TMI Blog2020 (2) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the activity derived from the business of collecting and processing or treating biodegradable waste for production of biological agents. Owing to reallocation of expenses CIT(A) restricted the claim to the extent of ₹ 1.54 Crores as against the claim of the assessee amounting to ₹ 1.91 Crore. We find considerable substance in the process of reasoning adopted by the CIT(A) while concluding the issue in favour of the assessee. The CIT(A), in our view, has dealt with the issue objectively and hence does not warrant interference. The Revenue has failed to rebut the findings of the CIT(A) in any assertive manner. We thus decline to interfere. - Decided against revenue. - I.T.A. No. 902/Ahd/2016 - - - Dated:- 30-1-2020 - Shri Pradip Kumar Kedia, Accountant Member And Smt. Madhumita Roy, Judicial Member For the Appellant : Shri Laxman Singh Gurjar, Sr.DR For the Respondent : None ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad ( CIT(A) in short), dated 29.01.2016 arising in the assessment order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and processing or treating of bio-degradable waste for generating power or producing bio fertilizers, bio-pesticides or other biological agents or for producing bio-gas or making pellets or briquettes for fuel or organic manure, there shall be allowed, in computing the total income of the assessee, a deduction of an amount equal to the whole of such profits and gains for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which such business commences. Further the appellant would like to draw attention towards the Circular no.772 dated 23/12/1998 wherein the intention of introducing Section 80JJA has been explained. The relevant extracts of the circular are as follows: 80JJA Deduction in respect of profits and gains from business of collecting and processing of bio-degradable waste 44.1 Increasing population and urbanization pose challenges for planners. Waste management has been one area of serious concern, which so far has been primarily the responsibility of local bodies. Waste is now being thought not as a useless resource but a re-cyclable and reusable one given the proper framework. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y manufactures Bio feed product by using agro products like wheat bran, Ground nut cake, soya cake, corn meal, gluten and crude enzyme and Phytase. First this agro waste is mixed after which sterilization is done and then seed bacterial culture is added. It is then incubated for 72hrs at required temp and humidity. After completing incubation period this material is dried in dryer at 55C temp and moisture is removed after which the material is grinded in grinder. It then undergoes process of blending in blander. Protein and oil content as per product pricing and costumer requirement is maintained. The assessee company uses Paper bag for packing purpose. Thus the un-wanted bio-degradable waste, are further treated through a series of biological processes with the help of biotechnology to produce these Biofeeds (Biological agents) which are rich in energy values. Biofeeds help in improving the digestion in animals and poultry and the biological agents present in Biofeeds can also be used to replace chemical based antibiotics in animals and poultry. Considering the entire process, appellant is entitled to deduction u/s 80JJA as claimed in Return of Income. 3.6 The activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal processes for the use in Animal healthcare industry. Biofeeds help in improving the digestion in animals and poultry. They help in breaking down the complex feeds into simpler compounds thus making it easy for the animal / poultry to get the extra energy which is locked in the complex feeds. In cattle, Biofeeds gives noticeable improvement in the health of the cattle, increase in milk yields and also improve quality of milk. The biological agents present in Biofeeds can also be used to replace chemical based antibiotics in animals and poultry. As appellant has satisfied all the conditions prescribed u/s 80JJA, Assessing Officer was not justified in rejecting such deduction. 3.7 With regards to observation of Assessing Officer that raw material used by appellant is not biodegradable waste and reference to definition of Bio degradable waste as per definition of European Commission for Environment (herein after ECFE), appellant submits that Assessing Officer has failed to appreciate inter alia: (i) that definition referred by Assessing Officer as mentioned by ECFE is for Bio-waste and not for biodegradable waste. The relevant definition given in said web sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms, etc. Without any stretch of imagination it can be construed that the waste obtained palpably falls under the parlance of biodegradable waste as they are agricultural waste; or waste or by-products from agro processing industry which are capable of being decomposed in nature without creating any damage to nature. In this context it shall be noted as these items are biodegradable in nature, any further