INCOME TAX ACT, 1961

Section 80HH Section 80-I Section 80-IA

Deduction under sections 80HH/80-IA/80I - Manufacture or production of any article or thing - Production of lean gas/processed natural gas at various customer terminals -

The assessee was engaged in the business of production/processing transmission and distribution of various gases. The assessee had set up and operates gas pipeline running/located in north western India known as HBJ pipeline. The assessee acquires rich natural gas at Hazira which was transmitted to its two LPG plants located at Vaghodia (Gujarat) and Vijaipur (MP) and various customer terminals. The assessee claimed deduction under sections 80-IA 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 claim of assessee was denied by the AO and the matter travelled up to the Tribunal and in the first round of litigation the Tribunal following its orders passed for assessment years 1996-97, 1992-93 and 1993-94 set aside the matter to the file of the AO to decide afresh. In the second round of proceedings, the AO once again denied the claim of deduction in respect of profits from production of lean gas/processed natural gas at various customer terminals. First Appellant Authority, however, relying upon the order of the CIT(A) for assessment year 1996-97 allowed benefit of deduction under section 80-IA and held that lean gas was manufactured/produced at the two LPG plants at Vijaipur (MP) and Vaghodia (Gujarat) and not at customer terminals as claimed by the assessee. Held: The Tribunal, in earlier year, had clearly stated that 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 sections 80-I/80-IA. 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'. Deduction allowed in earlier years cannot be denied in subsequent years. Since deduction under section 80-IA in respect to profit derived from eligible units had been allowed by revenue till assessment year 1995-96, the same cannot be denied subsequently. The CIT(A) had 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 sections 80-I/80-IA/80HH were genuine in this year as well. The appellant was eligible to the deductions/tax holding under section 80HH/80-I and 80-IA on lean gas at the stage of customer terminals.

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