2020 (2) TMI 85 - AT - Income Tax

Deduction u/s 80JJA - denial of deduction as no biological agents are manufactured and bio-degradable wastes are not used as raw materials - CIT(A) found merit in the case of the assessee for eligibility of deduction 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 - HELD THAT - 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 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.

Issues Involved:
1. Eligibility for deduction under Section 80JJA of the Income Tax Act.
2. Definition and classification of biodegradable waste.
3. Genuineness of purchases and related transactions.
4. Allocation of expenses between eligible and non-eligible activities.

Detailed Analysis:

1. Eligibility for Deduction Under Section 80JJA:
The primary issue was whether the assessee was eligible for a deduction under Section 80JJA of the Income Tax Act. The assessee, a company engaged in manufacturing starch dextrose and related products, claimed a deduction of ?1,91,83,323 under Section 80JJA for AY 2011-12. The Assessing Officer (AO) disallowed this claim, arguing that the assessee did not manufacture biological agents and did not use biodegradable waste as raw materials. The CIT(A) found merit in the assessee's claim, noting that the assessee's process of producing biofeeds from biodegradable waste met the conditions of Section 80JJA, which allows deductions for businesses involved in collecting and processing biodegradable waste to produce bio-fertilizers, bio-pesticides, or other biological agents.

2. Definition and Classification of Biodegradable Waste:
The AO contested that the materials used by the assessee were not biodegradable waste. However, the CIT(A) observed that the term "biodegradable waste" is not defined in the Income Tax Act. The CIT(A) referred to various dictionary definitions and concluded that the materials used by the assessee, such as wheat bran, groundnut cake, soya cake, corn meal, and gluten, are indeed biodegradable waste as they can be decomposed by microorganisms. The CIT(A) also noted that the AO had incorrectly relied on the definition of "bio-waste" from the European Commission for Environment, which is different from "biodegradable waste."

3. Genuineness of Purchases and Related Transactions:
The AO raised doubts about the genuineness of the purchases made by the assessee, noting that some suppliers were not registered with VAT authorities and that there were discrepancies in the names of the suppliers. The CIT(A) addressed these concerns by noting that the suppliers were dealing with agro-products, which do not require VAT registration. The CIT(A) also clarified that the name changes of the suppliers were properly documented and that the transactions were genuine. The CIT(A) found that the AO had not provided sufficient evidence to disprove the genuineness of the purchases.

4. Allocation of Expenses Between Eligible and Non-Eligible Activities:
The AO had not made any alternate disallowance on account of non-allocation of expenses between eligible and non-eligible activities. The CIT(A) observed that the assessee had allocated expenses such as power and fuel on an actual basis, which was not found incorrect by the AO. However, the CIT(A) noted that the assessee had not allocated interest and finance charges, as well as research and development expenditure, to sales pertaining to the 80JJA activity. The CIT(A) directed that these expenses be allocated on a turnover basis, reducing the eligible deduction to ?1,54,15,286.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee's activities met the conditions for deduction under Section 80JJA and that the AO's objections were not substantiated with sufficient evidence. The Tribunal found the CIT(A)'s reasoning and reallocation of expenses to be objective and declined to interfere with the decision. The appeal of the Revenue was dismissed, and the deduction under Section 80JJA was allowed to the extent of ?1,54,15,286.

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