DCIT (LTU), New Delhi V. M/s. Gail (India) Ltd., New Delhi

ITA 4642/DEL/2013

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4375 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 19-06-2017
• Assessment Year: 1996-1997
• Appeal Filed On: 05-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAMBIT TRIPATHY
• Keywords: Capital asset; Business income; Depreciation; Additional evidence; Revenue expenditure; TDS; Set aside
• Section: 80IB; 37(1); 194C; 80IA; 251; 80HH; 43; 72; 13; 119; 22; 147; 131; 263

Judgement Text

1 ITA NOS. 4454 & 4642/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A. NO. 4454/DEL/2013 (A.Y 1996-97) GAIL (INDIA) LTD., 16, BHIKAJI CAMA PLACE, NEW DELHI 110 066 (PAN : AAACG 1209 J) (APPELLANT) VS DCIT - LTU DELHI LARGE TAX PAYER UNIT, NBCC PLAZA PUSHP VIHAR, SECTOR 3, NEW DELHI 110 017 ( RESPONDENT) AND I.T.A. NO. 4642/DEL/2013 (A.Y 1996-97) DCIT - LTU DELHI LARGE TAX PAYER UNIT, NBCC PLAZA PUSHP VIHAR, SECTOR 3, NEW DELHI 110 017 (APPELLANT) VS GAIL (INDIA) LTD., 16, BHIKAJI CAMA PLACE, NEW DELHI 110 066 (PAN : AAACG 1209 J) ( RESPONDENT) APPELLANT BY SH. AJAY VOHRA, SR. ADV. SH. ROHIT JAIN, ADV. MS. DEEPASHREE RAO, C.A. RESPONDENT BY SH. SAMBIT TRIPATHY, CIT-D.R. ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AND REV ENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS]-I X, NEW DELHI DATED 31.05.2013 FOR ASSESSMENT YEARS 1996-97. DATE OF HEARING 21.08.2020 DATE OF PRONOUNCEMENT 26.10.2020 2 ITA NOS. 4454 & 4642/DEL/2013 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA N O.4454/DEL/2013 (ASSESSEES APPEAL) 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) (TH E CIT(A)) ERRED ON FACTS AND IN LAW IN HOLDING THAT LEAN GAS IS MANU FACTURED/ PRODUCED ONLY AT THE TWO LPG PLANTS AT VAGHODIA (GUJARAT) AN D VIJAIPUR (MP) FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER SECTIONS 80I/80 IA OF THE INCOME-TAX ACT, 1961 (THE ACT) AND NOT AT VARIOUS CUSTOMER T ERMINALS, 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 APPEL LANT AT ITS CUSTOMER TERMINALS DID NOT CONSTITUTE MANUFACTURE OR PRODUC TION OF ANY ARTICLE OR THING, SO AS TO BE ELIGIBLE FOR DEDUCTION UNDER SE CTIONS 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 ACTIVITI ES/ PROCESSES UNDERTAKEN BY THE APPELLANT, INCLUDING REMOVAL OF IMPURITIES, CONDENSATE AND MOISTURE AND FOR REGULATING TEMPERATURE AND PRESSURE AT VARI OUS CUSTOMER TERMINALS, AS PART OF MANDATORY CONTRACTUAL OBLIGAT IONS, IN ORDER TO RENDER LEAN GAS IN USABLE STATE AND TRADABLE CONDITION, CO NSTITUTED 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 UNDE RTAKEN BY THE APPELLANT AT CUSTOMER TERMINALS WERE MERELY A CLEANSING PROC ESS, WHICH COULD NOT BE REGARDED AS MANUFACTURE OR PRODUCTION OF ANY AR TICLE 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 80 HH OF THE ACT WAS ADMISSIBLE IN RESPECT OF THE CUSTOMER TERMINALS SIT UATED IN BACKWARD AREAS, ON THE GROUND THAT 'NO MANUFACTURING IS CARR IED 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 'F OR 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 C ASE 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 DED UCTION UNDER SECTIONS 3 ITA NOS. 4454 & 4642/DEL/2013 80HH, 80I AND 80IA OF THE ACT, HOLDING THAT THE AFO RESAID 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 A MOUNTS CAPITALIZED AND TRANSFERRED TO 'EXPENDITURE DURING CONSTRUCTION' FR OM INTEREST AND MISCELLANEOUS INCOME EXCLUDED F R O M E L IG IB L E PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTIONS 80HH, 80IA OF TH E 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 O F 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 DELE TE ANY OR ALL OF THE AFORESAID GROUNDS AT OR BEFORE THE TIME OF HEARING OF THE APP EAL. ITA N O.4642/DEL/2013 (REVENUES 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 VI JAIPUR AND VAGHODIA. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW BENEFIT OF 8 0HH IN CASE OF CLAIM FOR UNIT AT VIJAYPUR IS FOR LPG EXTRACTION UNIT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN HOLDING THAT THE INTEREST EARNED ON CU STOMER OUTSTANDING IS ELIGIBLE FOR BENEFITS OF SECTION 80I/80IA AND 80HH. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF HORTICULTURE EXP ENSES OF RS.85,21,221/- HOLDING THE SAME TO BE A BUSINESS REQUIREMENT AND R EVENUE EXPENDITURE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE I N LAW, THE LD CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DEFERRED REVENUE EXP ENDITURE OF RS.72,000/- HOLDING THE SAME TO BE A REVENUE EXPENDITURE. 6. THE APPELLANT CRAVE LEAVE TO ADD TO, ALTER, AMEND O R VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 3. THE ASSESSEE IS ENGAGED IN BUSINESS OF PRODUCTIO N/PROCESSING TRANSMISSION AND DISTRIBUTION OF VARIOUS GASES. THE ASSESSEE SET UP AND OPERATES GAS PIPELINE (AROUND 2702 KMS) RUNNING/LOC ATED IN NORTH WESTERN INDIA, KNOWN AS HBJ PIPELINE WHICH RUNS FROM HAZI RA THROUGH VIJAIPUR (MP) TO JAGDISHPUR. THE ASSESSEE ACQUIRES RICH NATURAL G AS AT HAZIRA WHICH IS TRANSMITTED TO ITS 2 LPG PLANTS LOCATED AT VAGHODIA (GUJARAT) AND VIJAIPUR (MP) 4 ITA NOS. 4454 & 4642/DEL/2013 AND VARIOUS CUSTOMER TERMINALS. THE ASSESSEE CLAIME D 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 ASSES SMENT 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 DECLIN ED THE REQUEST OF THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE AND D ECIDED THE ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. VIDE ORDER D ATED 15.02.2008, THE TRIBUNAL ADMITTED THE AFOREMENTIONED ADDITIONAL EVI DENCE AND DIRECTED THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH OF DED UCTION 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 ASSE SSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 6. AS REGARDS TO GROUND NO. 1 AND 2 OF THE ASSESSEE S APPEAL AND REVENUES APPEAL, RELATING TO DEDUCTION UNDER SECTION 80IA/ 8 0I/ 80HH, THE LD. AR SUBMITTED THAT THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IA/ 