarizing: employee name, joining date, PF details, monthly emoluments, salary payment proof, and days worked.

Judicial Support / Legal Precedents

• ITAT Ahmedabad (2025):

  AO cannot disallow full Section 80JJAA claim without verifying employee-wise compliance with 240-day and other statutory conditions.

• Principle: Deduction is evidence-driven, not discretionary.

• Other observations emphasize that:

  • Partial compliance or partial documentation does not justify blanket disallowance.

  • AO must provide opportunity for assessee to produce evidence.

Conclusion / Practitioner Takeaways

1. Section 80JJAA is highly fact-sensitive.

2. Employee-wise verification is mandatory; no blanket disallowances permitted.

3. Proper documentation, payroll integration, and auditor certification are essential to sustain deduction.

4. Tax planning: phased hiring, PF/pension compliance, salary limit adherence, bank-mode payment, and complete records ensure maximum deduction with minimal risk.

“Eligibility + Documentation + Verification = Sustainable Section 80JJAA Deduction.”

In essence, practitioners must ensure that every new employee satisfies all statutory conditions, maintain detailed evidence, and pre-empt AO queries to secure deduction under Section 80JJAA and prevent unnecessary litigation.