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TMI Blog2020 (2) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... also engaged in the business of trading of maize feed and maize oil. The assessee filed its return of income for AY 2011-12 declaring total income at Rs. 2,15,67,890/-. The return filed by the assessee was subjected to scrutiny assessment. The AO inter alia rejected the claim of deduction of Rs. 1,91,83,323/- claimed under s.80JJA of the Act. 4. The assessee preferred appeal before the CIT(A). The CIT(A) recorded submissions of the AO contesting the aforesaid action of the AO which is reproduced hereunder: "3.2 In this connection, appellant submits that during the course of Assessment proceedings it has made detailed submission on how it is entitled to deduction u/s 80JJA which mainly includes: (i) Entire process of production of Biofeeds from Biodegradable Waste (ii) Production of Biological Agents (iii) Ingredients purchased for processing and treating waste (iv) Details of Machinery used in the production process (v) Trading and Profit & loss account of Bio Feeds (vi) Details of Purchase and sale made from various parties along with ledger accounts The Assessing Officer has completely ignored the submission and details submitted by appellant and disallowed enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and to create employment opportunities. An increasing trend was seen towards recycling of waste which could be used for productive activities and production of some useful resources. Hence Section 80JJA was introduced to promote the activities like recycling of waste which could in turn be converted into some useful resources. 3.4 On perusal of the above Section it can be stated that deduction under Section 80JJA of the Act is eligible to be claimed, in other words, business would be considered as eligible business if it involves the following activities: - Collection of biodegradable waste - Treating/processing of biodegradable waste - Generation of power or production of bio fertilizers, biopesticides or other biological agents or for producing bio-gas or making pellets or briquettes for fuel or organic manure In light of above it is submitted that the appellant treats and processes biodegradable wastes to produce biological agent "Biofeeds". It can be very well construed that the activities of production of Bio-feed in the case of the assessee company is clearly in line and coincides with the conditions stated out in the provisions of Section 80JJA of the Act. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting these waste materials into Bio-feeds make it commercially marketable. It is an admitted position in the case of the assessee company that it collects the waste material from other entities after having made payment for the same. Therefore, the aforesaid requirement of collecting as provided under section 80JJA is satisfied (B) Process of Biodegradable waste The assessee company submits typical and detailed manufacturing process of production of Biofeeds and same was also given to Assessing Officer: * Grind residual maize to fine powder form * Addition of bio-degradable waste like fibre (wet bran), protein (gluten), germ to ground Maize powder in Fermenter (Bio reactors) * Sterilisation and reaction of all these raw material at 121 degree C to make biological broth * Cooling of the broth * Reaction the enzymes at specific temperature, pH and dissolved oxygen and time * Harvesting of broth * Stabilisation of broth by proper mixing * Drying * Grinding crude biological agent (Biofeeds) to 30 mesh Powder. * Screening through Vibro Machine * Standardisation and Packing Thus it can be perused that the manufacturing process of Biofeeds involves a complex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ste has not been defined in the Income tax Act. As per Oxford Dictionary, definition of waste is as under: "Unwanted or unusable material, substances, or by-products" Further, the term 'biodegradable' has not been defined in the Act. Collins dictionary gives the definition of biodegradable as follows: "Capable of being decomposed by bacteria or other living organisms and thereby avoiding pollution" Bio-degradable means it can be degraded. Agricultural wastes being Wastes generated from farming activities and these substances are mostly biodegradable. Further as per United Nations Statistics Division (U.N.S.D.): 'Wastes are materials that are not prime products (that is products produced for the market) for which the generator has no further use in terms of his/her own purposes of production, transformation or consumption, and of which he/she wants to dispose. Wastes may be generated during the extraction of raw materials, the processing of raw materials into intermediate and final products, the consumption of final products, and other human activities. Residuals recycled or reused at the place of generation are excluded." As per dictionary of Wikipedia, Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls under the ambit of technical parlance of "biodegradable waste" and also that the Biofeeds