The Principal Commissioner of Income-Tax, Cit(a) Vs Shri.S.S. Bakkesh

THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN M.P.NO.266/BANG/2018 (IN ITA NO.229/BANG/2013) DATED 21/06/2019 FOR ASSESSMENT YEAR 2008-2009 ANNEXURE-E CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE1(3), BENGALURU AND ETC.

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IN ITA NO.37 OF 2020

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BETWEEN:

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THE PRINCIPAL COMMISSIONER OF INCOME-TAX, CIT(A) CENTRAL CIRCLE C.R. BUILDING QUEEN'S ROAD BENGALURU-560 001.

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THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 PRESENT ADDRESS: DCIT, CENTRAL CIRCLE-1(3) C.R. BUILDING, QUEENS ROAD BENGALURU-560 001.

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…APPELLANTS

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(BY SRI SUSHAL TIWARI, ADVOCATE)

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AND:

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SHRI S.S. BAKKESH PROP: BAKKESH RICE INDUSTRIES LOKIKERE ROAD DAVANAGERE.

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…RESPONDENT

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(BY SRI S. PARTHASARATHI ALONG WITH

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MS. JINITA CHATTERJEE, ADVOCATES)

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ITA No. 72 of 2020 C/W ITA No.37/2020

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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN M.P.NO.265/BANG/2018 (IN ITA NO.226/BANG/2013) DATED 21-6-2019 FOR ASSESSMENT YEAR 2007-2008 ANNEXURE-E CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE1(3), BENGALURU AND ETC.

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THESE INCOME TAX APPEALS, HAVING BEEN HEARD AND RESERVED ON 08.09.2025 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, VENKATESH NAIK T. J., PRONOUNCED THE FOLLOWING:

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CORAM: HON'BLE MR. JUSTICE D K SINGH and HON'BLE MR. JUSTICE VENKATESH NAIK T

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CAV JUDGMENT

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(PER: HON'BLE MR. JUSTICE VENKATESH NAIK T)

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These Tax Appeals are filed under Section 260A of the Income Tax Act, 1961 (for short, 'The Act') by the Revenue challenging the order passed by the Income Tax Appellate Tribunal, Bengaluru, in MP Nos.265 and 266/Bang/2018 (in ITA Nos.226 and 229/Bang/2013) dated 21.06.2019 for the Assessment Years 2007-08 and 2008-09 vide Annexure-E, whereby the appeals filed by the Revenue came to be

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ITA No. 72 of 2020 C/W ITA No.37/2020

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dismissed. The subject matter of the appeals pertains to the Assessment Years 2007-08 and 2008-09.

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ITA No.72/2020 and ITA No.37/2020 were ordered to be admitted on 20.11.2020 and 07.10.2020 respectively, on the following common substantial questions of law:

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1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in dismissing the Miscellaneous Petition filed by the Revenue without adjudicating upon the issue of the correctness of the deduction determined by the assessing officer under Section 80JJA vis-à-vis the deduction claimed under Section 80 JJA by the assessee?

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2. Whether on the facts and in the circumstances of the case, the order passed by the Tribunal is perverse in nature as the Tribunal has not considered grounds urged in miscellaneous petition, even when there is mistake apparent on record, which attracts Section 254 of the Act?

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The facts in issue in both the appeals are that:

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The assessee is an individual deriving income under the head 'business' and engaged in the business of manufacturing

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of rice as well as receiving milling charges of paddy and he is also a trader in seeds, fertilizers, pesticides and sugar etc. He is also engaged in the business of manufacturing of biofertilizers and bio-fuel pellets in respect of which, the assessee has claimed a deduction under Section 80 JJA of the Act. The return of income, for the Assessment years 2008-2009 and 2007-08 was processed under Section 143(1) of the Act. The scrutiny assessment was completed by the Assessing Officer under Section 143(3) of the Act, at a total assessed income of Rs.15,40,92,700/- for the Assessment Year 2007-08 in ITA No.37/2020 and Rs.17,98,98,400/- for the Assessment Year 2008-09 in ITA No.72/2020. While doing so, the Assessing Officer disallowed the claim for deduction under Section 80 JJA

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in respect of bio-fuel pellets. However, he allowed deduction in respect of bio-fertilizers, composite unit to the extent of Rs.2,85,15,180/- and made several other disallowances like sundry creditors of Rs.18,00,000/-, interest under Section 14A of the Act at Rs.50,55,701/-, disallowance under Section 68 of the Act for Rs.15,70,650/- and treated sale proceeds of biocompost of Rs.9,73,02,533/- as unaccounted.

