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2016 (12) TMI 1239 - AT - Income TaxDeduction under section 80JJA for bio-fertilizer business - AO held that there was no such business activity and entire sales proceeds was treated as income under section 68 - Held that - From the perusal of the orders of lower authorities we find that various reports were called for by the AO to check whether the business of the assessee was into existence or not. We find that the contradictory reports were submitted from the inspector of the ward of the ITO having jurisdiction on the assessee and the inspector from Bhubaneswar Income Tax office. As per the report of inspector of the ITO there was not business but as per the inspector from Bhubaneswar Income Tax office, the business was there but it was negligible in volume. The AR in support of his claim has submitted various reports and certificates about the existence of the business which are placed on record. From the above fact we are inclined to hold that there was business in the existence. We also find support from the consistent claim of deduction under section 80JJA of the Act from the last several years. The question of the disallowance of deduction or non- existence of the business has never been raised in the earlier years. The allegation of the AO that the assessee being chartered accountant has not taken permission from the institute of chartered accountant has no connection in the income tax proceedings. Similarly the allegation of the AO that the assessee is doing the business in the land belonging to his father without sharing the profit with his other brother and sisters has no base. The reasons for holding that there was no business were not correct. - Decided in favour of assessee
Issues Involved:
1. Disallowance of deduction under Section 80JJA of the Income Tax Act. 2. Legitimacy of the assessee's business activities. 3. Classification of income as unexplained cash credit under Section 68 of the Income Tax Act. 4. Ethical considerations regarding a Chartered Accountant engaging in business activities without ICAI permission. Detailed Analysis: 1. Disallowance of Deduction under Section 80JJA: The primary issue is the Revenue's challenge to the allowance of a ?27,57,452 deduction under Section 80JJA of the Income Tax Act, which pertains to the income from the sale of bio-degradable waste. The Assessing Officer (AO) disallowed this deduction, arguing that the assessee did not genuinely conduct any business activities related to bio-degradable waste. The AO's observations included discrepancies in the assessee's statements, lack of travel expenses, co-ownership of the property, and conflicting inspection reports. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, noting affidavits and reports from local authorities affirming the business's existence. The CIT(A) emphasized that affidavits are assumed correct unless proven otherwise, citing the Supreme Court case of M/s Mehta Parikh & Co. Vs. Commissioner of Income Tax. The CIT(A) also referenced the principle from Commissioner Income Tax Vs. Vegetables Products Limited, where if two reasonable views exist, the one favoring the assessee should be adopted. 2. Legitimacy of the Assessee's Business Activities: The AO questioned the legitimacy of the assessee's business, citing several reasons: the lack of ICAI permission, minimal travel expenses, shared ownership of the property, and conflicting inspection reports. The AO also noted the absence of detailed business records, such as sales, purchases, and labor details. The CIT(A), however, found the business activities legitimate based on multiple reports and certificates from local authorities, including the Assistant Agriculture Officer and the Sarpanch, which supported the business's existence. 3. Classification of Income as Unexplained Cash Credit under Section 68: The AO classified the income from the alleged bio-degradable waste business as unexplained cash credit under Section 68 of the Act, arguing that the business was a façade to convert unaccounted money into accounted income. The CIT(A) disagreed, noting that the AO's partial acceptance of the business activities contradicted the complete disallowance of the business's existence. The CIT(A) directed the AO to allow the deduction under Section 80JJA, as the business activities were substantiated by multiple reports and certificates from local authorities. 4. Ethical Considerations Regarding a Chartered Accountant Engaging in Business Activities: The AO raised ethical concerns, arguing that the assessee, being a Chartered Accountant, should have obtained prior permission from the Institute of Chartered Accountants of India (ICAI) to engage in business activities. The CIT(A) found this argument irrelevant to the income tax proceedings, focusing instead on the substantiated business activities and the corresponding deduction under Section 80JJA. Conclusion: The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and the assessee's cross-objection. It concluded that the assessee's business activities were legitimate and substantiated by multiple reports and certificates from local authorities. The Tribunal found no reason to interfere with the CIT(A)'s order, which allowed the deduction under Section 80JJA and rejected the classification of income as unexplained cash credit under Section 68. The Tribunal also dismissed the ethical concerns raised by the AO as irrelevant to the tax proceedings. Order Pronounced: The appeal of the Revenue and the cross-objection of the assessee were both dismissed. The order was pronounced in open court on 09/09/2016.
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