80I AND 80HH ON PRODUCTION OF LPG AND LEAN GAS UNDERTAKEN A T LPG PLANTS AND VARIOUS CUSTOMER TERMINALS BY TREATING THE SAME AS SEPARATE AND INDEPENDENT UNITS. THE SAID DEDUCTION WAS DULY SUPPORTED BY AUD IT 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: S. NO. PARTICULARS AMOUNT (IN CRORES) 1. DEDUCTION UNDER SECTION 80HH 56.4326 2. DEDUCTION UNDER SECTION 80I 7.7621 5 ITA NOS. 4454 & 4642/DEL/2013 3. DEDUCTION UNDER SECTION 80IA @ 30% - NON-BACKWARD AREAS 71.4236 4. DEDUCTION UNDER SECTION 80IA @ 100% - BACKWARD AREAS 16.3324 TOTAL 151.9507 THE LD. AR SUBMITTED THAT THE ASSESSEE ACQUIRES/ PU RCHASES RICH NATURAL GAS FROM ONGC, WHICH IS TRANSMITTED THROUGH HBJ PI PELINE TO ITS 2 LPG PLANTS LOCATED AT VIJAIPUR (MP) AND VAGHODIA (GUJAR AT) AND VARIOUS CUSTOMER TERMINALS. AFTER CARRYING OUT CERTAIN PROCESSES, IN CLUDING BUT NOT LIMITED TO REMOVING OF IMPURITIES AND MOISTURE, THE AFORESAID RICH NATURAL GAS IS TRANSMITTED TO THE LPG PLANTS AND THE CUSTOMER STAT IONS, WHERE 'RICH NATURAL GAS UNDERGOES CHANGE IN CHEMICAL COMPOSITION, RESU LTING IN THE PRODUCTION OF TWO GASES, VIZ. LPG GAS AND LEAN GAS, BOTH OF WHICH ARE COMMERCIALLY KNOW N AS SEPARATE AND DISTINCT GAS, DIFFERENT FROM THE NA TURAL GAS. AS PART OF ITS BUSINESS MODEL, FOLLOWING TWO PRODUCTS ARE MANUFACT URED/ PRODUCED: LIQUEFIED PETROLEUM GAS (LPG) IS MANUFACTURED/ PRODUCED AT VAGHODIA AND VIJAIPUR, WHICH IS CAPABLE OF BEING COMMERCIALLY USED IN THE FORM IN WHICH IT IS EMITTED OUT OF THE PRODUCTION PLANTS AND IS THEREFORE SOLD DIRECTLY TO THE OIL MARKETING COMPANIES. LEAN GAS IS MANUFACTURED/ PRODUCED AND DELIVERED TO THE CUSTOMERS AT VARIOUS CUSTOMER TERMINALS (14 NO. DUR ING THE RELEVANT YEAR) LOCATED ALONG THE HBJ GAS PIPELINE. THE LD. AR POIN TED OUT THAT LEAN GAS IS PRODUCED ONLY WHEN THE NATURAL GAS UNDERGOES VARIOU S INTRICATE SCIENTIFIC PROCESSES BEFORE IT CAN BE COMMERCIALLY USED. APART FROM THE ABOVE, THE LD. AR FURTHER POINTED OUT THAT PROCESSED RICH NATURAL GAS , AFTER PROCESSING FROM ITS CRUDE FORM, IS ALSO TRANSMITTED THROUGH THE HBJ PIP ELINE AND OTHER PIPELINES TO SOME OF THE CUSTOMER TERMINALS (WHICH ARE NOT LINKE D TO THE LPG PLANTS), WHEREIN EXTENSIVE PROCESSES ARE UNDERTAKEN AT SUCH CUSTOMER TERMINALS FOR REMOVAL OF IMPURITIES, MOISTURE, OPTIMIZING TEMPERA TURE AND PRESSURE, ETC., IN ORDER TO BRING IT TO FIT TO USE STATE AND THEREAF TER DISTRIBUTE IT TO END CUSTOMERS AS PROCESSED NATURAL GAS. FURTHER, IN TERMS OF VA RIOUS AGREEMENTS ENTERED 6 ITA NOS. 4454 & 4642/DEL/2013 INTO BY THE ASSESSEE WITH VARIOUS CUSTOMERS FOR SUP PLY OF PROCESSED LEAN GAS AND PROCESSED NATURAL GAS, THE ASSESSEE IS CONTRACT UALLY OBLIGED TO UNDERTAKE ALL NECESSARY PROCESSES TO ENSURE THAT GAS TO BE DE LIVERED TO THE CUSTOMERS IS COMMERCIALLY EXPLOITABLE, INCLUDING THE NATURE, CON TENTS, TEMPERATURE AND PRESSURE AT WHICH IT IS TO BE DELIVERED. LEAN GAS A ND NATURAL GAS, IN THE FORM AND STATE/COMPOSITION, AT/ IN WHICH IT IS EXTRACTED FROM THE LPG PLANT/ RECEIVED AT HAZIRA CANNOT BE UTILIZED BY THE END CU STOMERS, UNLESS THE PROCESSES (WHICH THE ASSESSEE UNDERTAKES) ARE UNDER TAKEN BY USING VARIOUS HUGE/ SIZEABLE, TECHNOLOGICALLY ADVANCED AND SOPHIS TICATED PLANT AND MACHINERY INSTALLED AT THE CUSTOMER TERMINALS AND A T VARIOUS POINTS ALONG THE HAZIRA-BIJAIPUR-JAGDISHPUR PIPELINE, THE COST OF WH ICH RUNS INTO CRORES OF RUPEES. AFTER UNDERTAKING THE PROCESSES, AS AFORESA ID, THE PROCESSED LEAN GAS/ NATURAL GAS IS SOLD TO VARIOUS END CUSTOMERS THROUG H CUSTOMER TERMINALS. THUS, THE LD. AR SUBMITTED THAT THE ONLY DISPUTE IS WHETHER THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE AT THE CUSTOMER TERMINAL S, TO DELIVER PROCESSED LEAN GAS/ NATURAL GAS, AMOUNT TO MANUFACTURE OR PRO DUCTION OF ARTICLE OR THING, SUCH THAT PROFITS DERIVED THEREFROM WOULD BE ELIGIB LE FOR DEDUCTION UNDER SECTIONS 80I AND 80IA OF THE ACT. 7. THE LD. AR SUBMITTED THAT THE CIT(A) ACCEPTED TH AT BENEFIT OF DEDUCTION UNDER SECTION 80I/ 80IA OF THE ACT IS ADMISSIBLE ON LEAN GAS MANUFACTURED/ PRODUCED, BUT HELD THAT SUCH DEDUCTION IS ADMISSIBL E AT THE STAGE OF TWO LPG PLANTS AT VIJAIPUR AND VAGHODIA. THE CIT(A) HELD TH AT ACTIVITIES UNDERTAKEN BY THE ASSESSEE AT ITS CUSTOMER TERMINALS DID NOT CONS TITUTE 'MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING SO AS TO BE ELI GIBLE FOR DEDUCTION UNDER SECTION 80I/ 80IA OF THE ACT. AS A CONSEQUENCE OF T HE AFORESAID, THE ASSESSEE HAS BEEN DENIED DEDUCTION IN RESPECT OF PROFITS DER IVED FROM SUPPLY OF PROCESSED NATURAL GAS AT VARIOUS CUSTOMER TERMINALS , WHICH ARE NOT ROUTED THROUGH LPG PLANT. MOREOVER, SINCE DEDUCTION IS ADM ISSIBLE FOR SPECIFIED YEARS, AS A CONSEQUENCE OF THE ORDER OF THE CIT(A), DEDUCT ION 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 T ERMINAL AT WHICH SUCH 7 ITA NOS. 4454 & 4642/DEL/2013 PROCESSED LEAN GAS IS SUPPLIED TO THE CUSTOMER. THE LD. AR SUBMITTED THAT VARIOUS ACTIVITIES AMOUNTS TO PRODUCTION OR MANUFA CTURE OF ARTICLE OR THING ' . IN THIS REGARD, THE LD. AR SUBMITTED THAT 'NATURAL GAS IS A MIXTURE OF GASEOUS HYDROCARBONS WITH ACCOMPANYING CONDENSATE AND VARYI NG QUANTITIES OF NON- HYDROCARBONS, COMMONLY KNOWN AS IMPURITIES. NATURAL GAS IS COMPOSED MAINLY OF METHANE (CL), ETHANE (C2), PROPANE (C3), BUTANE (C4) AND PENTANE (C5). THE NATURAL GAS IS PROCESSED AT VARIOUS COMPRESSION STA TIONS, THE LPG PLANTS AT VIJAIPUR AND VAGHODIA AND ALSO AT VARIOUS CUSTOMER TERMINALS. THE FINAL PRODUCT THAT IS PRODUCED IS IN THE FORM OF THE FOLL OWING TWO GASES, HAVE CHEMICAL COMPOSITION DIFFERENT FROM RICH NATURAL GA S, AS UNDER: A) LIQUEFIED PETROLEUM GAS (LPG) WHICH CONSISTS PRIMARILY OF PROPANE (C3) AND BUTANE (C4); AND, B) LEAN GAS WHICH IS CONSTITUTED PRIMARILY OF METHANE (CL) AND ETHANE (C2), WITH METHANE (CL) AS MAJOR CONSTITUENT. ' - IN SUPPORT OF THE AFORESAID, THE LD. AR PLACED RELI ANCE ON THE FOLLOWING DOCUMENTS: A) TECHNICAL REPORT ISSUED BY SHRIRAM INSTITUTE FO R INDUSTRIAL