obtained as an end product on treatment of this waste are "Bio-logical agents". Considering the above facts, appellant has fulfilled the all criteria laid down u/s 80JJA of the Act. 3.7.1 With regards to observation of AO at page 6 of the order that appellant has claimed that all the wastages are generated during the manufacturing process of producing starch, appellant submits that Assessing Officer has proceeded to make disallowance on wrong footing by observing that all waste are generated during manufacturing process carried out by it but appellant in its written submission dated 21st March 2014(no relevant extracts were produced by Assessing Officer in assessment order) categorically state that "one of the preliminary activity of the company is manufacturing of biofeeds and hence ail the material required in the process of manufacturing of biofeeds are purchased from outside and are not waste which are obtained as byproduct of any manufacturing process". This once again prove that Assessing Officer wanted to make disallowance u/s 80JJA in any manner in the case of appellant hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... health of the cattle, increase in milk yields and also improve quality of milk. Further it involves a separate series of processes which require additional staff through which it has created employment opportunities as well. Thus looking at the basic intent of legislature it can be maintained that the any recycling of waste that gives rise to biological agents (useful resources) would be an eligible activity under the provisions of Section 80JJA. Further the said explanation does not imply that the expression 'waste' means the one which is freely available. In fact, it explains that the waste is substrate or raw material for many other useful activities, when recycled. In view of the above it can be seen that a stand has been taken that the expression 'waste' being undefined in the Act, general meaning needs to be adopted and the provision of Section 80JJA has to be interpreted by applying the principles of literal interpretation of jurisprudence. 3.10 Apart from above, Assessing Officer has also made certain unwarranted observation while making disallowance u/s 80JJA which are dealt as under (a) Assessing Officer at page 6 of his order has observed that both ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vague. (b) The learned Assessing Officer at page 6 has also observed that appellant has claimed that for carrying out production, appellant does not have boiler/Furness for generating 121 degree C and details of machinery submitted by appellant does not figure Sterilizer, Fermenter etc. In this connection, appellant submits that boiler required for such production process was owned by ANIL Limited and was part of Fixed Asset Block of said company. Even during the year under consideration, appellant has paid service utility charges of Rs. 95.22 lacs to Anil Limited which includes payment for usage of Fixed Assets owned by Anil Limited and these facts are clearly mentioned at Clause 18 "Payment to related parties" in Tax Audit report. It is further submitted that Assessing Officer has not raised any doubt on this issue in show cause notice issued by him nor called for any further explanation during assessment proceedings. These facts itself suggest that Assessing Officer has made entire disallowance on prejudicial approach. (c) With regards to observation of Assessing Officer at page 8 of his order that two parties from whom appellant has made purchases are not registered with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; hereby submitted vide Annexure-1(E). Details pertaining to Sales of Bio feeds With regard to claim of deduction u/s 80JJA of the Act; your good selves have asked the assessee company to submit details pertaining to sales of bio feeds to 11 different persons. In order to substantiate the sales as genuine the assessee company submits the following before your good selves: a. Copy of sales bills issued by the parties under consideration on a sample basis vides Annexure-2(A). The assessee company would like to bring to your kind attention the fact that all sales have been made ex- factory, hence details of mode of transportation are not available in all cases. Further the assessee company submits that all the bills pertaining to sales are available with the assessee company which would be willingly produced if required by your good selves in future. b. Ledger account of the parties under consideration in the books of the assessee company duly confirmed by the respective parties vides Annexure-2(C). c. Relevant extracts of the bank statement duly reflecting the payments received from the parties under consideration vide Annexure2(D). Your good selves shall appreciate the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom whom appellant has made purchases is assessed to same circle and details were already available on record of Assessing Officer. So far as PAN of Samiksha Marketing Limited is concerned, Assessing Officer himself at BOTTOM of Page 8 stated that PAN of said