processing will not change its basic characteristics. In furtherance to this, the assessee company submits that these biodegradable wastes are being further treated through biological processes of composting, reaction with enzymes etc. to make Biofeeds. (iv) that Hon'ble Bombay High Court in the case of CIT vs. Padma S. Bora [2013] 355 ITR 368 has held as under: There could be no universal definition of the word waste . The term waste has to be understood contextualiv i.e. place where it arises and the manner in which it arises during the processing of some article. In the above case the A.O had held that bagasse being a by-product of the sugar industry and being a saleable product cannot be considered as waste. In the above stated order it was held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs. Padma S. Bora [20131 355 ITR 368 wherein it is held as under: Section 80JJA of the Income-tax Act, 1961 - Deductions - Profits and gains from business of collecting and processing of bio-degradable waste - Fuel briquettes -Assessment years 2003-04 and 2004-05 - Whether assessee, engaged in business of manufacturing fuel briquettes from bagasse was entitled to deduction under section 80JJA - Held, yes [Para 7] [In favour of assessee] It is submitted that the facts and circumstances are very much analogous to the case of the appellant company. Bagasse is obtained as a residual product during the process of manufacturing sugar in a sugar industry. Further bagasse is obtained from sugarcane which is an agro commodity. It was used to make fuel briquettes having high calorific value. Regarding the objection put forward by the A.O relating to the end-product after processing being one and the same as the waste collected, the Hon'ble High Court disagreed with the said objection as there was great amount of change in terms of caloric value of the briquettes before and after the said processing or treatment. Similarly on going through the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 80JJA. In this connection, appellant submits that while making such observation, Assessing Officer has failed to appreciate inter alia (i) that if he had any confusion regarding different raw material used by both the concerns referred supra, he ought to have asked appellant to clarify or called for further explanation. (ii) that during the course of assessment proceedings, appellant vide its letter dated 23/12/2013 has stated that following finished products are produced as a result of the above mentioned process. Biofeed S Biofeed - SC 6 Biofeed Enz Phytase Enzymes Further, Anil Limited also vide its letter dated 23/12/2013 has submitted such details as under: Biofeed Active Biofeed Plus Biofeed Ultra Thus, it can be seen from aforesaid details that though both companies are engaged in production of Bio-feeds, but they are manufacturing different types of such Biofeeds hence raw material requirement for both the companies are different. (iii) that he is not such a technical person who can simply make disallowance of deduction u/s 80JJA on comparing data of two companies without going to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T registration is not required. Even Assessing Officer has not called for such clarification in his show cause notice but the authorized representative has explained such facts to Assessing Officer. (d) With regards to observation of Assessing Officer that appellant has submitted only few copies of bills and failed to produce preliminary documents to prove purchases and receipt of goods, appellant submits that during the course of assessment proceedings, it has filed following written submission dated 21/03/2014 to AO: In order to substantiate the purchases as genuine, the assessee company submits the following before your good selves: e. Copy of sales bills along with delivery challan in few cases, issued by the above three parties on a sample basis vide Annexure-1(A). The bill explicitly reflects additional details required such as mode of transport, truck/tempo number etc. Further the assessee company submits that all the bills pertaining to purchases are available with the assessee company which would be willingly produced if required by your good selves in future. f. Copy of ledger account of the assessee company in the books of the parties under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been highlighted for your good selves' kind perusal. Further the assessee company hereby submits month wise details pertaining to purchase and sales of Biofeeds and consumption of raw material details for the year vide Annexure-3 for your good selves' kind perusal. It can be seen from aforesaid submission that (i) Appellant has submitted sample copies of bills along with delivery challans and categorically stated that all the bills pertaining to purchases are available with appellant which would be produced, if required. But Assessing Officer has not called for any further details from appellant hence appellant thought no further bills are requires to be produced. (ii) The appellant has submitted sample copies of bills along with delivery challan to Assessing