RESEARCH; B) CLASSIFICATION UNDER THE EXCISE LAW; C) DECISION OF THE SPECIAL BENCH OF CUSTOMS, EXCISE AND GOLD (CONTROL) APPELLATE TRIBUNAL IN THE CASE OF ONGC V. COLLECTO R OF CENTRAL EXCISE: 42 ELT 420 (DEL) (SB); D) AFFIDAVIT OF MR. S.P. RAO; 8. THE LD. AR SUBMITTED THAT THE FINDING OF THE CIT (A) THAT NO MANUFACTURING/ PRODUCTION TAKES PLACE AT CUSTOMER T ERMINAL, IS ERRONEOUS. THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) FAILED TO APPRECIATE THAT LEAN GAS, IN THE FORM PRODUCED AT THE LPG PLANT, IS NOT IN A STATE OF BEING DELIVERED TO THE CUSTOMERS AND VARIOUS PROCESSES HAVE TO BE U NDERTAKEN TO MAKE THE GAS 8 ITA NOS. 4454 & 4642/DEL/2013 FIT TO USE SO AS TO BE DELIVERED AT THE CUSTOMER TERMINALS; AND PROCESSED NATURAL GAS, WHICH IS NOT ROUTED THROUGH THE LPG PL ANT, IS ALSO SUPPLIED TO VARIOUS CUSTOMERS AFTER UNDERTAKING VARIOUS PROCESS ES/ ACTIVITIES, AS PER THE SPECIFIC REQUIREMENTS OF THE CUSTOMER SO AS TO MAKE THE SAME FIT TO USE; AND CONSEQUENTLY, THE CONTENTION THAT PRODUCTION TAKES PLACE AT LPG PLANT ONLY IS INCORRECT AND LEGALLY UNSUSTAINABLE. THE LD. AR SUB MITTED THAT THERE IS A CONTRACTUAL OBLIGATION ON THE ASSESSEE TO DELIVER P ROCESSED LEAN GAS IN USABLE FORM AT CUSTOMER TERMINAL. IT IS A MATTER OF FACT, THAT NO PART OF 'LEAN GAS IS SOLD BY THE ASSESSEE EXCEPT THROUGH CUSTOMER TERMIN ALS, WHICH IS THE LAST STAGE OF PROCESSES UNDERTAKEN BY THE ASSESSEE BEFORE DELI VERY TO THE FINAL CUSTOMERS. THE LD. AR POINTED OUT THAT THE SUBMISSION THAT THE ASSESSEE UNDERTAKES THE AFORESAID ACTIVITIES IN ORDER TO FULFILL ITS CONTRA CTUAL/ COMMERCIAL OBLIGATIONS, IS SUPPORTED BY THE RELEVANT TERMS OF THE CONTRACT(S) WHICH HAD BEEN DULY PLACED BEFORE THE ASSESSING OFFICER. ON A SAMPLE BASIS, SO ME OF THE GAS SUPPLY CONTRACTS ENTERED INTO BY THE ASSESSEE WITH VARIOUS END CUSTOMERS WERE SUBMITTED TO THE ASSESSING OFFICER DURING THE HEARI NG. ON A PERUSAL OF THE AFORESAID CONTRACTS, IT WILL BE NOTED THAT IN TERMS THEREOF, THE CUSTOMER SPECIFIES THE DELIVERY AND PROCESS OF GAS THE QU ALITY OF GAS AS WELL AS DETAILED SPECIFICATIONS FOR THE DELIVERY OF GAS, WHICH ARE N ORMALLY IN THE FORM OF ANNEXURE TO THE SAID CONTRACT. THE DETAILED CHEMICA L COMPOSITION IN WHICH LEAN GAS IS REQUIRED BY THE CUSTOMER IS PRECISELY SPELT OUT. THE LD. AR SUBMITTED THAT ''TYPICAL ANALYSIS OF NATURAL GAS, WHICH IS T HE COMPOSITION IN TERMS OF THE MOLE PERCENTAGE OF DIFFERENT ELEMENTS THEREIN VARIE S FROM CUSTOMER TO CUSTOMER. A COMPARISON OF ANNEXURE 2 OF THE GAS SUP PLY CONTRACT BETWEEN THE ASSESSEE AND NATIONAL THERMAL POWERS CORPORATION LT D. - KAWAS AND ANNEXURE-2 OF THE GAS SUPPLY CONTRACT BETWEEN ASSES SEE AND NTPC - AURAIYA SUPPORTS THE SUBMISSION. THE LD. AR SUBMITTED THAT LEAN GAS, AS RECEIVED FROM THE LPG PLANT IS REQUIRED TO BE FURTHER PROCES SED, AS PER THE SPECIFICATION OF THE CUSTOMERS, IN ORDER TO DELIVER THE SAME IN I T FIT TO USE FORM. THUS, THE LD. AR SUBMITTED THAT THE ASSESSEE IS REQUIRED TO UNDER TAKE VARIOUS SCIENTIFIC PROCESSES/ ACTIVITIES IN ORDER TO PRODUCE AND RENDE R THE 'LEAN GAS IN A 9 ITA NOS. 4454 & 4642/DEL/2013 MARKETABLE FORM, I.E. IN A FORM AND STATE IN WHICH SUCH GAS WOULD BE ACCEPTED BY THE END CUSTOMERS AND THEREFORE, THE CONTENTION OF THE CIT(A) THAT PRODUCTION OF LEAN GAS TAKES PLACE AT THE LPG PLANT IS ERRONEOUS. APART FROM THE AFORESAID, THE LD. AR SUBMITTED THAT AT CERTAIN CUSTOMER TERMINALS, PROCESSED NATURAL GAS, AFTER BEING RECEIVED IN CRUD E FORM FROM ONGC AT HAZIRA, IS INTENSIVELY PROCESSED IN ORDER TO REMOVE ALL IMP URITIES, ODOUR, SULPHUR, ETC., TO BRING IT TO A USABLE STATE AND IS THEREAFTER TRA NSMITTED TO THE CUSTOMERS, WITHOUT BEING ROUTED THROUGH THE LPG PLANT. THE RIC H NATURAL GAS, IN THE FORM IT IS RECEIVED, IS, AS PER THE CUSTOMERS REQUIREME NT REQUIRED TO BE PROCESSED TO MAKE IT FIT FOR USE. THUS, THE LD. AR THAT THE ASSE SSEE IS REQUIRED TO UNDERTAKE VARIOUS PROCESSES/ ACTIVITIES IN ORDER TO PRODUCE A ND RENDER THE PROCESSED NATURAL GAS IN A MARKETABLE FORM, I.E. IN A FORM AN D STATE IN WHICH SUCH GAS WOULD BE ACCEPTED BY THE END CUSTOMERS AND THEREFOR E, THE CONTENTION OF THE CIT(A) THAT PRODUCTION OF GAS TAKES PLACE AT THE LP G PLANT IS ERRONEOUS. THE LD. AR SUBMITTED THAT THE SUBSTANTIAL ACTIVITIES UNDERT AKEN AT TERMINAL BY THE ASSESSEE. HENCE, THE FINDING OF THE CIT(A) THAT NO MANUFACTURING/ PRODUCTION TAKES PLACE AT CUSTOMER TERMINAL, IS ERRONEOUS SINC E THE CIT(A) ALSO FAILED TO APPRECIATE THAT A TYPICAL GAS TERMINAL HAS THE FOLLOWING FACILITIES: 1) PIG LAUNCHER & RECEIVER 2) SEPARATION AND FILTRATION 3) HEATING 4) PRESSURE REGULATION AND CONTROL 5) PRESSURE RELIEF VALVE 6) MEASUREMENT 7) FLOW CONTROL 8) CONDENSATE REMOVAL AND HANDLING 10 ITA NOS. 4454 & 4642/DEL/2013 EACH OF THE AFORESAID ACTIVITIES/ PROCESSES UNDERTA KEN AT CUSTOMER TERMINAL(S), HAS BEEN EXPLAINED IN DETAIL IN PAGES 685-691 OF TH E PAPER BOOK. THE LD. AR SUBMITTED THAT DEPENDING ON THE QUALITY OF THE GAS RECEIVED FROM THE PRODUCER AND THE CONTRACTUAL REQUIREMENTS OF THE CONSUMER NE CESSARY FACILITIES, ENTAILING INVESTMENT IN CRORES, IN DIFFERENT COMBIN ATIONS ARE INSTALLED AT THE DISPATCH AND RECEIVING TERMINALS. IN VIEW OF THE AF ORESAID, THE LD. AR SUBMITTED THAT REMOVAL OF IMPURITIES AND DEHUMIDIFICATION ARE NOT THE ONLY ACTIVITIES/ PROCESSES UNDERTAKEN BY THE ASSESSEE. THE PROCESSES / ACTIVITIES UNDERTAKEN BY THE ASSESSEE ARE, ON THE CONTRARY, SUBSTANTIAL, BRO AD BASED AND EXTENSIVE, AS EXPLAINED ABOVE. THE LD. AR FURTHER SUBMITTED THAT THE AFORESAID ACTIVITIES/ PROCESSES (VIZ. REMOVAL OF IMPURITIES, DEHUMIDIFICA TION, SWEETENING, DE- SULPHURICATION/ DE-SULPHURIZATION, ETC., AND PROCES SES NECESSARY TO BRING LEAN GAS/NATURAL GAS TO A MARKETABLE FORM AND STATE) ARE NECESSARY/ CRITICAL/ INDISPENSIBLE AND ARE UNDERTAKEN BY THE ASSESSEE NO T AS A MEASURE OF SELF- PRESERVATION (INTENDED TO PROTECT THE PIPELINE) BUT TO FULFILL THE CONTRACTUAL OBLIGATIONS UNDERTAKEN BY THE ASSESSEE SO AS TO DELIVER GAS