party as submitted by appellant is AACCS8742J. This fact one more time proves the approach of Assessing Officer. (e) With regards to observation of Assessing Officer that cheques of Rs. 29,00,000 issued to Shamiksha Marketing Pvt. Limited (SMPL) against purchases were ultimately deposited in the Bank account of JALARAM commodities Pvt. Limited (JCPL) which again prove that SMPL is paper entity, appellant submits that during the course of assessment proceedings, it was explained to Assessing Officer that name of SMPL has been changed to JCPL and certificate issued by Registrar of Companies, Gujarat was also submitted. Thus both the names referred by Assessing Officer are of same party and cheque issued To SMPL was deposited in its bank account only. The appellant has submitted copy of bank statement of appellant as well as of said party vide its reply dated 21/03/2014. It is submitted that name of party was changed from 20/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company based on PAN provided by appellant in the section "KNOW YOUR JURISDICTION", he would have easily found that PAN is in the name of JCPL (formerly known as SMPL) and even ITD software, available with Assessing Officer, he would have easily obtained jurisdiction of the company and would have gathered all the information of said company very easily. Thus, aforesaid observation of Assessing Officer is factually incorrect. Considering the facts of appellant case as discussed herein above, as appellant has satisfied all the conditions required for claiming deduction u/s 80JJA, addition made by Assessing Officer deserves to be deleted". 5. Based on the submissions noted above, the CIT(A) has rendered the findings partly allowing the claim of the assessee to the extent of Rs. 1,54,15,286/- under s.80JJA of the Act. The relevant operative para is reproduced hereunder: "2.4. I have carefully considered the assessment order and submission filed by the Appellant. The Assessing Officer has contended that appellant has claimed deduction u/s 80JJA on manufacturing of 'Biofeeds' which are not biological agents and are nutrition booster derived by combination of biological pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oultry. So far as argument of AO that wastes purchased by appellant are not biodegradable, appellant has argued that material purchased by it are agricultural waste or by-products from agro processing industry which are capable of being decomposed in nature without creating any damage to nature produce biological agent "Biofeeds" and they are nutrition booster derived by a combination of various biological processes for the use in Animal healthcare industry. The appellant has also submitted entire manufacturing process of biological agents along with certificate from highly qualified bio-technologists in support of its claim that as it has satisfied all the conditions laid down u/s 80JJA, it is entitled to such deduction as claimed in return of income. With regards to observation of Assessing Officer that both appellant and Anil Limited produces bio feeds but raw material used for such production are different, appellant has argued that both the companies produces different types of bio feeds hence raw material used by both parties cannot be compared. With regards to observation of Assessing Officer that boiler requires for production process is not owned by appellant, appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other living organisms and thereby avoiding pollution". Even as per dictionary of Wikipedia, Biodegradable waste is a type of waste which can be broken down, in a reasonable amount of time, into its base compounds by micro-organisms and other living things, regardless of what those compounds may be. The AO has observed that material purchased by appellant and further treated are not biodegradable but has not given any reasoning why such waste is not biodegradable. The AO has referred to definition of biodegradable waste as per definition of European Commission for Environment but the said definition is actually for bio waste and such definition is given in web site of ECFE which reads as under: "Bio-waste is defined as biodegradable garden and park waste, food and kitchen waste from households, restaurants, caterers and retail premises, and comparable waste from food processing plants. It does not include forestry or agricultural residues, manure, sewage sludge, or other biodegradable waste such as natural textiles, paper or processed wood. It also excludes those by-products of food production that never become waste." It can be seen from above definition that biodegradable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of assessment proceedings for A. Y. 2011-12, appellant has submitted certificate of qualified Bio-Technologist wherein he has submitted as under: "This is to certify that our R&D is recognised by Department of Science and Industrial research (DSIR). We are well aware of applications and manufacturing processes of the products manufactures at M/s. Anil Bioplus Ltd (ABL). ABL also produces various Biological agents