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TMI Blog2017 (12) TMI 1400X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst revenue Addition on account of goods destroyed as per court’s order - allowable business expenses - Held that:- There is a paradigm shift in the scheme of the Act, by insertion of Explanation to Section 37(1) by Finance (No. 2) Act 1998 with retrospective effect from 1st April 1962, which lays down the rider to the mandate of Section 37(1) with the additional test to be satisfied, in order to ensure deductibility of an expenditure, is that it must not be incurred for any purpose which is an offence or prohibited by law. The reason as to why the stock had to be destroyed in the present case was that it contained impermissible high levels of a carcinogenic substance by the name of magnesium carbonate. Pan masala is a controversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Mahavir Prasad JM For The Applicant : VK Singh For The Respondent : G G Pipara ORDER Per Pramod Kumar, AM: 1. This appeal, filed by the Assessing Officer, is directed against the order dated 12.05.2016 passed by the CIT(A)-3, Ahmedabad in the matter of assessment under Section 143(3) of the Income-tax Act, 1961, for the assessment year 2012-13. 2. In ground no. 1, the appellant Assessing Officer has raised the following grievance: The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 52,74,444/- made on account of disallowance of Trade Mark License Utilisation expenses by treating the same as revenue expenditure instead of capital expenditure held by the AO. 3. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods had magnesium carbonate, a known carcinogenic substance, in excess of permissible limits. The claim of the assessee was that since the loss so incurred was in the course of business inasmuch as the goods had to be destroyed by the FDI authorities ceasing it, as is the scheme of the prevention of food adulteration law, the related costs of producing the said goods is to be allowed as deduction. The Assessing Officer, however, declined this claim of deduction by invoking the provisions of Explanation to Section 37(1), which, inter alia, lays down that any expenditure incurred by the assessee for the purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business, and, is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with retrospective effect from 1st April 1962, which lays down the rider to the mandate of Section 37(1) by stating that for the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure . The additional test to be satisfied, in order to ensure deductibility of an expenditure, is that it must not be incurred for any purpose which is an offence or prohibited by law. 9. The reason as to why the stock had to be destroyed in the present case was that it contained impermissible high levels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said deduction. We have also taken note of the stand of the assessee that since the assessee was not imposed any penalty or any other proceedings for manufacturing the said product, it was clearly a case of inferior quality but the assessee has not been faulted for the same. However, what this plea overlooks is the undisputed position that admittedly the product had level of carcinogenic substance was in excess of permissible levels and the manufacturing of such product was prohibited by law, and that is all that is necessary for invoking Explanation to Section 37(1). Whether the penalty was actually imposed, or even initiated for such an infraction of law, is not really relevant for the purpose of satisfying the requirements of Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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