IN A MARKETABLE / EXPLOITABLE STATE AND FORM TO THE CUSTOMERS. THE LD . AR FURTHER SUBMITTED THAT THOUGH IN PARA 7 AND 8 OF THE CIT(A)S ORDER, THE C IT(A) ACCEPTED THE AFORESAID SUBSTANTIAL ACTIVITIES UNDERTAKEN AND ALSO AGREED T HAT THE ACTIVITIES ARE NECESSARY TO COMMERCIALLY SALE LEAN GAS, THE CIT(A) , HOWEVER, STILL CONCLUDED THAT INPUT AND OUTPUT AT CUSTOMER TERMINAL CONTINUE S TO BE LEAN GAS AND CONSEQUENTLY, THE PROCESS DOES NOT BRING INTO EXIST ENCE NEW COMMERCIAL PRODUCT. THE FALLACY IN THE CONCLUSION OF THE CIT(A ) THAT DEDUCTION IS AVAILABLE ONLY AT THE STAGE OF LPG PLANT, DESPITE ACCEPTING T HAT THE LEAN GAS IS MANUFACTURED/ PRODUCED FROM NATURAL GAS, IS, IT I S SUBMITTED THAT THERE ARE CERTAIN CUSTOMER TERMINALS, WHICH ARE NOT ROUTED TH ROUGH THE LPG PLANTS. THESE ARE CUSTOMER TERMINALS WHICH DRAW NATURAL GA S FROM OTHER GAS-FIELDS, PROCESSES THE SAME SO AS TO MAKE IT MARKETABLE AND USABLE AND SELLS THE 'PROCESSED GAS MANUFACTURED FROM 'NATURAL GAS TO THE CUSTOMERS. ALSO THERE IS A CUSTOMER TERMINAL LOCATED PRIOR TO THE LPG PLA NT I.E., HBJ TERMINAL (SOURCE POINT), WHICH TOO PROCESSES THE NATURAL GAS, AS PER CUSTOMER SPECIFICATIONS IN 11 ITA NOS. 4454 & 4642/DEL/2013 ORDER TO MAKE IT MARKETABLE AND USABLE, AND SELLS T HE SAME TO THE CUSTOMER. IN VIEW OF THE AFORESAID, IN CASE, DEDUCTION IS HELD T O BE ADMISSIBLE AT THE LEVEL OF LPG PLANT AND NOT AT THE LEVEL OF CUSTOMER TERMINAL , THEN, DEDUCTION WILL BE DENIED TO THE ASSESSEE IN RESPECT OF PROCESSED NATU RAL GAS SUPPLIED AT VARIOUS CUSTOMER TERMINALS, WHICH ARE INDEPENDENT OF THE LP G PLANT. THE LD. AR FURTHER POINTED OUT THAT THE FINDING OF THE CIT(A ) IS FUNDAMENTALLY FLAWED IN AS MUCH AS THE CIT(A) HAS FAILED TO JUDICIOUSLY APPLY THE TEST OF 'FIT TO USE AND COMMERCIAL MARKETABILITY OF THE PROCESSED PRODUCT I.E., PROCESSED LEAN GAS/ NATURAL GAS IN THIS CASE, AS LAID DOWN IN VARIOUS J UDICIAL PRECEDENTS, WHICH ARE AS UNDER: I. UOI V. J. G. GLASS INDUSTRIES LTD.: (1998) 97 EL T 5 (SC) II. CIT V. ORACLE SOFTWARE INDIA LTD.: 320 ITR 546 (SC) OF THE WORD MANUFACTURE. THE SUPREME COURT HELD AS UNDER: KORES INDIA LIMITED VS. CCE: 2004 (174) ELT 7 (SC) INDIA CINE AGENCIES VS. CIT: 308 ITR 98 ITO V. ARIHANT TILES AND MARBLES (P) LTD.: 320 ITR 79/ 227 CTR 513 CIT VS EMPTEE POLY-YARN (P) LTD: 320 ITR 665 (SC) CIT VS. HINDUSTAN PETROLEUM CORP LTD.: 396 ITR 696, PUTTUR PETRO PRODUCTS (P.) LTD. VS. ACIT: 361 ITR 2 90 CENTRAL U.P. GAS LIMITED VS. DCIT: ITA NO.224 OF 2014 CIT VS. GUJARAT GAS COMPANY LTD.: ITA NO. 60 OF 200 9 EVEN THE PROCEDURE/ACTIVITY OF PURIFICATION, ODORIZ ATION, DE-SULPHURICATION, REMOVING MOISTURE CONTENT, REGULATING TEMPERATURE A ND PRESSURE ETC., CLEARLY FALLS WITHIN THE AMBIT OF MANUFACTURE AND PRODUCTI ON FOR THE PURPOSES OF SECTION 80-I/IA AND SECTION 80HH OF THE ACT. 12 ITA NOS. 4454 & 4642/DEL/2013 10. THE LD. AR ALSO RELIED UPON THE FOLLOWING DECIS IONS, WHEREIN EXPLAINING THE MEANING OF THE WORD PRODUCTION, IT HAS BEEN H ELD THAT THE SAID TERM IS MUCH WIDER IN SCOPE THAN THE TERM MANUFACTURE AND THAT SO LONG AS A DIFFERENT COMMERCIALLY KNOWN PRODUCT RESULTS FROM U NDERTAKING A PROCESS, THE SAME WOULD AMOUNT TO PRODUCTION: DY. CST V. PIO FOOD PACKERS [1980] 46 STC 63 (SC) UNION OF INDIA V. DELHI CLOTH AND GENERAL MILLS CO. LTD., AIR 1963 SC 791 NAME TULAMAN MANUFACTURERS PVT. LTD . V. CCE: [1990] 183 ITR 577 (SC) UJAGAR PRINTS VS. UNION OF INDIA: 179 ITR 317, 341 (SC) N.C. BUDHIRAJA: 204 ITR 412 (SC) ASPINWALL & CO. LTD. V. CIT: 251 ITR 323 (SC) CST VS. JAGANNNATH COTTON COMPANY: 99 STC 83, 86 (S C) CIT VS. SESA GOA LTD.: 279 ITR 331 (SC) INDIA CINE AGENCY V. CIT: 308 ITR 98 (SC) ITO V. ARIHANT TILES AND MARBLES (P) LTD.: 320 ITR 79 (SC) SHIP SCRAP TRADERS V. CIT: 251 ITR 806 (BOM) ORIENT LONGMAN LTD V. ITO: 130 ITR 477 (DEL.) CIT V. AJAY PRINTERY (P) LTD: 58 ITR 811 (GUJ.) APPLYING THE AFORESAID PRINCIPLE IN THE ASSESSEES CASE, THE LD. AR SUBMITTED THAT THE ASSESSEE COULD NOT HAVE COMMERCIALLY SOLD LEAN GAS AND PROCESSED NATURAL GAS, WITHOUT CARRYING OUT THE ABOVE MENTION ED ACTIVITIES AT VARIOUS STAGES, INCLUDING BUT NOT LIMITED TO AT THE CUSTOME R TERMINALS. 11. THE LD. AR FURTHER SUBMITTED THAT DEDUCTION ALL OWED IN EARLIER YEARS CANNOT BE DENIED IN SUBSEQUENT YEARS. THE LD. AR FU RTHER SUBMITTED THAT SINCE DEDUCTION UNDER SECTION 80IA OF THE ACT W.R.T. PROF IT DERIVED FROM ELIGIBLE UNITS HAS BEEN ALLOWED BY REVENUE TILL ASSESSMENT YEAR 19 95-96, THE SAME CANNOT BE DENIED SUBSEQUENTLY. THE LD. AR MADE REFERENCE TO T HE DECISION OF THE CIT(A) IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 199 4-95. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: 13 ITA NOS. 4454 & 4642/DEL/2013 SAURASHTRA CEMENT & CHEMICAL INDUSTRIES V. CIT: 123 ITR 669 (GUJ) CIT V. PAUL BROTHERS: 216 ITR 548 (BOM.) CIT V GUJARAT STATE FERTILIZERS CO. LTD: 247 ITR 6 90 (GUJ.)CIT V FATEH GRANITE (P) LTD.: 314 ITR 32 (BOM.) CIT V. WESTERN OUTDOOR INTERACTIVE PVT. LTD: 349 I TR 309 DIRECT INFORMATION PRIVATE LTD. V. ITO: 15 TAXMAN N.COM 63 (BOM) CIT VS. ESCORTS LTD : 338 ITR 435 (DEL) CIT V. DELHI PRESS PATRA PRAKASHAN LTD. (NO.2) : 35 5 ITR 14 (DEL) CIT VS. TATA COMMUNICATIONS INTERNET SERVICES LTD.: 251 CTR 290 (DEL) 12. IN VIEW OF THE AFOREMENTIONED, THE LD. AR SUBMI TTED THAT EXTENSIVE PROCESSING ACTIVITIES UNDERTAKEN BY THE ASSESSEE AT THE CUSTOMER TERMINALS TO MAKE LEAN GAS AND NATURAL GAS MARKETABLE AND FIT FO R USE, CLEARLY CONSTITUTE MANUFACTURE AND THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTIONS/ TAX HOLIDAY UNDER SECTIONS 80HH, 80I, 80IA OF THE ACT. THE CONCLUSION/ FINDING OF THE CIT(A) THAT DEDUCTION IN RESPECT OF LEAN GAS IS ADMISSIBLE AT THE STAGE OF LPG PLANT IS ERRONEOUS. 