2025 (11) TMI 47 - HC - Income Tax

Tribunal remand upheld: s.80JJA biofuel pellet claims sent back for fresh AO review; s.68 additions quashed and remitted

Karnataka HC held that the Tribunal correctly remanded s.80JJA claims (bio-fuel pellets) to the AO for fresh consideration for AYs 2007-08 and 2008-09, ... Disallowance of deduction u/s 80JJA in respect of bio-fuel pellets - HELD THAT:- It is just and necessary to analyse the meaning of bio-fuel pellets. Bio-fuel pellets are dense, uniformally sized, cylindrical fuel pellets made from compressed organic materials like wood waste, agricultural residue and other bio-mass. These small, hard pellets serve as a sustainable and renewable alternative to fossil fuels, used for generating heat in residential and industrial applications like stoves, furnaces and boilers. Section 80JJA of the Income Tax Act, 1961 is a provision that allows deduction of profits and gains derived from the business of collecting and processing of bio– degradable waste for the generation of power, producing bio– fertilizers and bio–pesticides, generating bio–gas, making pellets or briquettes for fuel and producing organic manure. This deduction is allowed for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which such business commences. Section 80JJA is a hallmark provision that aims to support the effective utilisation of biodegradable waste in India. It does this by incentivising businesses with tax deductions equal to the eligible business income or value up to Rs.5.00 lakhs. Thus, Section 80JJA serves the goal of building an ecologically sustainable future. Rectification of mistake - quantum of deduction permissible to the Assessee u/s 80JJA thus a mistake has crept in the order of the Tribunal and the same has to be rectified - The principles of consistency in Income Tax proceedings have been applied in plethora of decisions. The claim under Section 80JJA of the Act cannot be denied to the Assessee as the same claim was allowed by the Assessing Officer for the previous years on the same set of facts. In order to ascertain whether the assessee is eligible to avail deductions for the Assessment years 2007-2008 and 2008-2009, the Appellate Tribunal remanded the matter to the Assessing Officer for fresh consideration, which, in our opinion, is just and proper. Therefore, there was no error in the order of the Tribunal, to invoke Section 254 of the Income Tax Act, 1961, which empowers the Tribunal to pass and amend the orders on appeals brought before it. The remand order passed by the Tribunal clearly demonstrates that a fair opportunity would be given to both Revenue and the Assessee. Thus, no grounds are made out to rectify any mistake in the impugned order passed by the Tribunal. Addition of sundry creditors u/s 68 - Payments were subsequently made through banking to the sundry creditors, thus, CIT(A) ought not to have upheld the addition. It shows that the CIT(A) failed to take cognizance of the confirmations and evidence filed substantiating existence of sundry creditors. Thus, Income Tax Tribunal remitted to the Assessing Officer for de novo assessment. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal erred in dismissing miscellaneous petitions filed by the Revenue without adjudicating the correctness of the deduction under Section 80JJA vis-à-vis the deduction claimed by the assessee. 2. Whether the Tribunal's order is perverse for failing to consider grounds raised in the miscellaneous petitions where an apparent mistake on the record invoking Section 254 (power to amend orders) of the Income Tax Act existed. 3. Whether the assessee was entitled to deduction under Section 80JJA for profits from manufacture/processing involving bio-fertilizers, bio-fuel pellets and related biodegradable waste activities for the assessment years in question. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Tribunal's dismissal of miscellaneous petitions without adjudicating correctness of Section 80JJA deduction Legal framework: Section 80JJA provides a deduction for profits and gains derived from business of collecting/processing biodegradable waste for specified purposes (generating power, producing bio-fertilizers, bio-pesticides, bio-gas, making pellets/briquettes for fuel, producing organic manure) for five consecutive assessment years beginning with the year in which such business commences. Precedent treatment: The Court relies on principles of consistency in income-tax proceedings as applied in prior decisions (general principle referenced in the judgment that consistent allowance in earlier years is material). Interpretation and reasoning: The Tribunal examined the claims and the record, observed that the Commissioner of Income-tax (Appeals) had passed a cryptic order earlier, and found that the claim under Section 80JJA could not be denied where the identical claim had been allowed by the