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ITA No. 72 of 2020 C/W ITA No.37/2020

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Being aggrieved by the above disallowance, the assessee preferred two appeals before the Commissioner of Income Tax (Appeals), Hubli. The Commissioner of Income Tax(Appeals) Hubli, confirmed the addition in respect of loan to creditors on the ground that the assessee had failed to produce any creditors for examination and accordingly, dismissed the appeals. Being aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee preferred ITA No.225/Bang/2013 and the Revenue preferred appeals in ITA Nos.226 & 229/Bang/2013 before the Income Tax Appellate Tribunal, Bengaluru.

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The Income Tax Appellate Tribunal, Bengaluru dismissed the appeals filed by the Revenue for the Assessment Years 2007-08 and 2008-09, and allowed the appeals filed by the assessee in-part and observed that, the CIT(A) passed very cryptic order without giving any elaborate reasoning. Further, the claim under Section 80JJA of the Act cannot be denied to the assessee, as the same claim was allowed by the Assessing Officer in the previous years, on the same set of facts and thus, the Tribunal upheld the order of CIT(A) on this count.

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ITA No. 72 of 2020 C/W ITA No.37/2020

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Being aggrieved by the impugned order, the Revenue preferred the appeal before the learned Division Bench of this Court in ITA No.988 of 2017 and same was withdrawn by the Revenue with a liberty to the Appellants/Revenue to file appropriate Miscellaneous petition before the learned Tribunal. Hence, the Revenue filed Miscellaneous Petition Nos.265 and 266/Bang/2013 before the Income Tax Appellate Tribunal, Bengaluru, in turn, the Tribunal dismissed the Misc. Petitions filed by the Revenue.

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Being aggrieved by the order passed by the Tribunal, the Revenue preferred these appeals.

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The learned counsel Sri Sushal Tiwari, for the appellants/Revenue vehemently contended that, the Tribunal committed an error in dismissing Misc. Petitions filed by the Revenue without adjudicating the issue of correctness of the deduction determined by the Assessing Officer under Section 80JJA of the Act, vis-à-vis, the deduction claimed under Section 80JJA of the Act by the Assessee even when the issue raised by the Revenue in Miscellaneous petitions were not dealt by the Tribunal in the proper perspective. The order passed by the Tribunal is perverse in nature, as the Tribunal has not

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considered the grounds urged in the Misc. Petitions, even when there is mistake apparent on face of the record, which attracts the provisions of Section 254 of the Act. Hence, learned counsel prayed to allow the appeals.

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The learned counsel for the respondent Sri S. Parthasarathi along with Ms. Jinita Chatterjee, vehemently contended that the Tribunal has correctly analysed the fact and the provisions of the Income Tax Act and has correctly arrived at the finding, which do not call for any interference by this Court. Thus, he prayed to dismiss the appeals filed by the Revenue.

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Hence, it is just and necessary to analyse Section 80JJA of the Income Tax Act, 1961:

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80JJA. Deduction in respect of profit and gains from business of collecting and processing of biodegradable waste . - Where the gross total income of an assessee includes any profits and gains derived from the business of collecting and processing or treating of biodegradable waste for generating power or producing biofertilizers, bio-pesticides or other biological agents or for producing bio-gas or Section 51, for " producing bio-gas," making pellets or briquettes for fuel or organic manure, there shall be allowed, in computing the total income of

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the assessee, Inserted by Act 21 of 1998, Section 35 a deduction of an amount equal to the whole of such profits and gains for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which such business commences, Section 51, for " a deduction from such profits and gains of an amount equal to the whole of such income, or five lakh rupees, or five lakh rupees, whichever is less".

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Thus, Section 80 JJA of the Income Tax Act provides a deduction for business involved in collecting and processing bio-degradable waste. The deduction is intended to promote eco-friendly practises and sustainable waste management in India.

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The deduction is available to Tax payers, whose gross total income includes profits and gains from a business of collecting, treating or processing bio-degradable waste. The eligible activities include, generating power, producing bio-gas, bio-fertilizers and bio-pesticides, making fuel pellets and briquettes and producing organic manure. A deduction equal to 100% of the profits derived from the eligible business can be claimed. The deduction can be claimed for five consecutive assessment years, starting from the Assessment year in which the business commences.

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13. Conditions for claiming the deduction

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a. Income source. - The profits and gains from the bio-

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degradable waste business must be included in the assessee's gross total income.