Officer and such details includes additional details like mode of transport, truck/tempo no etc. This fact is also accepted by Assessing Officer at TOP of Page 9 but at middle of Page 9, he states that appellant has not produced any proof regarding actual receipt of material which itself suggest that Assessing Officer is making contradictory observation and that too without verifying de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of creditor in the relevant financial year was only SMPL and copy of appellant's bank statement shown that payment was made in the name of SMPL only and even in bank statement of said company, name of account holder is mentioned as SMPL. The Assessing Officer during assessment proceedings called for Xerox copy of one cheque and in which account, same has been cleared and at that time, Bank of India has forwarded copy of cheque along with Bank statement in whose account same was forwarded and it was found to be in the name of JCPL. As at the time of assessment proceedings, name of SMPL was changed to JCPL, Bank has forwarded Bank statement in the name of JCPL and on sole such basis, Assessing Officer came to conclusion that cheque issued in favour of SMPL was actually deposited by JCPL but has failed to appreciate that both SMPL and JCPL is same party. It is further submitted that in the bank statement provided by bank account number is mentioned as 2017201000000015 which exactly tallies with bank statement given by appellant. Even PAN of account holder matches with the PAN of SMPL which once again proves that both SMPL and JCPL is same party. This show that Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ological processes for use in animal healthcare industry. It was contended by AO that appellant has used raw material namely Biofeed Enz, feed, jute bags, husk, maize, rape doc and soya been doc which are not biodegradable waste which is one of the conditions for claiming deduction u/s 80JJA. It was also contended by AO that deduction is available for generation of power, producing bio-fertilizer, bio-pesticides or other biological agents or for producing bio-gas or making pellets or briquettes for fuel or organic manure but appellant has failed to produce any such article hence deduction u/s 80JJA of the Act is not available to it. It is also observed that though Appellant and Anil Limited both has same final products, raw material used for such production are different which creates doubt regarding actual production activity for which appellant has claimed deduction u/s 80JJA. The list of machinery submitted by the appellant does not figure any Sterilizer, Fermenter etc to sustain the claim of the assessee for production activity. It was also observed by Assessing Officer that the two parties being Samiksha Marketing Pvt Limited(SMPL) and Vision Traders from appellant company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant, appellant has argued that such assets are owned by Anil limited and for same, utility service charges of ₹ 95.22 lacs is also paid by appellant. The appellant has also submitted that parties from whom purchases were made were dealing with Agro products which do not require VAT registration. The appellant has also submitted that it has submitted sample copies of invoices along with delivery challans which includes mode of transport, truck no etc, ledger account, confirmation of parties to prove genuineness of purchases and even Assessing Officer has accepted book results while passing the assessment order. With regards to observation of Assessing Officer that SMPL is not registered with ROC of companies, appellant has submitted name of SMPL has been changed to JCPL and not Jalaram Trading Pvt. Limited as observed by Assessing Officer and even these details are available on web site of income tax department. With regards to observation of Assessing Officer that cheque issued to SMPL against purchases are deposited in bank account of JCPL, appellant submitted that when bank submitted details regards clearance of cheque, name of SMPL was changed to JCPL hence such det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It can be seen from above definition that biodegradable waste is different than bio-waste and bio waste does not include biodegradable waste hence, reliance on such definition while denying deduction u/s 80JJA cannot be placed. The appellant has used wheat bran, ground nut cake, soya cake, com meal, gluten, husk etc during production process of articles and things eligible for deduction u/s 80JJA and such waste are mainly derived from agro processing industry which are capable of being decomposed in nature and squarely considered as biodegradable waste as per definition of biodegradable given in dictionary of Collins. 