13. THE LD. DR SUBMITTED THAT ORIGINAL ASSESSMENT O RDER WAS PASSED ON 19.03.1999 U/S 143(3). THE CIT(A) PASSED THE ORDER DATED 08.03.2000. THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL. DURING T HE COURSE OF HEARING BEFORE THE TRIBUNAL, THE ASSESSEE FILED ADDITIONAL EVIDENC E. THE TRIBUNAL SET ASIDE THE ORDER OF THE CIT(A) AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CONSIDER THE ADDITIONAL EVIDENC E AND OTHER MATERIAL ON RECORD AND OTHER EVIDENCE WITH SECTION 254 ON 31.12 .2009. AGAINST THE SAID ORDER THE CIT(A) PASSED ORDER DATED 31.05.2013. THE LD. DR POINTED OUT THAT IN THE ORIGINAL/FIRST ROUND BEFORE THE TRIBUNAL, THE A SSESSEE FURNISHED FOLLOWING DOCUMENTS AS ADDITIONAL EVIDENCE: I. NOTE ON FUNCTIONING OF COMPRESSOR STATIONS II. AFFIDAVIT OF MR. S. P. RAO III. CERTIFICATE ISSUED BY SHRIRAM INSTITUTE FOR IN DUSTRIAL RESEARCH 14 ITA NOS. 4454 & 4642/DEL/2013 THE LD. DR FURTHER POINTED OUT THAT APART FROM THE ABOVE MENTIONED ADDITIONAL EVIDENCE, ESSENTIALLY NO FRESH SUBMISSION WAS MADE BEFORE THE ASSESSING OFFICER OR THE CIT(A) IN THE SECOND ROUND OF ASSESS MENT AND APPEAL. THUS, THE LD. DR SUBMITTED THAT THE CIT(A) HAS NOT BASED THE FINDINGS ON THE SAID ADDITIONAL EVIDENCE. HOWEVER THE CIT(A) DISREGARDED THE FINDINGS OF THE ASSESSING OFFICER AND THE FINDINGS OF THE CIT(A) IN ORIGINAL APPEAL ORDER AND PROCEEDED TO ARRIVE AT DIFFERENT CONCLUSION ON THE SAME SET OF FACTS WITHOUT GIVING ANY REASON IN THE ORDER FOR THE DIFFERENCE F ROM EARLIER ORDER OF THE EARLIER CIT(A). THEREFORE, THE ORDER OF THE CIT(A) IS PERVE RSE ON FACTS AS WELL AS ON LAW. 14. AS REGARDS TO DEDUCTION CLAIMED UNDER SECTIONS 80IA/80I/80HH ON TRANSPORTATION OF NATURAL GAS, THE LD. DR SUBMITTED THAT PRIOR TO THE YEAR 1990-91, NATURAL GAS WAS PRODUCED, MARKETED AND TRA NSPORTED BY ONGC. SUBSEQUENTLY, GAS MARKETING FUNCTIONS WERE TRANSFER RED FROM ONGC TO GAIL AS PER MOU DATED 27.12.1991 ENTERED INTO BETWEEN ONGC AND GAIL. IN 1992, GAIL TOOK OVER THE ON-SHORE PIPELINE SYSTEM FROM ON GC FOR SUPPLY OF GAS IN GUJARAT REGION. THIS CONSISTED OF THE PIPELINES AND THE TERMINAL STATIONS. THE GAS TO THIS SYSTEM WAS BEING SUPPLIED FROM THE ON-S HORE GAS FIELDS OF ONGC. ALONG WITH THE PIPELINES, THE EXISTING CUSTOMERS OF ONGC WERE ALSO TRANSFERRED TO GAIL. THE LD. DR RELIED UPON THE MOU BETWEEN ONG C AND GAIL. 15. THE LD. DR SUBMITTED THAT THE ASSESSEE TOOK OVE R ONLY THE GAS MARKETING FUNCTION FROM ONGC. IT WAS NEVER INTENDED TO ENTER INTO GAS PRODUCTION BUSINESS. THE MANDATE AS PER MOU WAS LIMITED TO MAR KETING FUNCTIONS OF GAS ONLY WHICH INCLUDED TRANSPORTATION OF GAS TO EXISTI NG CUSTOMERS OF ONGC THROUGH EXISTING PIPELINES OF ONGC. BEFORE THIS MOU , GAS WAS BEING SUPPLIED BY ONGC TO DIFFERENT CUSTOMERS THROUGH ITS PIPELINE S. AS MENTIONED IN MOU, THE EXISTING CUSTOMERS OF ONGC WERE TRANSFERRED TO GAIL. THE METERING UNITS INSTALLED AT THE PREMISES OF THE EXISTING CUSTOMERS WERE ALSO TRANSFERRED TO GAIL. THE SAME GAS WAS SOLD BY ONGC THROUGH GAIL TO THE SAME CUSTOMERS. THE EXISTING AGREEMENT BETWEEN ONGC AND CUSTOMERS W ERE ASSIGNED IN THE FAVOUR OF GAIL. THEREFORE, GAIL WAS NOT AN INDUSTRI AL UNDERTAKING IN RESPECT OF 15 ITA NOS. 4454 & 4642/DEL/2013 TRANSPORTATION OF GAS TO ITS CUSTOMERS AS THE SAID ACTIVITY WAS NOT MANUFACTURE OR PRODUCTION IN TERMS OF SECTION 80IA/80I/80HH. TH E LD. DR POINTED OUT THAT THE PRICE OF THE GAS TO BE CHARGED BY THE ASSESSEE WAS DECIDED BY GOVT. OF INDIA AND THE ASSESSEE WAS REQUIRED TO PAY ONGC THE PRICE OF GAS ACTUALLY RECEIVED BY IT FROM THE CONSUMERS, AS MENTIONED IN PARA 5 OF MOU. IN FACT, TOTAL CONSUMER PRICE CHARGED BY THE ASSESSEE FROM ITS CUS TOMERS HAD THREE COMPONENTS:- A) PRODUCTION PRICE IT WAS REQUIRED TO BE PAID TO THE ONGC B) GAS POOL PRICE IT WAS DETERMINED BY GOVT. OF I NDIA AND WAS REQUIRED TO BE KEPT BY GAIL IN A SEPARATE ACCOUNT ON BEHALF OF THE MINISTRY OF PETROLEUM AND NATURAL GAS, GOI WHICH WAS REQUIRED TO BE REMIT TED TO THE GOVT. OF INDIA AS PER DIRECTIONS. C) TRANSPORTATION CHARGES ONLY THE TRANSPORTATION CHARGES COULD BE RETAINED BY GAIL AS ITS REVENUE. THE FACT REGARDING TRANSPORTATION CHARGES PAYABLE TO GAIL IS FURTHER MENTIONED IN CLAUSE (VI) OF THE LETTER OF MINISTRY OF P & NG DATED 18.09.1997. FURTHER, IN CLAUSE (VIII) OF THE SAID LETTER, PROVISIONS OF GAS POOL ACCOUNT ARE SPECIFIED. IN CLAUSE (X) OF TH E SAID LETTER, IT IS MENTIONED THAT GAIL SHALL PASS ON TO ONGC AND OIL IN PROPORTION T O THE GAS SUPPLIED BY THEM ON A NET BACK BASIS THE ENTIRE PROCEEDS OF SAL ES OF GAS OF ONGC AND OIL, AFTER MAKING DEDUCTIONS UNDER PARAS (VIII) AND (IX) ABOVE. IN THE BILLS RAISED BY GAIL, THE PRICE OF GAS AND T RANSPORTATION CHARGES ARE MENTIONED SEPARATELY. THE CONSUMER PRICE OF GAS HAD TWO COMPONENTS A) PRODUCTION PRICE AND B) GAS POOL PRICE. THE SAID PR ICE IS NOT THE REVENUE OF THE GAIL. IN ADDITION TO THE PRICE OF NATURAL GAS, TRAN SPORTATION CHARGES ARE CHARGED SEPARATELY IN THE BILL. ESSENTIALLY, WHAT R EMAINED WITH THE ASSESSEE WAS ONLY TRANSPORTATION CHARGES IN RESPECT OF SUP PLY OF GAS TO CUSTOMERS. IT IS MENTIONED BY THE ASSESSING OFFICER IN THE LAST PARA ON PAGE 8 OF THE ASSESSMENT ORDER THAT 16 ITA NOS. 4454 & 4642/DEL/2013 EVEN IN THE SALE CONTRACT ENTERED INTO BY GAIL WIT H ITS BUYERS, THE CALCULATION OF TRANSPORTATION CHARGES ARE SEPARATELY GIVEN. FOR EXAMPLE, IN THE CONTRACT BETWEEN GAIL AND IOC DATED 12.04.1996, FOLLOWING AR E MENTIONED IN PARA 4.3 THE BUYER, IN ADDITION TO THE PRICE OF GAS MENTIO NED IN ARTICLE 10, SHALL PAY THE SELLER (GAIL) MONTHLY TRANSPORTATION/SERVIC E CHARGES AND TAXES THEREON FOR SPUR LINE AND FACILITIES PROVIDED FROM TAP OFF. THE ASSESSING OFFICER RELIED ON THE ORDER OF THE HO NBLE SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY L TD. (113 ITR 84 (SC)) IN RESPECT OF MEANING OF DERIVED. IN FACT, THE ASSES SEE WAS SUBJECTED TO TDS @ 2% U/S 194C ALSO OVER THE TRANSPORTATION CHARGES BY ITS CUSTOMERS. IN THIS REGARDS, REFERENCE IS INVITED TO PAGE NO. 1 TO 5 OF REVENUES PAPER BOOK SUBMITTED ON 03.05.2019 WHICH ARE COPY OF TDS CERTI FICATES ISSUED BY GVK INDUSTRIES LTD. AND INDIAN OIL COOPERATION LTD. IN RESPECT OF TDS MADE @ 2% U/S 194C ON TRANSPORTATION CHARGES. FURTHER, REFERE NCE IS DRAWN