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2020 (10) TMI 1125 - AT - Income TaxDeduction u/s 80I/80IA - Lean gas is manufactured/ produced only at the two LPG Plants at Vaghodia (Gujarat) and Vijaipur (MP) and not at various customer terminals, as claimed by the appellant - as per CIT-A activities undertaken by the appellant at its customer terminals did not constitute manufacture or production of any article or thing - HELD THAT - Since deduction is admissible for specified years, as a consequence of the order of the CIT(A), deduction in respect of profits derived from processed Lean Gas shall be considered from the year of setting up of the LPG Plant and not the relevant customer terminal at which such processed Lean Gas is supplied to the customer. Extensive processing activities undertaken by the assessee at the customer terminals to make lean gas and natural gas marketable and fit for use, clearly constitute manufacture . The contention of the assessee is that the claim of deduction made by the assessee under section 80I/80IA/ 80HH are genuine as the similar claims have been allowed in the earlier years by the revenue. Deduction allowed in earlier years cannot be denied in subsequent years. Since deduction under section 80IA of the Act in respect to profit derived from eligible units has been allowed by Revenue till assessment year 1995-96, the same cannot be denied subsequently. AR made reference to the decision of the CIT(A) in assessee s own case for the assessment year 1994-95. CIT(A) has not taken into account the revenue s stand in the earlier years and deviated from the same without any substantial reasons or evidence on record. Thus, the claim of deduction made by the assessee under section 80I/80IA/ 80HH are genuine in this year as well - Decided in favour of assessee. Misc. Income and Interest income eligible for deduction u/s 80IA, 80I and 80HH - HELD THAT - Assessee has produced all the relevant evidence as regards to how the scrap sale is derived from the industrial undertaking. As regards to interest on fixed deposits, various decisions of the Hon ble High Court categorically held that the deduction in respect of interest on fixed deposits under Section 80IA is allowable. The revenue has not pointed out as to why the same should be denied to the assessee. The case laws given by the Revenue in fact reiterate the stand of the assessee. Hence, it is pertinent to remand back the matter to the file of the Assessing Officer and we direct the Assessing Officer to allow deduction in respect of interest on fixed deposits under Section 80IA of the Act. So far as interest on employees loans and advances is concerned, the interest on loan provided to employees in our opinion is inextricably linked to the business of the assessee and constitutes business income eligible for deduction. As regards to interest on customer outstanding is profit derived from eligible undertakings and entitled for deduction under Section 80IA/80I, in department s appeal, the issue is covered in favour of the assessee by various decisions of High Court. As regards to miscellaneous income, the said income is inextricably linked to and have first degree nexus with the profits and gains of the eligible undertaking and the same were eligible for deduction. Interest transferred to expenditure during construction liable to be excluded from eligible profits - HELD THAT - The aforesaid issue of capitalization has been decided in favour of the assessee by the Tribunal in assessee s own case vide order dated 22.01.2010 for the A.Y. 1997-98. The Tribunal followed the decision of the Hon ble Supreme Court in case of CIT vs. Bokaro Steel 1998 (12) TMI 4 - SUPREME COURT and Karnal Cooperative Sugar Mills 1999 (4) TMI 7 - SC ORDER . CIT(A) should have directed the Assessing Officer to reduce the aforesaid interest and miscellaneous income capitalized while excluding the same from the eligible profits which the CIT(A) failed to do so. Therefore, we are remanding back this issue to the file of the Assessing Officer with the direction to reduce the aforesaid interest and miscellaneous income capitalized while excluding the same from the eligible profits. Ground of the assessee s appeal is partly allowed for statistical purpose. Horticulture expenses disallowance - HELD THAT - The horticulture expenses on planting of trees, maintenance of lawns and areas in the close vicinity of the offices/ plants of the assessee in accordance with the mandate of the Government and the assessee has to comply with the government regulations for environmental cause. Thus, the CIT(A) has given a categorical finding while allowing these expenses. Ground No. 4 of Revenue s appeal is dismissed. Deferred revenue expenditure - HELD THAT - Expenditure incurred on market survey to assess the degree and extent of utilization of additional ethylene proposed to be produced by the assessee is related to the business related. Thus, revenue expenditure incurred by an existing business for expansion or setting up of new unit in the same business is allowable business deduction. Therefore, the CIT(A) rightly allowed the said expenditure.
Issues Involved:
1. Deduction under Section 80IA/80I/80HH for "Lean Gas" production. 2. Deduction under Section 80IA/80I/80HH for customer terminals in backward areas. 3. Eligibility of interest and miscellaneous income for deductions under Sections 80IA/80I/80HH. 4. Exclusion of capitalized interest and miscellaneous income from eligible profits. 5. Amortization of leasehold rent. 6. Allowability of horticulture expenses. 7. Allowability of deferred revenue expenditure. Issue-wise Detailed Analysis: 1. Deduction under Section 80IA/80I/80HH for "Lean Gas" production: The assessee claimed deductions under Sections 80IA, 80I, and 80HH for the production of LPG and Lean Gas at LPG plants and customer terminals. The CIT(A) held that the deduction was only admissible for Lean Gas produced at the LPG plants, not at customer terminals. The Tribunal found that extensive processing activities at customer terminals to make Lean Gas marketable constituted "manufacture" and thus eligible for deductions. The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal on this ground. 2. Deduction under Section 80IA/80I/80HH for customer terminals in backward areas: The CIT(A) directed the assessing officer to verify whether the deduction claim under Section 80HH was for the customer terminal or the LPG extraction plant. The Tribunal supported the assessee's claim, stating that deductions allowed in earlier years could not be denied in subsequent years without substantial reasons. The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal on this issue. 3. Eligibility of interest and miscellaneous income for deductions under Sections 80IA/80I/80HH: The CIT(A) allowed deductions for interest on customer outstanding but not for interest on fixed deposits, bonds, and inter-corporate deposits. The Tribunal remanded the issue back to the assessing officer to allow deductions for interest on fixed deposits under Section 80IA. The Tribunal also held that interest on employees’ loans and advances and miscellaneous income were eligible for deductions. The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal on this issue. 4. Exclusion of capitalized interest and miscellaneous income from eligible profits: The assessee argued that the CIT(A) should have directed the assessing officer to reduce the capitalized interest and miscellaneous income while excluding them from eligible profits. The Tribunal agreed and remanded the issue back to the assessing officer with directions to reduce the capitalized amounts while excluding them from eligible profits. The Tribunal partly allowed the assessee's appeal on this issue. 5. Amortization of leasehold rent: The CIT(A) disallowed the amortization of leasehold rent, and the Tribunal upheld this decision, citing a previous ruling by the Hon’ble Delhi High Court against the assessee. The Tribunal dismissed the assessee's appeal on this issue. 6. Allowability of horticulture expenses: The CIT(A) allowed the deduction of horticulture expenses, which were incurred for planting trees and maintaining lawns as mandated by government regulations. The Tribunal upheld the CIT(A)'s decision, stating that these expenses were necessary for environmental compliance and thus allowable. The Tribunal dismissed the revenue's appeal on this issue. 7. Allowability of deferred revenue expenditure: The CIT(A) allowed the deduction of deferred revenue expenditure for market surveys conducted by Tata Economic Consultancy. The Tribunal upheld this decision, stating that such expenditure for business expansion is allowable. The Tribunal dismissed the revenue's appeal on this issue. Conclusion: The Tribunal allowed the assessee's appeal partly and dismissed the revenue's appeal, providing detailed directions on each issue, ensuring compliance with legal precedents and substantial evidence.
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