such as Biofeed S, Biofeed SC-6, Biofeed Enz and Phytase Enzymes. These products are biologically active in nature. The Biological Agents find applications in degradation of various complex materials such as proteins, carbohydrates, cellulosic materials, fats, etc. During the degradation process, these Biological Agents break complex materials into simple molecules. These simple molecules are readily absorbed by animals, birds, soil, plants, environment, etc. These simple molecules act as nutrients and find various applications. To produce above Biological Agents, various biodegradable agricultural waste or bio-degradable waste or by-products from Agro processing industry are used. These are Wheat Branch, Groundnut Cake, Soya Cake, Corn Meal Gluten, Crude Enzyme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and same can be adopted when other scientific formula is not available hence argument of AO for allocating expenditure on turnover basis cannot be accepted. The appellant has allocated power & fuel and stores & spares consumption on actual basis and this allocation is not found to be incorrect by AO. However, it is observed that appellant has not allocated interest & finance charges as well Research & development expenditure to sales pertaining to 80JJA activity which need to be allocated to such activity on turnover basis. The appellant has claimed such expenditure at Rs. 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 Rs. 1,06,90,000/- as against Rs. 1,30,95,557/- as claimed in return of income. Thus AO is directed to allow deduction u/s 80JJA at Rs. 1,06,90,000/- and the related ground of appeal is partly allowed". 2.4.3. It is pertinent to note that while making disallowance under Section 80JJA in year under consideration Assessing Officer has raised certain objections which are dealt with as under: (i) The Assessing Officer has contended that both Appellant and Anil Limited are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited. Even website of Income Tax Department wherein details of PAN can be obtained in the section "Know Your Jurisdiction" clearly shows that PAN is in the name of JCPL formerly known as SMPL These facts clearly suggest that Assessing Officer has made fallacious observation that SMPL is not registered with ROC or is a dormant company. (V) The Assessing Officer has a/so observed that cheques of Rs. 29,00,000/- issued to SMPL is ultimately deposited in JCPL which proves that SMPL is paper company. It is pertinent to note that both SMPL and JCPL are same company as observed in preceding para hence observation of Assessing Officer that SMPL is Paper Company is incorrect. It is observed that Appellant has submitted copies of bank statements which clearly indicate that payment of Rs. 29,00,000/- is made to SMPL only. Even Appellant has submitted copies of bank statements of SMPL which clearly reflect these transactions. The Assessing Officer has reproduced scanned copy of bank statement in Assessment Order wherein above 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 fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases on actual basis and same cannot be allocated on the basis of turnover basis. So far as allocation of other expenditure, it is observed that when assessee can allocate particular expenditure to unit to which it attributes on scientific basis, there is no need to allocate expenditure on turnover basis as observed by AO. The allocation of expenditure on turnover basis need to be last resort for allocating expenditure and same can be adopted when other scientific formula is not available hence argument of AO for allocating expenditure on turnover basis cannot be accepted. The appellant has allocated power & fuel and stores & spares consumption on actual basis and this allocation is not found to be incorrect by AO. However, it is observed that appellant has not allocated interest & finance charges as well Research & development expenditure to sales pertaining to 80JJA activity which need to be allocated to such activity on turnover basis. The appellant has claimed such expenditure at Rs. 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 Rs. 1,06,90,000 as against Rs. 1,30,95,557 as clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try. As per process adopted, unwanted waste are further treated through a series of biological process with the help of biotechnology to produce biofeeds which are rich in energy values. Biofeeds are stated to help in improving the digestion in animals and poultry and the biological agents present in biofeeds are stated to be used to replace chemical based antibiotics in animal and poultry. On these facts, the CIT(A) has accepted the claim of the assessee under s. 80JJA of the Act on first principle but re-allocated a part of expenditure as considered attributable 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, the CIT(A) restricted the claim to the extent of Rs. 1.54 Crores as against the claim of the assessee amounting to Rs. 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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