2.7. During the course of assessment proceeding as well as appellate proceedings, appellant has submitted production process carried out by it and such process has not been found to be incorrect by AO or no defects have been pointed out by him. It is further observed that appellant has treated above referred biodegradable waste into biological processes with the help of fermentation to produce these Enzymes (Biological agents) which are biocatalyst. Specific microorganisms are added in the fermentation process which at specific controlled parameters of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se are Wheat Branch, Groundnut Cake, Soya Cake, Corn Meal Gluten, Crude Enzymes and Phytase. Using biotech process, these materials are processed together with seed bacterial culture at required processing conditions. The above technical certificate issued by concerned person was not found to be incorrect by AO and AO has brought any other evidences including certificate of technical person to substantiate its claim that waste procured by appellant are not biodegradable waste or articles produced by it are not biological agents. It is pertinent to note that even circular no 772 dated 23/12/1998 wherein intention of introducing provisions of section 80JJA has been explained, it has been categorically stated that section is introduced to promote activities like recycling of waste which could in turn be converted into useful resources. The activities carried out by appellant as stated herein above clearly suggest that it has produced biological agents which are rich in nutritional value and same is generated out of biodegradable waste hence profit and gains earned form such process is entitled to deduction u/s 80JJA of the Act. Reference is also drawn to decision of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections which are dealt with as under: (i) The Assessing Officer has contended that both Appellant and Anil Limited are producing Biofeed but raw material consumed in such process are different, which creates doubt for Appellant's claim for deduction under Section 80JJA. This contention of Assessing Officer cannot be accepted because Assessing Officer has not brought out any evidences which can suggest that raw material used by Appellant is not required in the production of biological agent being Biofeeds. Though both the companies produce Biofeeds, both are engaged in production of different types of Biofeeds which is evident from details of finished goods produced by Appellant as well as Anil Limited from submission dated 23rd December, 2013. The Appellant is producing Biofeed S, Biofeed ENZ, etc., whereas Anil Limited is producing Biofeed Active, Biofeed Plus, etc. (ii) The observation of Assessing Officer that Appellant does not have boiler/furnace for generating 121 Degree Celsius and even sterilizer or fermenter are not available with Appellant which is required in production process. Even this observation of Assessing Officer cannot be accepted as no spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve payments are reflected in bank account held in the name of JCPL It is pertinent to note that bank account of SMPL and JCPL shows same bank account number which further proves that name of SMPL is changed to JCPL As Assessing Officer has called for details during Assessment Proceedings, i.e. during FY 2013-14, name of SMPL was already changed to JCPL hence data base of bank shows name as JCPL. Thus, the entire observation of Assessing Officer for making impugned disallowance on the ground that SMPL is Paper Company is factually incorrect. (vi) The Assessing Officer has also observed that Appellant has failed to provide purchase bills/delivery challans in order to prove purchases made by it as genuine purchases. The reply filed by Appellant to Assessing Officer is reproduced at para - 3.10(d) in Appellant's submission wherein Appellant has categorically stated that sample copies of invoices along with delivery challans are produced and if further details are required, same can be submitted. However, Assessing Officer has not asked the Appellant to submit further copies of bills hence he is incorrect in observing that required details were not produced. The Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 41.49 lacs and amount allocated to 80JJA sales would be 24.06 lacs hence revised profit gains eligible for deduction u/s 80JJA would be at ₹ 1,06,90,000 as against ₹ 1,30,95,557 as claimed In return of income. Thus AO is directed to allow deduction u/s 80JJA at ₹ 1,06,90,000 and the related ground of appeal is partly allowed. 2.4.5. It is observed that even in year under consideration Appellant has not allocated financial charges as well as research and development expenditure to sales eligible for 80JJA hence these expenditure are allocated in the ratio of turnover as held in A.Y. 201011. The total expenditure debited in Books of Account is ₹ 54,95,674/and allocation to sales under Section 80JJA works out to R$. 37,68,037/- and to that extent deduction claimed in Return of Income is reduced. Thus AO is directed to allow deduction u/s 80JJA at ₹ 1,54,75,286/- and the related ground of appeal is partly allowed. 6. Aggrieved by the partial relief granted in favour of the assessee, the Revenue preferred appeal before the Tribunal to impugn the order of CIT(A). 7. When the matter was called for hearing, none appeared for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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