TO PAGES 261- 268 OF REVENUES PAPER BOOK AND ANOTHER PAPER BOOK PAGES 6 TO 19 WHICH ARE COPY OF TDS CERTIFICATES ISSUED BY CUSTOMERS IN RES PECT OF TDS MADE @ 2% U/S 194C ON TRANSPORTATION CHARGES. THE ABOVE DOCUMENTS SUBSTANTIATE THE FACT THAT THE ASSESSEE WAS PROVIDING TRANSPORTATION CHAR GES ON WHICH TDS HAS BEEN DEDUCTED BY THE CUSTOMERS U/S 194C. HENCE, AS FAR A S SALE OF GAS TO CUSTOMERS IS CONCERNED, THERE IS ONLY TRANSPORTATI ON CHARGES AND NOTHING ELSE WHICH IS REVENUE OF THE ASSESSEE. ITS PROFILE IS ON LY THE SURPLUS OUT OF THE TRANSPORTATION CHARGES. THE ASSESSING OFFICER HAS D ISCUSSED THIS ISSUE IN THE ASSESSMENT ORDER. IN THE ORIGINAL APPELLATE ORDER, THE CIT(A) HAD ALSO EXAMINED AND DISCUSSED THIS ISSUE AND CONCURRED WIT H THE FINDINGS OF THE ASSESSING OFFICER. THERE CANNOT BE ANY DISPUTE ABOU T THE FACT THAT DEDUCTION U/S 80IA/80HH/80I ARE NOT ADMISSIBLE ON THE SAID T RANSPORTATION CHARGES. HOWEVER, THE CIT(A) HAS NOT EXAMINED THIS ISSUE IN THE APPELLATE ORDER PASSED IN THE SECOND ROUND OF APPEAL. THIS IS THE ROOT OF THE MATTER AND ON THIS GROUND ONLY THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80HH/80I/80IA. 17 ITA NOS. 4454 & 4642/DEL/2013 16. THE LD. DR SUBMITTED THAT THE BUSINESS OF THE A SSESSEE CONSISTS OF TRANSPORATION OF GAS PURCHASED FROM ONGC TO CUSTOME RS AND PRODUCTION OF LPG AT LPG PLANTS AT VAGHODIA AND VIJAYPUR. THE COR E BUSINESS OF THE ASSESSEE HAS BEEN TRANSPORTATION OF GAS RECEIVED FROM ONGC T O DIFFERENT CUSTOMERS THROUGH ITS PIPELINES AGAINST WHICH IT RECEIVES TRA NSPORTATION CHARGES. THE NATURAL GAS SUPPLIED BY ONGC TO GAIL IS ALREADY SWE ETENED BY ONGC AT ITS HAZIRA PLANT. THIS FACT HAS BEEN EXPLAINED BY ONGC. THE LD. DR HAS GIVEN THE SCHEMATIC DIAGRAM OF NATURAL GAS PROCESSING AT ONGC HAZIRA BEFORE SUPPLY TO M/S GAIL IN HIS PAPER BOOK WHICH SUBSTANTIATE THE F ACT THAT SWEETENING OF NATURAL GAS WAS DONE BY ONGC BEFORE SUPPLY TO GAIL. THE REPLY SUBMITTED BY ONGC BEFORE THE ASSTT. COLLECTOR, CENTRAL EXCISE AN D CUSTOMS, SURAT VIDE LETTER DATED 11.04.1994 WAS PLACED ON RECORD BY THE LD. DR WHICH WAS OBTAINED DURING THE COURSE OF REMAND PROCEEDING AND WERE PROVIDED TO THE ASSESSEE AS WELL. IN THE SAID SUBMISSION, IT WAS SU BMITTED BY THE ONGC THAT THE FOLLOWING PROCESSES ARE CARRIED OUT AT ONGC HAZ IRA COMPLEX BEFORE SUPPLYING THE GAS TO GAIL A) GAS SWEETENING B) GAS DEHYDRATION C) GAS CHILLING THE SCHEMATIC DIAGRAM OF NATURAL GAS, AFTER PROCESS ING BY ONGC AT ITS HAZIRA COMPLEX IS SUPPLIED TO GAIL. THE SAID SWEETENED AND PURIFIED GAS IS FIT FOR USE BY THE CUSTOMERS OF GAIL AND THAT WAS THE REQUIREME NT AS PER THE AGREEMENTS ENTERED INTO BETWEEN GAIL AND ITS CUSTOMERS. FURTHE R, SH. S. P. RAO, DIRECTOR(PROJECTS), GAIL HAS ALSO ACCEPTED THIS FAC T IN HIS SWORN STATEMENT RECORDED UNDER SECTION 131 ON 21.12.1999. SH. S. P. RAO IN RESPONSE TO QUESTION NO. 7 ANSWERED THAT SULPHUR CONTENT WOULD NOT ONLY CORRODE THE GAS PIPELINE AND ASSOCIATED EQUIPMENT BUT WOULD ALSO CO RRODE THE PLANT & MACHINERY OF THE DOWNSTREAM BUYERS OF THE GAS. IN T HIS CONTEXT, THE LD. DR SUBMITTED THAT SULPHUR IS REMOVED FROM NATURAL GAS BY ONGC BEFORE SUPPLYING 18 ITA NOS. 4454 & 4642/DEL/2013 IT TO GAIL. THIS SWEETENING IS DONE BY ONGC AND NOT BY GAIL. THIS SWEETENING GAS IS FIT FOR USE BY THE CUSTOMERS OF THE ASSESSEE . IN FACT, THE SAME SWEETENING GAS WAS BEING SUPPLIED BY ONGC TO THE EXISTING CUS TOMERS, WHICH SUBSEQUENTLY BECAME CUSTOMERS OF THE ASSESSEE SUBSE QUENTLY. IN THE CASE OF THE ASSESSEE, WHAT ITS CUSTOMERS REQUIRE IS NATURA L GAS AS PRODUCED IN ITS NATURAL STATE OR STRIPPING OF HEAVIER COMPONENTS FO R OTHER USES AS MENTIONED IN THE COPY OF AGREEMENTS WITH DIFFERENT CUSTOMERS. NO NE OF THE CUSTOMERS REQUIRES LEAN GAS. IN AGREEMENT BETWEEN GAIL AND NTPC, IT IS MENTIONED IN PARA 3 AS UNDER: WHEREAS THE BUYER DESIRES TO PURCHASE AND RECEIVE NATURAL GAS FOR SELLER FOR THEIR AFORESAID PLANT AND THE SELLER AGREES TO SELL AND TO THE BUYER NATURAL GAS AS PRODUCED IN ITS NATURAL STATE OR STRIPPING OF HEAVIER COMPONENTS FOR OTHER USES HEREINAFTER REFERRED GAS OBTAINED FROM THE WESTERN OFFSHORE GAS FIELDS AS FUEL FOR THE PLANT OF THE BUYER LOCATED A T KAWAS IN THE DISTRICT OF SURAT IN THE STATE OF GUJARAT ON THE TERMS AND COND ITIONS STATED HEREUNDER WHICH HAVE MANUALLY AGREED TO BETWEEN THE SELLER AN D THE BUYER. IN CLAUSE 1.10 OF ARTICLE 1 GAS OR NATURAL GAS HAS BEEN DEFINED IN THE AGREEMENT AS UNDER GAS OR NATURAL GAS MEANS GAS PRODUCED FROM GA S WELLS CONDENSATE WELLS OR OIL WELLS AND THE RESIDUE GAS REMAINING AF TER PROCEED SUCH GAS FOR THE REMOVAL OF LIQUID ABLE HYDROCARBONS AND IMPUGNED TH EREFORE TO GAS SPECIFICATIONS GIVEN IN ANNEXURE- 1 THE LD. DR FURTHER POINTED OUT THAT NTPC DESIRES TO PURCHASE AND RECEIVE NATURAL GAS AS PRODUCED IN ITS NATURAL STATE OR STR IPPING OF HEAVIER COMPONENTS FOR OTHER USES HEREINAFTER REFERRED GAS OBTAINED FROM THE WESTERN OFFSHORE GAS FIELDS AS FUEL FOR THE PLANT O F THE BUYER. THE AGREEMENT DOES NOT TALK OF LEAN GAS. THE CUSTOMER IS DESIROUS OF BUYING NATURAL GAS IN ITS NATURAL STATE OR SWEETENED GAS AFTER THE REMOVAL OF IMPURITIES LIKE HYDROGEN SULPHIDE, CO2 AND OTHER IMPURITIES. IDENTICAL AGREE MENTS HAVE BEEN ENTERED 19 ITA NOS. 4454 & 4642/DEL/2013 WITH OTHER CUSTOMERS BY THE ASSESSEE AS PER THE EVI DENCE PRODUCED BY THE ASSESSEE. FURTHER THE SPECIFICATION OF GAS REQUIRED BY NTPC IS MENTIONED AS UNDER: SPECIFICATION OF GAS: THE GAS SHALL HAVE THE FOLLOWING LIMITS OF COMPOSIT ION AT THE DELIVERY POINT: I) METHANE NOT LESS THAN 75% BY VOLUME II) OTHER GASEOUS HYDROCARBONS NOT MORE THAN 20% BY VOLUME III) NON-CUMBUSTIBLE GASES OTHER THAN HYDROCARBONS INCLUDING NITROGEN CARBON-DIOXIDE NOT MORE THAN 8% BY VOLUM E IV) TOTAL SULPHUR CONTENT AS H2S 10 PPM VOL. (MAX.) V) MOISTURE CONTENT NO FREE WATER WILL BE PRESENT VI) TEMPERATURE MINIMUM 15 DEGREE CENT. NORMAL 30 DEGREE CENT. THE LD. DR POINTED OUT THAT THE CUSTOMER REQUIRES C OMPOSITION OF MAIN GAS METHANE