TaxTMI 
TaxTMI 
2020 (2) TMI 85
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....turing of starch dextrose and related product and is 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 ....
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.... briquettes for fuel or organic manure,............ On the basis of circular it is clear that intention was mainly to overcome the problem of waste management 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 construe....
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....ing process. Materials such as bran, feed, feed Ez Plus, Gluten, wet bran, germs, etc, are purchased for production of biological agents (Biofeeds). These waste materials purchased are otherwise unusable or are have a very low worth. However, converting 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 ox....
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....ion that never become waste." The Assessing Officer has suitably replaced the word " Bio-waste" referred supra as "Bio-degradable waste" and it can be seen from aforesaid definition that Bio-waste does not include certain biodegradable waste whereas section 80JJA, reference is to "Biodegradable waste" Thus meaning of both Bio-waste and Bio degradable waste is different. (ii) that even otherwise waste 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 ....
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....son who generates it. Thus, it can be concluded that there exists no universal definition of waste and thus it has to be understood contextually as explicitly stated by the High Court of Bombay in it above referred judicial pronouncement. (v) that during the course of assessment proceedings, appellant has submitted a certificate from highly qualified bio-technologists wherein he has explicitly certifying that the waste material obtained and used in the production process of Biofeed; falls 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 submiss....
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.... are having high energy and nutrition value. Thus appellant is entitled to deduction u/s 80J JA of the Act. 3.9 Apart from above, Circular no.772 dated 23/12/1998 wherein the intention of introducing Section 80JJA has been explained and from same, it is emerging that Section 80JJA was introduced to promote the activities like recycling of waste which could in turn be converted into some useful resources. In the present case the appellant has treated waste to produce Biofeeds which are rich in nutritional value and gives noticeable improvement in the 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 ra....
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.... There are number of pharmaceutical companies which are manufacturing medicines but one cannot compare medicine prepared for Heart Attack with CANCER. (iv) that appellant has during assessment proceedings submitted complete details of purchase and sale along with manufacturing process and he himself has accepted book results and yield shown by appellant which itself suggest that there cannot be any doubt; for actual production activity carried out by appellant. Thus it is submitted that in support of aforesaid bold observation. Assessing Officer has not brought any positive evidence or even Learned Assessing Officer is not technically competent enough to give this 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 cons....
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.... good selves' kind perusal. h. Further the assessee company submits that two out of there parties i.e. Shamiksha Marketing Pvt. Ltd & Anil Tradecom; from whom purchases have been made are group companies. Hence in order to explain the entire flow of payments in case of these two parties the assessee company has prepared a chart reflecting the flow of payments starting from the assessee company to the end party. On perusal of this it can be construed that eventually the payments made are going out of the net of group companies. The chart is hereby submitted vide Annexure-1(D). i. Also in order to justify genuineness of purchases, the assessee company has managed to arrange for VAT return of one of the parties from whom purchases are made; 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 ....
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....ld not have achieved so much huge turnover. (iii) The appellant has submitted ledger account of parties from purchases were made along with confirmations of such parties which suggest that initial burden cast upon appellant to prove genuineness of purchases are proved. The payments are made though account. payee cheques which also prove that purchases are genuine. The Assessing Officer has observed that appellant has not submitted address or PAN of creditors. In this connection, appellant submits that name and addresses of creditors were already given to Assessing Officer vide submission dated 02/09/2013 and still he has any issue, he should have called for such details from appellant. It is further submitted that copies of bills submitted by appellant also reflects the addresses of the said party. Further, Anil Tradecom from 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 approa....
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....at same is registered in the name of Jalaram Trading Pvt. Limited which is registered with ROC, Mumbai and said company was "DORMANT" Company, appellant submits that as SMPL was selling Agriculture produce, provisions of VAT are not applicable hence same is not required to have VAT registration. It is further submitted that name of SMPL has been changed to JCPL and same is also updated on website of incometaxindiaefiing.gov.in and said company is regularly filing Return of Income with PAN supplied by appellant hence said company is DORMANT company is factually incorrect and even Assessing Officer has extracted details of Jalaram Trading Pvt. Limited and not of Jalaram Commodities Pvt. Limited. It is further submitted instead of searching data base for VAT authorities, had Assessing Officer once seen the website www.incometaxindiaefilinq.gov.in and search the name of the 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 in....
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....e Cheque of Rs. 29,00,000/- issued by appellant to SMPL against purchases were ultimately deposited in Bank account of M/s Jataram Commodities Pvt Limited (JCPL) which also prove that SMPL is paper entity. Thus Assessing Officer made disallowance u/s 80JJA for Rs. 1,91,83,323/-. 2.4.1. On the other hand, appellant has argued that the manufacturing process of various agro-products e.g. wheat flour, groundnut, maize, etc. evolves crushing and then separation from other un-wanted material which are waste. These waste materials consist of residual grain grits, some un-wanted proteins, fibres (wet bran), seeds, etc and these waste material is purchased by appellant and biological processes is carried out with the help of fermentation to produce these Enzymes (Biological agents) which are biocatalyst and are rich in energy values. Biofeeds help in improving the digestion in animals and poultry. 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 p....
