Gail (India) Ltd. Vs DCIT-LTU (ITAT Delhi)
The issue under consideration is whether the deduction claimed u/s 80HH, 80I and 80IA for production, processing, transmission and distribution of various gases is justified in law?
ITAT states that, the CIT(A) accepted that benefit of deduction under Section 80I/ 80IA of the Act is admissible on Lean gas manufactured/ produced, but held that such deduction is admissible at the stage of two LPG plants at Vijaipur and Vaghodia. The CIT(A) held that activities undertaken by the assessee at its customer terminals did not constitute “manufacture or production of any article or thing” so as to be eligible for deduction under Section 80I/ 80IA of the Act. As a consequence of the aforesaid, the assessee has been denied deduction in respect of profits derived from supply of processed natural gas at various customer terminals, which are not routed through LPG plant. Moreover, 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. The Ld. AR made reference to the decision of the CIT(A) in assessee’s own case for the assessment year 1994-95. Therefore, the 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. Accordingly, the assessee’s appeal are allowed.
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals are filed by the assessee and Revenue against the order of the Commissioner of Income Tax [Appeals]-IX, New Delhi dated 31.05.2013 for Assessment Years 1996-97.
2. The Grounds of appeal are as under:-
ITA N o.4454/Del/2013 (Assessee’s appeal)
1. “That the Commissioner of Income-tax (Appeals) (“the CIT(A)”) erred on facts and in law in holding that “Lean gas” is manufactured/ produced only at the two LPG Plants at Vaghodia (Gujarat) and Vijaipur (MP) for the purpose of allowing deduction under sections 80I/80IA of the Income-tax Act, 1961 (“the Act”) and not at various customer terminals, as claimed by the appellant.
1.1 That on facts and circumstances of the case and in law, the CIT(A) erred in holding that the activities undertaken by the appellant at its customer terminals did not constitute “manufacture or production of any article or thing”, so as to be eligible for deduction under sections 801 and 80IA of the Act.
1.2 That on the facts and circumstances of the case and in law, the CIT (A) erred in not appreciating that the various activities/ processes undertaken by the appellant, including removal of impurities, condensate and moisture and for regulating temperature and pressure at various customer terminals, as part of mandatory contractual obligations, in order to render lean gas in usable state and tradable condition, constituted “manufacture”/ “production” of processed “Lean Gas”.
1.3 That on the facts and circumstances of the case and in law, the CIT(A) erred in holding that the aforesaid activities undertaken by the appellant at customer terminals were merely “a cleansing process”, which could not be regarded as “manufacture or production of any article or thing”.
2. That on the facts and circumstances of the case and in law, the CIT (A) erred in holding that no deduction under section 80HH of the Act was admissible in respect of the customer terminals situated in backward areas, on the ground that “no manufacturing is carried out at the customer terminals”.
2.1 That on the facts and circumstances of the case and in law, the CIT(A) erred in directin the assessing officer to “verify whether the claim” for deduction under section 80HH of the Act was made “for the customer terminal or for the LPG extraction plant , with the direction that “the benefit of section 80HH of the Act may no, be allowed” in case the claim was “for the customer terminal”.
3. That on facts and circumstances of the case and in law, the CIT(A) erred in holding that, interest income of Rs.18590.68 lakhs and miscellaneous income of Rs.926.70 lakhs, was not eligible for deduction under sections 80HH, 80I and 80IA of the Act, holding that the aforesaid receipts could not be said to be “derived from” the eligible business of the appellant.
4. That on facts and circumstances of the case and in law, the CIT (A) erred in not directing the assessing officer to reduce the amounts capitalized and transferred to “expenditure during construction” from interest and miscellaneous income excluded f r o m e l i g i b l e profits for the purpose of computing deduction under sections 80HH, 80IA of the Act.
5. That on the facts and circumstances of the case and in law, the CIT(A) erred in disallowance of amortization of leasehold rent of Rs 27,30,000, being proportionate lease rental paid by the appellant to various local authority spread over the term of the lease.
The appellant prays for leave to add, alter or delete any or all of the aforesaid grounds at or before the time of hearing of the appeal.”
ITA N o.4642/Del/2013 (Revenue’s appeal)
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the assessing officer to give the benefit of section 80I/80IA on manufacturing of lean gas at Vijaipur and Vaghodia.
2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in directing the AO to allow benefit of 80HH in case of claim for unit at Vijaypur is for LPG extraction unit.
3. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in holding that the interest earned on customer outstanding is eligible for benefits of section 80I/80IA and 80HH.
4. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in allowing the claim of horticulture expenses of Rs.85,21,221/-holding the same to be a business requirement and revenue expenditure.
5. On the facts and in the circumstances of the case in law, the Ld CIT(A) has erred in allowing the claim of deferred revenue expenditure of Rs.72,000/-holding the same to be a revenue expenditure.
6. The appellant crave leave to add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”
3. The assessee is engaged in business of production/processing transmission and distribution of various gases. The assessee set up and operates gas pipeline (around 2702 Kms) running/located in north western India, known as ‘HBJ’ pipeline which runs from Hazira through Vijaipur (MP) to Jagdishpur. The assessee acquires rich natural gas at Hazira which is transmitted to its 2 LPG plants located at Vaghodia (Gujarat) and Vijaipur (MP) and various customer terminals. The assessee claimed deduction under Sections 80HH, 80I and 80IA of the Income Tax Act, 1961 and other expenses which were disallowed by the Assessing Officer vide original assessment order dated 19.03.1999 passed under Section143(3) of the Act. The assessee preferred an appeal against the said original assessment order to the CIT(A). The assessee filed an application for admission of additional evidence under Rule 46A of the Income-tax Rules, 1962 (“the Rules”) before the CIT(A). The CIT(A), however, vide order dated 08.03.2000 declined the request of the assessee for admission of additional evidence and decided the issue against the assessee and in favour of the Revenue. Vide order dated 15.02.2008, the Tribunal admitted the aforementioned additional evidence and directed the Assessing Officer to decide the issue afresh of deduction under Sections 80HH, 80I and 80IA of the Act and all other disallowance of expenses. Thereafter, the Assessing officer has passed the present assessment order u/s 143(3)/254 dated 31.12.2009.
5. Being aggrieved by the assessment order the assessee filed an appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
6. As regards to Ground No. 1 and 2 of the assessee’s appeal and revenue’s appeal, relating to deduction under Section 80IA/ 80I/ 80HH, the Ld. AR submitted that the assessee claimed deduction under Section 80IA/80I and 80HH on production of LPG and Lean Gas undertaken at LPG plants and various customer terminals by treating the same as separate and independent units. The said deduction was duly supported by audit certificates. Accordingly, deduction aggregating to Rs. 151,95,06,878/- in respect of the profits derived from the aforesaid undertakings was claimed in the following manner:
