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2012 (10) TMI 214 - AT - Income TaxLPG Bottling Plant - disallowance of Deduction u/s 80HH,80I/80IA - Held that - every manufacture characterised as production but every production need not amount to manufacture. Even the activity, which is something which brings the commercially new product into existence, then the activity constitutes production. - the process of bottling of LPG makes the LPG capable of being marketed and used by the individual consumers as a domestic kitchen fuel. The process by which the LPG is filled up in the cylinder makes it possible and viable commercial product - in favour of assessee. Denial of claim for 1/6th under section 35 AB - Held that - Considering the claim of assessee that if under section 35AB is allowed for 1/6th of the amount, then the assessee does not press the allowance of the claim at 100% under section 37 (1) AO is directed to allow the claim under section 35AB to the extent of 1/6th of the amount for the assessment year 1993-94, 1994-95 and 1995-96 as it was allowed in the first year. Deduction u/s 43B in respect of excise and custom duty paid during the year and included in the value of closing inventory - Held that - Following the order in Berger Paints India Ltd. Versus CIT 2004 (2) TMI 4 - SUPREME COURT allow deduction for entire amount of excise duty and custom duty paid by the assessee irrespective of the excise duty and custom duty included in the valuation of assessee s closing stock at the end of the accounting year. The assessee gets relief accordingly - in favour of assessee. Expenditure on 20-Point Programmes - Disallownce of expenditure u/s 37(1) - Held that - the expenditure on 20-Point Programmes was incurred in view of specific directions of the Government of India solely for the welfare of the oppressed classes of Society, for which even the Constitution of India sanctions positive discrimination, and for contribution to all around development of villages, which has always been the central theme of Government s development initiatives. Thus even if an expense is incurred voluntarily, it may still be construed as wholly and exclusively . Just because the expenses are voluntary in nature and are not forced on the assessee by a statutory obligation, these expenses cannot cease to be a business expenditure which was, beyond dispute or controversy, at the instance of the Government, and was to discharge the assessee s obligations towards society and as a responsible corporate citizen - in favour of assessee. Entertainment expenses towards employees accompanying the guests - Held that - In the absence of any material and details regarding the exact number of staff and guest on these occasions, no reason to interfere with the orders of the lower authorities on this issue. Accordingly, confirmed the disallowance made by the authorities below - against assessee. Disallowance of dividend expenditure - Held that - The distribution and payment of dividend is application of income and not an expenditure laid out for earning the income or incurred wholly and exclusively for the purpose of business of the assessee. Accordingly, we do not find any merit in the additional ground raised by the assessee claiming that dividend paid as the business is business expenditure - against assessee.
Issues Involved:
1. Deduction u/s 80HH/80I/80IA for LPG Bottling Plant. 2. Disallowance of right to use technical know-how u/s 37(1) and allowance u/s 35AB. 3. Deduction u/s 43B for excise/custom duty included in closing inventory. 4. Disallowance of expenditure on 20-point programme u/s 37(1). 5. Disallowance of entertainment expenses towards employees. 6. Validity of reopening assessments u/s 147/148. 7. Claim for dividend paid as allowable business expenditure. Issue-wise Detailed Analysis: 1. Deduction u/s 80HH/80I/80IA for LPG Bottling Plant: The assessee claimed deductions under sections 80HH, 80I, and 80IA for its LPG bottling plant. The Assessing Officer disallowed the claim, arguing that the bottling plant did not involve manufacturing activities, citing the Gujarat High Court's decision in "State of Gujarat vs Kosan Gas." The CIT(A) upheld this disallowance. The assessee countered by explaining the detailed process of LPG bottling, referencing the jurisdictional High Court's decision in "HPCL vs MSDCEL," which recognized gas bottling as a manufacturing activity. The Tribunal agreed with the assessee, noting that LPG bottling involves various specialized processes, thus qualifying as manufacturing/production. The Tribunal decided this issue in favor of the assessee. 2. Disallowance of Right to Use Technical Know-how u/s 37(1) and Allowance u/s 35AB: For the assessment year 1993-94, the assessee did not press the ground related to the disallowance of Rs. 1,40,87,339 towards the right to use technical know-how u/s 37(1), provided the claim for 1/6th under section 35AB was allowed. The Tribunal dismissed this ground as not pressed and directed the Assessing Officer to allow the claim under section 35AB for the relevant assessment years. 3. Deduction u/s 43B for Excise/Custom Duty Included in Closing Inventory: The assessee claimed deduction under section 43B for excise and custom duty paid and included in closing inventory. The Assessing Officer disallowed this claim, which was upheld by the CIT(A). The Tribunal referred to its earlier decisions in the assessee's favor and the Supreme Court's judgment in "Berger Paints India Ltd. v. CIT," directing the Assessing Officer to allow the deduction for the entire amount of excise and custom duty paid. 4. Disallowance of Expenditure on 20-point Programme u/s 37(1): The assessee incurred expenditure on the 20-point programme, which was disallowed by the Assessing Officer and upheld by the CIT(A). The Tribunal referred to its earlier decision and judgments from various High Courts, recognizing such expenditure as business expenditure under section 37(1). The Tribunal decided this issue in favor of the assessee. 5. Disallowance of Entertainment Expenses Towards Employees: The assessee claimed 50% of entertainment expenses as attributable to its staff, which the Assessing Officer reduced to 25%. The CIT(A) upheld this reduction. The Tribunal, in the absence of detailed evidence, did not find any reason to interfere with the lower authorities' decision and confirmed the disallowance. 6. Validity of Reopening Assessments u/s 147/148: The assessee raised additional grounds challenging the validity of reopening assessments for the years 1992-93 and 1993-94. However, during the hearing, the assessee did not press these grounds. The Tribunal dismissed these additional grounds. 7. Claim for Dividend Paid as Allowable Business Expenditure: The assessee claimed that the dividend paid should be considered a business expenditure. The Tribunal rejected this claim, stating that the distribution and payment of dividends are applications of income and not expenditures incurred wholly and exclusively for business purposes. The Tribunal dismissed this additional ground. Conclusion: The appeals filed by the assessee were partly allowed, with the Tribunal deciding several key issues in favor of the assessee, particularly recognizing the LPG bottling plant's activities as manufacturing/production, allowing deductions for excise/custom duty under section 43B, and recognizing the expenditure on the 20-point programme as business expenditure. The disallowance of entertainment expenses and the claim for dividend paid as business expenditure were upheld.
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