2017 (12) TMI 1400

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....n law and on facts in deleting the addition of Rs. 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 representatives fairly agree, even as learned Departmental Representative relies upon the stand of the Assessing Officer, that the aforesaid issue is covered, in favour of the assessee, by the order dated 6th April 2017 passed by the coordinate bench, in assessee's own case for the assessment years 2010-11 and 2011-12. There is no dispute that the material facts of the case and reasoning, as set out in that order and which is not reproduced here for the sake of brevitythough the same is deemed to be a....

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....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, accordingly not admissible as deduction in computation of business income. Aggrieved, assessee carried the matter in appeal before the CIT(A), and the CIT(A) reversed the action of the Assessing Officer and held that the destruction of stock containing impermissible levels of magnesium carbonate was a loss incurred during the course of bonafide business and is not hit by Explanation to Section 37(1). The deduction was thus allowed. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) a....

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.... 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 of a carcinogenic substance by the name of magnesium carbonate. Pan masala is a controversial product and, even when it is manufactured within the permissible legal norms, it is considered to be responsible for oral cancer and other severe ill effects on health. In the present case, the assessee has gone even further against the public interests. He has used the carcinogenic substance, which is direct cause of cancer, much in excess of permissible limits, resulting in manufacture of product with substantial he....

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....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 Explanation 1 to Section 37(1) because as long as the expenditure is incurred for a purpose which is prohibited by law, it is immaterial whether the said act of the assessee constitutes an offence or not. The plea of the assessee is thus devoid of legally sustainable merits. Technicalities apart, even if manufacturing pan masala with impermissible carcinogenic contents, directly responsible for promoting cancer, is not treated as an offence, it is certainly prohibited in law. It is, of course, sad that our laws sometime....