Assessing Officer in earlier years on same facts. The Tribunal remitted matters where fact-finding and assessment of quantum required fresh consideration to the Assessing Officer for de novo adjudication. Ratio vs. Obiter: Ratio - where earlier years on same facts show allowance of Section 80JJA deductions, denial in subsequent years requires proper adjudication and cannot be sustained without fresh, reasoned findings; remand for de novo consideration is appropriate. Obiter - broader statements on policy aims of Section 80JJA (eco-friendly incentives) are explanatory but not decisive for the outcome. Conclusion: The Tribunal did not err in dismissing the miscellaneous petitions insofar as it remitted the question of quantum/allowability to the Assessing Officer for fresh consideration; the dismissal did not amount to failure to adjudicate the core issue, and no interference was warranted. Issue 2 - Allegation of perversity and invocation of Section 254 for apparent mistake on record Legal framework: Section 254 empowers the Tribunal to pass and amend orders on appeals before it; the concept of mistake apparent on record may justify exercise of such remedial powers. Precedent treatment: The judgment refers to the settled principle that mistakes apparent on record permit rectification, but also emphasises that relief cannot be granted where the substantive issues require factual reconsideration or full adjudication on merits. Interpretation and reasoning: The Court analysed the Tribunal's order and found that the Tribunal had remitted several factual issues (sundry creditors, Section 14A, Section 68 additions) for de novo assessment, thereby providing an opportunity to both Revenue and assessee to place evidence. The Tribunal's conduct demonstrated an intent to have the Assessing Officer re-examine contested factual and documentary matters rather than summarily amend orders under Section 254 without full adjudication. Ratio vs. Obiter: Ratio - invocation of Section 254 is not appropriate where the correct course is remand for fresh adjudication of contested facts; remand does not constitute failure to correct an apparent mistake but is a proper exercise of Tribunal's appellate discretion. Obiter - observations on the scope of Section 254 as contrasted with remand powers are ancillary. Conclusion: The Tribunal's order was not perverse nor procedurally defective for failing to invoke Section 254; remand for de novo consideration was proper and afforded a fair opportunity to both sides; no rectification of the Tribunal's order was called for. Issue 3 - Entitlement to deduction under Section 80JJA for bio-fuel pellets, bio-fertilizers and related activities Legal framework: Section 80JJA covers profits from collecting/processing biodegradable waste used for specified purposes, including making pellets or briquettes for fuel, and provides a deduction equal to whole of such profits (subject to statutory limits stated in amendment). Precedent treatment: The Court applied the principle of consistency where identical claims allowed in earlier assessment years are material in assessing claims in subsequent years, subject to evidence to the contrary. Interpretation and reasoning: The Assessing Officer had disallowed the deduction in respect of bio-fuel pellets but allowed deduction in respect of bio-fertilizers for a composite unit; the Tribunal noted previous allowances in earlier years and that the CIT(A)'s reasoning was cryptic. Given contested factual matters (existence of creditors, payments through banking, appropriateness of Section 14A disallowance, treatment of certain sales as unaccounted), the Tribunal remitted the issues to the Assessing Officer to consider evidence and determine quantum and allowability of Section 80JJA deduction afresh. Ratio vs. Obiter: Ratio - entitlement to Section 80JJA deduction cannot be denied solely on cryptic or conclusory findings when identical claims were accepted earlier; factual controversies require remand for proper adjudication. Obiter - descriptive material on nature/definition of bio-fuel pellets and policy objectives of Section 80JJA are explanatory. Conclusion: The Court upheld the Tribunal's decision to remit the question of allowability/quantum of deduction under Section 80JJA to the Assessing Officer for fresh consideration; the Revenue's contention that the assessee was not entitled to any deduction for the years in question was rejected as untenable without fresh fact-finding. Overall Conclusion and Disposition The Court concluded that the Tribunal's dismissal of the miscellaneous petitions and remand for de novo consideration of contested factual and legal aspects (including Section 80JJA deduction) was justified. The appeals by the Revenue were dismissed; the remand order was held to afford fair opportunity and did not warrant correction under Section 254. No costs were awarded.