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b. Waste utilisation - The deduction applies to profits

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from the collection and processing of bio-degradable waste.

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c. Purpose - The waste must be used for a qualifying

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purpose, such as, generating energy and creating organic fertilizers.

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In the instant cases, the Assessing Officer disallowed the claim for deduction under Section 80JJA of the Act in respect of bio-fuel pellets. Hence, it is just and necessary to analyse the meaning of bio-fuel pellets.

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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.

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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.

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In order to claim the benefit of deduction under

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Section 80JJA of the Act, the assessee has to satisfy the following conditions:

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Gains from biodegradable business : Section 80JJA of the Income Tax Act provides benefits to businesses that have a component of gains from biodegradable waste utilisation in their books of account. This section allows for a tax deduction of profits that are derived through the collection and processing of biodegradable waste or through biodegradable waste treatment. Efficient use of organic manure or biodegradable fuels for the generation of energy and generation of bio fertilisers and biopesticides can also be considered eligible for the 80JJA deduction benefit.

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Gross total income : This income generated through the collection, treatment or processing of biodegradable waste should be a part of the assessee’s (business) gross total income. Without this, the business may not be able to avail of the Section 80JJA Income Tax Act benefit on their business gains.

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Assessment years to be considered : Section 80JJA entitles the business to earn through biodegradable waste collection, processing, and treatment for five consecutive assessment years. This period of five consecutive assessment years would start from the assessment year in which the assessee’s business had commenced.

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Limitation on income for deduction : The 80JJA deduction is only applicable to the assessee’s total income. Other aspects of their business income, such as a specific business component or section in isolation, are not eligible under the Section 80JJA benefit.

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Limitation on kind of business : The tax deduction under Section 80JJA is applicable for income through the collection, processing and treatment of biodegradable waste. This tax deduction is not applicable to other business types.

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Proof of eligible businesses : Since only businesses earning through the collection, processing, and treatment of biodegradable waste are considered, there would be specific proof required for the same. Subject to certain provisions, it requires proof of eligible business activity and proof of income earned through such activity.

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Extension for assessment years : The assessee can claim the 80JJA deduction only for a period of five consecutive years. This tax deduction cannot be extended or carried forward for further assessment years.

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Necessary documents and evidence to be furnished : As mentioned in point number six above, the tax deduction benefit is only eligible for specific business activities. Therefore, the business is mandated to furnish necessary documents and provide evidence about the eligible business activities. The business also needs to show proof of expenses incurred on eligible business activities for which the profit was earned.

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Section 80JJA is a hallmark provision that aims to

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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

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Rs.5.00 lakhs. Thus, Section 80JJA serves the goal of building an ecologically sustainable future.

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ANALYSIS:

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We have perused the appeal memos and the impugned order. The only contention raised by the Revenue in these appeals as well as in the miscellaneous petitions before the Tribunal, is that the Tribunal has not adjudicated the issue regarding the quantum of deduction permissible to the Assessee under Section 80JJA of Income Tax Act, thus a mistake has crept in the order of the Tribunal and the same has to be rectified.

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The principles of consistency in Income Tax proceedings have been applied in plethora of decisions. The claim under Section 80 JJA 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.

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In another matter i.e., in ITA No.225/2013, the Assessee has raised seven grounds and amongst it, ground Nos.1, 2, and 7 were declared as general in nature and hence do not require any adjudication. Insofar as ground No.3, the

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Assessee challenged the order of the Commissioner of IncomeTax(Appeals) confirming the addition of sundry creditors made under Section 68 of the Act. Hence, the assessee contended that the CIT(A) without considering the evidence, has filed confirmation letters. Infact, 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 ground No.3 to the Assessing Officer for de novo assessment.

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Insofar as ground No.4 is concerned, the addition of Rs.50,55,706/- made under provisions of Section 14A of the Act, it is the contention of the Assessee that, the advances to sister concerns were made out of funds without using borrowed funds. Accordingly, the Tribunal remitted the matter in respect of ground Nos.4, 5 and 6.

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Insofar as the contentions raised by the Revenue that the Assessee is not entitled for any deductions in respect of the Assessment years 2007-2008 and 2008-2009, however, the Revenue cannot take such contentions as the quantum of

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deduction allowable to the assessee under Section 80JJA of the I.T. Act, the same is not tenable under law. All the grounds raised by the Revenue for these two years in respect of allowability of deduction permissible to Assessee under Section 80JJA of I.T. Act are without merit.

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Therefore, 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.

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In the result, both the appeals filed by the Revenue are dismissed .

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