2016 (5) TMI 1405 - AT - Income Tax

Deduction under Section 80IB - denial of claim on the ground that the activity of filling the gas into the cylinders does not constitute manufacturing and the LPG bottling Plants are part of the refining activities and cannot be considered as independent industrial undertakings - Held that - The assessee s are entitled for deduction under section 80IA in respect of filing of LPG bottling Plants. See COMMISSIONER OF INCOME TAX-1 Versus M/s HINDUSTAN PETROLEUM CORPORATION LTD. 2013 (5) TMI 124 - BOMBAY HIGH COURT Allowable deduction under section 80IA - claim for C3 and C4 plants in respect of Special Cut Naptha (SCN) plant - Held that - We find that the year of commission of C3 & C4 SCN plant is 1991-92. This is the 10th year claim of deduction. In the earlier year, the revenue has allowed the deduction based on profit formula by taking the cost of the project into the business profit into percentage specified u/s 80IA of the Act upon Opening gross block of the corporation. The assessee has also given working of the computation of deduction on the basis of the same formula. Once on a particular formula, a deduction has been allowed then same should have been uniformly followed for the last year also. Accordingly, we direct the AO to examine the working of the assessee corporation and work out the allowable deduction under section 80IA to the assessee

Summary

Issues Involved:
1. Deduction under Section 80IB for LPG Plants
2. Deduction under Section 80IB for Special Cut Naptha (SCN) and C3C4 Plants
3. Deduction of expenditure towards Long Term Settlement Arrears
4. Expenditure incurred for earning exempt income

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB for LPG Plants:

The primary issue was whether the activity of filling gas into cylinders at LPG bottling plants constitutes manufacturing, making the plants eligible for deductions under Section 80IB of the Income Tax Act, 1961. The assessee claimed deductions amounting to ?2,46,74,117 for various LPG plants. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] rejected the claim, stating that the activity did not constitute manufacturing. However, the Tribunal found that this issue had been decided by the High Court in favor of the assessee in the cases of Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL). The High Court had held that bottling LPG gas is a specialized process amounting to manufacturing, thus making the activity eligible for deductions under Section 80IA. Consequently, the Tribunal ruled in favor of the assessee, allowing the deduction claim.

2. Deduction under Section 80IB for Special Cut Naptha (SCN) and C3C4 Plants:

The second issue was the disallowance of the deduction claim under Section 80IB amounting to ?17,31,82,180 for the SCN and C3C4 plants. The AO denied the claim on the grounds that the assessee failed to furnish separate profit workings for these plants and computed profits based on a pro-rata rate relative to the capital employed. The CIT(A) upheld this decision. The Tribunal noted that the deduction had been allowed in previous years based on a specific formula involving the cost of the project, business profits, and a specified percentage under Section 80IA. The Tribunal directed the AO to examine the assessee's computation based on this formula and to allow the deduction accordingly. Thus, this ground was partly allowed for statistical purposes.

3. Deduction of expenditure towards Long Term Settlement Arrears:

The third issue involved the rejection of the deduction claim for expenditure towards Long Term Settlement Arrears related to clerical staff/workers. However, the assessee did not press this ground during the hearing, leading to its dismissal as not pressed.

4. Expenditure incurred for earning exempt income:

The fourth issue was the rejection of the assessee's contention that no expenditure was incurred for earning exempt income. Similar to the third issue, the assessee did not press this ground, resulting in its dismissal as not pressed.

Conclusion:

The appeal was partly allowed. The Tribunal ruled in favor of the assessee regarding the deduction under Section 80IB for LPG bottling plants, following the High Court's precedent. For the deduction claim concerning the SCN and C3C4 plants, the Tribunal directed the AO to re-examine the computation based on the previously accepted formula. The other grounds were dismissed as not pressed. The final order was pronounced on 6th May 2016.