NOT LESS THAN 75%. AS PER THE ANALYSIS OF N ATURAL GAS BEFORE GAS SWEETENING GIVEN BY THE ONGC, IN THE SAID ANALYSIS COMPOSITIONS OF METHANE IS RANGING FROM 79.76% TO 80.90%. FROM THE ANALYSIS OF NATURAL GAS SUPPLIED BY ONGC TO GAIL, IT CAN BE SEEN THAT COMPOSITION OF ME THANE (C1) IS RANGING FROM 81.30 TO 81.94%. THEREFORE, THE GAS SUPPLIED BY ONG C WAS HAVING VOLUME OF METHANE MUCH HIGHER THAN THE VOLUME OF METHANE OF 7 5% REQUIRED BY THE 20 ITA NOS. 4454 & 4642/DEL/2013 CUSTOMERS OF THE ASSESSEE. IN RESPECT OF OTHER HYDR OCARBONS, TOTAL SULPHUR CONTENT AND NON-CUMBUSTIBLE GASES OTHER THAN HYDROC ARBONS INCLUDING NITROGEN CARBON-DIOXIDE ALSO, THE GAS SUPPLIED BY O NGC TO GAIL WAS MEETING ALL THE SPECIFICATIONS OF THE CUSTOMERS, AS EVIDENC ED FROM THE PAPER BOOK FILED BY THE REVENUE. SIMILAR SPECIFICATION OF COMPOSITIO N OF NATURAL GAS IS THERE IN OTHER AGREEMENTS ALSO. THE SAID FACT WAS ALSO ACCEP TED BY THE ASSESSEE. THE LD. DR POINTED OUT THAT LPG PLANTS OF THE ASSESSEE ARE AT VAGHODIA IN GUJARAT AND VIJAYPUR IN M.P. FURTHER, GAS IS SUPPLIED TO DOWNST REAM CUSTOMERS, AND THAT GAS IS THE SWEETENED GAS RECEIVED FROM ONGC, BEFO RE THE GAS REACHES AT VAGHODIA PLANT WHERE C3 & C4 ARE EXTRACTED TO MAKE LPG, AND THE RESIDUE GAS IS FLOWN BACK AGAIN TO THE PIPELINE AND GAS IS SUPP LIED TO THE DOWNSTREAM CUSTOMERS TILL IT REACHES VIJAYPUR PLANT WHERE AGAI N LPG IS MANUFACTURED FROM THE SAID GAS. AT VIJAYPUR PLANT AGAIN, C3 & C4 ARE EXTRACTED AND THE GAS FLOWS BACK TO HBJ PIPELINE. SO THIS EXTRACTION OF C3 AND C4 FROM SWEETENED GAS IS FOR THE USE OF LPG PLANTS OF THE ASSESSEE TO MAKE LPG A ND IS NOT INTENDED FOR SUPPLY TO THE CUSTOMERS. SINCE THE REMAINING LEAN G AS CONTAINS MORE THAN 75% METHANE AND MEETS OTHER SPECIFICATIONS OF HYDROCARB ONS AND SULPHUR/CO2 IMPURITIES, THE CUSTOMERS HAVE NO OBJECTIONS IN REC EIVING THAT GAS. IN FACT, ONCE THE SWEETENED GAS IS SUPPLIED TO CUSTOMERS, THEY HA VE THEIR OWN PLANTS FOR FURTHER PURIFICATION/PROCESSING OF THE GAS AS PER T HEIR REQUIREMENT. THEREFORE, AS PER THE AGREEMENTS THE CUSTOMERS REQUIRE ONLY NA TURAL GAS, AND NOT LEAN GAS. IT IS ALSO EVIDENT FROM THE GAS SUPPLY CONTRA CTS THAT ALL THE CUSTOMERS REQUIRE NOT LESS THAN 75% METHANE, OTHER GASEOUS HY DROCARBON NOT MORE THAN 20%, NON-COMBUSTIBLE GASES OTHER THAN HYDROCARBON N OT MORE THAN 8%, H2S- 10 PPM VOL (MAX) ETC. THE GAS WHICH IS RECEIVED FRO M ONGC BY THE GAS CONTAINS ALL THE ABOVE SPECIFICATIONS OF GAS. IN NO T EVEN A SINGLE INSTANCE IN ANY OF THE AGREEMENTS CUSTOMER HAS EXPRESSED REQUIREMEN T OF LEAN GAS, AFTER EXTRACTION OF C3 AND C4 FROM NATURAL GAS. THE LD. D R POINTED OUT THAT THE ANALYSIS OF NATURAL GAS SUPPLIED BY ONGC TO GAIL ME ETS ALL THE ABOVE SPECIFICATIONS. HENCE, THE ARGUMENT OF THE ASSESSEE THAT IT WAS REQUIRED TO SUPPLY LEAN GAS TO ITS CUSTOMERS AFTER EXTRACTING C3-C4 AS PER CONTRACTUAL 21 ITA NOS. 4454 & 4642/DEL/2013 OBLIGATIONS HAS NO LEGS TO STAND. CONSIDERING THE A BOVE FACTS, IT BECOMES CLEAR THAT THE COMPOSITION OF NATURAL GAS REQUIRED BY THE CUSTOMERS WAS BEING MET OR COULD BE MET BY THE GAS SUPPLIED BY THE ONGC TO GAIL AND THEREFORE, THE CLAIM OF THE ASSESSEE THAT AS PER CONTRACTUAL OBLI GATION PROCESSED LEAN GAS WAS TO BE SUPPLIED TO ITS CUSTOMERS IS FACTUALLY IN CORRECT AND MISLEADING. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE H AD LPG PLANTS AT VAGHODIA AND VIJAYPUR ALONG THE HBJ PIPELINE. FOR ITS INTERN AL CONSUMPTION FOR LPG PLANTS, THE ASSESSEE RECEIVES NATURAL GAS FROM ITS OWN SUPPLY LIKE ANY OTHER CUSTOMER/USER OF NATURAL GAS, AND EXTRACTS C3 & C4 (PROPANE BUTANE) AND MANUFACTURES LPG. AS LPG IS A DIFFERENT PRODUCT HAV ING DIFFERENT CHEMICAL PROPERTIES, THE ASSESSING OFFICER HAS RIGHTLY ALLOW ED THE CLAIM OF DEDUCTION U/S 80IA TO THE ASSESSEE ON LPG PLANTS. THE FINDING OF THE CIT(A) THAT DEDUCTION U/S 80IA HAS TO BE GIVEN AT THE POINT OF MANUFACTUR E OF LEAN GAS IS INCORRECT. IN FACT, WHAT IS HAPPENING AT VAGHODIA AND VIJAYPUR LPG PLANTS IS MANUFACTURING OF LPG. THE ASSESSEE AS A USER OF NAT URAL GAS, RECEIVES SWEETENED NATURAL GAS FROM ONGC AND EXTRACTS C3-C4 (PROPANE - BUTANE) TO PRODUCE LPG. FIRST, LPG IS PRODUCED AT VAHODIA, GUJ ARAT AFTER GAS REACHES ITS TERMINAL FROM HAZIRA. AFTER EXTRACTION OF C3-C4, TH E REMAINING GAS FLOWS BACK TO HBJ PIPELINE. IT IS IMPERATIVE TO APPRECIATE THA T THE ASSESSEE MANUFACTURES LPG AND AFTER EXTRACTION OF C3-C4 FROM THE NATURAL GAS, THE RESIDUE NATURAL GAS IS TERMED AS LEAN GAS. THE LPG PLANT OF THE ASSES SEE IS NOT MEANT FOR MANUFACTURE OF LEAN GAS. THE LEAN GAS IS NOT REQUIR ED FOR THE CUSTOMERS ALSO. THE RESIDUE NATURAL GAS, WHICH STILL MEETS THE REQU IREMENT OF SPECIFIC COMPOSITION OF NATURAL GAS OF THE CUSTOMERS, FLOWS BACK TO THE PIPELINE AND IS SUPPLIED TO DOWNSTREAM CUSTOMERS. AGAIN AT VIJAYPUR , REMAINING C3-C4 PRESENT IN NATURAL GAS IS EXTRACTED TO MANUFACTURE LPG AND THE LEAN GAS AGAIN FLOWS BACK TO THE PIPELINE FOR SUPPLY TO THE DOWNST REAM CUSTOMERS AHEAD OF VIJAYPUR. AFTER EXTRACTION OF C3-C4 AT VAGHODIA PLA NT, RESULTANT/RESIDUE GAS, WHICH IS NOW NAMED AS LEAN GAS FLOWS BACK TO THE PIPELINE. THE RESULTANT LEAN GAS CANT BE RECONVERTED TO IMPURE NATURAL GAS T O PRODUCE LEAN GAS AGAIN AT VIJAYPUR. AT VIJAYPUR, THE REMAINING QUANTITY OF C3 -C4 EXTRACTED AGAIN FROM 22 ITA NOS. 4454 & 4642/DEL/2013 THE LEAN GAS. IN THIS CONNECTION, THE LD. DR SUBMIT TED THAT GAIL IS PRODUCING LPG AT DIFFERENT LOCATIONS FROM THE NATURAL GAS AND AS SUCH LEAN GAS IS NOT PRODUCED FOR ANY COMMERCIAL PURPOSE, BECAUSE NONE O F THE CUSTOMERS REQUIRE LEAN GAS. THE LD. DR FURTHER SUBMITTED THAT THE P LANT OF THE ASSESSEE IS FOR MANUFACTURING OF LPG AND NOT FOR PRODUCING LEAN GAS. EXTRACTION OF C3 & C4 AT THE LPG PLANTS DOES NOT LEAD TO ANY VALUE ADDITI ON TO THE NATURAL GAS. ON THE CONTRARY, THIS LEADS TO THE GAS BEING DEPLETED. CON TRARY TO THE STATEMENT OF SHRI S. P. RAO, ONLY 42% OF THE NATURAL GAS IS SUBJECTED TO LPG EXTRACTION. THIS FACT IS VERY