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....r was deleted by undersigned vide order dated 27/01/2016 in Appeal No. 66/CIT(A)-1 and held as under: 2.6. On careful consideration of entire facts as discussed herein above, deduction u/s 80JJA is available to assesses when it satisfies following twin conditions:- (i) Profits and gains should be derived from the business of collecting and processing or treating of biodegradable waste, and (ii) Profit and gain should be out of activity being generating power or producing bio fertilizers, biopesticides or other biological agents or for producing biogas or making pellets or briquettes for fuel or organic manure. It is further observed that term bio-degradable waste is not defined in Income Tax Act. However, as per Oxford Dictionary, waste means "Unwanted or unusable material, substances, or byproducts" and biodegradable as per Collins dictionary means capable of being decomposed by bacteria 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, r....
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....the complex compounds into simpler compounds thus helping to avoid using conventional and hazardous chemicals which are harmful to the environment The appellant has manufactured bio degradable agents like biofeed S, Biofeed-SC 6, Biofeed Enz, etc., and these biological agents have helped in improving the digestion in animals and poultry. They have helped in breaking down the complex feeds into simpler compounds thus making it easy for the animal /poultry to get the extraenergy which is locked in the complex feeds. The biological agents present in Biofeeds are also used to replace chemical based antibiotics in animals and poultry. In entire process, appellant has produced biological agents and deduction u/s 80JJA simply state that appellant should produce or manufacture biological agents and AO has not disproved the contention of appellant that items manufactured by appellant are not biological agents. 2.8. It is further observed that during the 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 Scienc....
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....preted liberally the restriction on it too has to be construed so as to advance the objective of the section and not to frustrate it. Considering the facts of the case as discussed herein above, it is held that appellant has produced biological agents after utilizing biodegradable waste and profits and gains earned from such activity entails appellant deduction u/s 80JJA of the Act. 2.9. So far as issue of allocation of expenditure between activities eligible for deduction u/s 80JJA and other activities, it is observed that appellant has claimed purchases 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 A.O. The allocation of expenditure on turnover basis need to be the 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....
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.... include charges for usage of fixed assets and such details are already submitted by Appellant at Clause - 18 of Tax Audit Report. (iii) The Assessing Officer has also observed SMPL and Vision Traders from whom Appellant has purchased goods are not registered with VAT Authorities. It is observed that as both parties are dealing in agro-products, they are not required to obtain VAT Number hence non-registration with VAT Authorities by those parties does not mean that Appellant is not entitled for deduction under Section 80JJA of the Act. (iv) The Assessing Officer has a/so observed that SMPL is not registered with ROC but when details of such company are searched it was found that same is registered in the name of Jalaram Trading Pvt, Limited which is a dormant company. The Appellant has submitted details regarding change of name of SMPL to Jalaram Commodities Pvt. Limited from 20th July, 2011. These details are considered and it has been found that name of SMPL was changed as JCPL and not Jalaram Trading Pvt. 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 th....
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.... to note that though while making disallowance under Section 80JJA, Assessing Officer has created doubt of nongenuine purchases, he has accepted book results shown by Appellant while passing Assessment Order and even no disallowance regarding non-genuine purchases of inflated purchases is made which proves that Assessing Officer was no justified in making observation regarding alleged bogus purchases only while making disallowance of deduction under Section 80JJA. Considering the facts discussed herein above, Assessing Officer is not justified in making disallowance under Section 80JJA. 2.4.4. It is pertinent to note that Assessing Officer has not made any alternate disallowance under Section 80JJA on account of nonallocation of expenditure between sales eligible for deduction under Section 80JJA and other sales. However, this issue was dealt with by undersigned in A. Y. 2010-11 as under: "So far as issue of allocation of expenditure between activities eligible for deduction u/s 80JJA and other activities, it is observed that appellant has claimed purchases on actual basis and same cannot be allocated on the basis of turnover basis. So far as allocation o....
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....absence of assessee. 8. The learned DR for the Revenue relied upon the order of the AO. 9. We have carefully perused the assessment order of the AO and appellate order of CIT(A). The claim of deduction under s.80JJA of the Act on processing of biodegradable waste for generation of biofeeds (biological agents) is in question. The CIT(A) has found merit in the claim of deduction on principles. The CIT(A) has taken note of the submissions of the assessee towards process of production of biofeeds in the nature of biological agents from biodegradable waste, ingredients purchased for processing and treating waste, details of machinery used in production, details of purchase and sale made from various parties etc. The CIT(A) found merit in the case of the assessee for eligibility of deduction under s.80JJA of the Act from on profits arising from activity of collection and processing of biodegradable waste in order to generate/manufacture biofeeds/biological agents which are essentially nutrition booster derived by a combination of various biological processes for the use in Animal Healthcare Industry. As per process adopted, unwanted waste are further treated through a series of ....