CLEARLY ADMITTED THAT THE GAS IS DEPLETED W HEN C3 & C4 ARE REMOVED, THEREBY, LEADING TO LOWERING OF ITS CALORITIC VALUE . HENCE, WHATEVER PROCESSING IS INVOLVED IS NOT BY WAY OF VALUE ADDITION BUT BY WAY OF DEPLETION AND HENCE, THE SAME CANNOT BE TREATED AS MANUFACTURING FOR THE PUR POSE OF SEC. 80HH, 80I AND 80IA. THE LD. DR POINTED OUT THAT EVEN IF LPG P LANTS OF THE ASSESSEE WOULD NOT HAVE BEEN THERE, THE ASSESSEE COULD HAVE SUPPLI ED SWEETENED NATURAL GAS RECEIVED FROM ONGC TO ITS CUSTOMERS WHOSE MAIN REQU IREMENT WAS MINIMUM 75% OF METHANE IN THE GAS BY VOLUME WHICH WAS ALWAY S THERE IN THE SAID SWEETENED GAS. THE LD. DR SUBMITTED THAT THE ASSESS EE WANTS TO PRESENT THE FACTS IN SUCH A MANNER SO AS TO SHOW WHOLE OF ITS B USINESS IS COVERED U/S 80IA/80I/80HH. HOWEVER, THE CORRECT POSITION IS THA T ITS MAIN BUSINESS IS TRANSPORTATION OF GAS ON WHICH 80IA/80HH/80I IS NOT ADMISSIBLE. IT CAN CLAIM 80IA ONLY ON PROFITS FROM LPG MANUFACTURING WHICH I S A SEPARATE AND DISTINCT ACTIVITY IN ADDITION TO BUSINESS OF TRANSPORTATION OF GAS. THE LD. DR POINTED OUT THAT ONGC WAS NOT MAKING ANY CLAIM OF DEDUCTION U/S 80IA IN RESPECT OF GAS TRANSPORTATION BUSINESS. IN P & L ACCOUNT OF THE ON GC FOR A.Y. 1987-88 HAS BEEN GIVEN SEPARATE REVENUE FROM THE BUSINESS OF PI PELINE TRANSPORTATION OF GAS IS GIVEN. THIS FACT WAS ALSO CONFRONTED TO THE ASSE SSEE DURING THE REMAND/APPELLATE PROCEEDING AND THE ASSESSEE HAS NO T BEEN ABLE TO EXPLAIN THIS FACT SATISFACTORILY AND CONTINUED TO DISTORT T HE FACT. THE ASSESSEE IS USING THE NATURAL GAS AT ITS LPG PLANTS, AND COMPOSITE REVENUE/PROFIT HAS BEEN SHOWN IN P & L ACCOUNT, THE ASSESSING OFFICER HAS E STIMATED 40% OF ITS PROFITS TOWARDS MANUFACTURE OF LPG IN WHICH DEDUCTION U/S 8 0IA HAS BEEN ALLOWED BY 23 ITA NOS. 4454 & 4642/DEL/2013 THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ES TIMATED 60% OF ITS PROFITS TOWARDS TRANSPORTATION BUSINESS ON WHICH 80IA IS NO T ADMISSIBLE. 17. THE LD. DR FURTHER SUBMITTED THAT AS REGARDS T HE CLAIM OF DEDUCTION IN RESPECT OF CUSTOMER TERMINALS, THE NATURAL GAS, AFT ER SWEETENING, REMOVAL OF SULPHUR AND CHILLING AT HAZIRA BY ONGC, IS RECEIVED BY GAIL AND THE SAID GAS IS SUPPLIED BY THE ASSESSEE TO ITS CUSTOMERS. MOST OF THE CUSTOMERS WERE EXISTING CUSTOMERS OF ONGC. THE NATURAL GAS TO BE S UPPLIED BY GAIL TO ITS CUSTOMERS WAS REQUIRED TO BE CONTAINING 75% OF METH ANE BY VOLUME INCLUDING HYDROCARBONS, IMPURITIES WHICH IS THERE IN THE NATU RAL GAS RECEIVED BY GAIL FROM ONGC. FURTHER, THE PRICE OF THE GAS RECEIVED B Y GAIL IS TO BE TRANSMITTED TO ONGC. HENCE, THERE WAS NO REQUIREMENT OF ANY FUR THER PROCESSING AT THE END OF GAIL AS FAR AS GAS TRANSPORTATION BUSINESS O F GAIL WAS CONCERNED. AS TRANSPORTATION IS ABOUT 2700KM THROUGH GAS PIPELINE , CERTAIN ACTIVITIES WERE REQUIRED TO BE DONE BY GAIL TO TRANSPORT AND SUPPLY OF GAS TO ITS CUSTOMERS. THEREFORE, GAIL INSTALLED COMPRESSOR STATIONS, CERT AIN CLEANING INSTRUMENTS AS WELL AS INSTRUMENTS TO REGULATE PRESSURE AND TEMPER ATURE OF GAS AT THE TIME OF SUPPLY OF GAS TO THE CUSTOMERS. IN THIS REGARD, THE LD. DR MADE REFERENCE TO THE LETTER DATED 29.12.1999 OF THE ASSESSING OFFICE R ADDRESSED TO CONCERNED CIT(A) IN THE FIRST ROUND OF APPEAL. THE LD. DR SUB MITTED THAT ALL THE PLANT AND MACHINERY INSTALLED BY GAIL ON THE HBJ PIPELINE, BA RRING LPG PROCESS FACILITIES, INVOLVE NO ELEMENT OF PROCESSING. THE T ERMINALS AND THE PIPELINES FOR THE PURPOSE OF MAKING THE GAS TRANSPORTABLE AND NOT FOR THE PURPOSES OF MAKING ANY ADDITION TO THE PRODUCT BEING MARKETED. THIS MAY BE COMPARED TO THE PACKAGING OF THE GOODS FOR THE PURPOSES OF TRAN SPORTING THEM BY ROAD/RAIL/AIR TRANSPORT, THE ONLY DIFFERENCE THAT I N THIS CASE THE MEANS OF TRANSPORTATION IS BY PIPELINE WHICH HAS ITS OWN PEC ULIAR PACKAGING. THE MEANING OF THE EXPRESSION MANUFACTURE WAS CONSIDE RED BY THE SUPREME COURT IN DY. CST VS. PIO FOOD PACKERS (1980) 46 STC 63, AMONG OTHER DECISIONS. IN THE DECISION, THE TEST EVOLVED FOR DE TERMINING WHETHER MANUFACTURE CAN BE SAID TO HAVE TAKEN, IS, WHETHER THE COMMODITY WHICH IS SUBJECTED TO THE PROCESS OF MANUFACTURE CAN NOT LON GER BE REGARDED AS THE 24 ITA NOS. 4454 & 4642/DEL/2013 ORIGINAL COMMODITY BUT IS RECOGNIZED IN THE TRADE A S A NEW AND DISTINCT COMMODITY. THE SO CALLED PROCESSING THAT THE ASSESS EE HAS PERFORMED WITH REGARD TO FILTERING, DE-MOISTURISATION, ETC., CANNO T BE SAID TO BE MANUFACTURING. LEAN OR RICH NATURAL GAS IS ONLY WITH REGARD TO CHA NGE IN ITS CALORIFIC VALUE, WHICH WE HAVE SEEN IS ITSELF NOT STANDARDISED AT TH E CTP. THE PRODUCT PURCHASED BY GAIL FROM ONGC REMAINS RECOGNIZABLE AS NATURAL GAS RIGHT THROUGH THE HBJ PIPELINE, TILL IT IS SOLD. THE LD. DR RELIED UPON THE PROSPECTUS OF GAIL FOR GLOBAL DEPOSITORY RECEIPTS OFFER FOR 19 99. THE LD. DR FURTHER SUBMITTED THAT NATURAL GAS MUST BE HIGHLY PRESSURIZ ED TO MOVE IT AT HIGH SPEED ALONG THE PIPELINE. COMPRESSOR STATION IS THE HEART OF ANY CROSS-COUNTRY PIPELINE SYSTEM. ITS FUNCTION IS TO PRESSURIZE PIPE LINE GAS FROM LOW PRESSURE TO HIGH DISCHARGE PRESSURE SO THAT GAS CAN BE TRANSMIT TED THROUGH THE PIPELINE FOR SUPPLYING TO DOWN-STREAM CONSUMERS. ONCE THE NATURA L GAS IS PRESSURIZED, ITS TEMPERATURE RISES. SO, THE COMPRESSOR STATIONS ARE THE REQUIREMENT OF THE GAS TRANSPORTATION BUSINESS OF THE ASSESSEE AND IS NOT RELATED TO ANY PRODUCTION OR MANUFACTURING. DURING THE TRANSPORTATION OF GAS THR OUGH THE PIPELINE, THE GAS MAY BE COOLED DUE TO LOW SUB-SOIL TEMPERATURE WHICH MAY RESULT IN THE FORMATION OF HYDROCARBON CONDENSATE AND WATER. MORE OVER, THE PIPELINE SYSTEMS AT SOME SECTIONS AFTER COMPRESSING MAY STIL L CONTAIN DIRT, DUST ETC. THEREFORE, PIGGING, PIG LAUNCHER & RECEIVER, SCRUBB ER, FILTRATION INSTRUMENTS ARE INSTALLED TO REMOVE THE CONDENSATE, DIRT ETC. WHICH IS CAUSED DUE TO TRANSPORTATION FOR A LONG DISTANCE. REDUCTION IN PR ESSURE OF NATURAL GAS IS ASSOCIATED WITH A DROP IN THE TEMPERATURE AND THIS DROP-IN TEMPERATURE WOULD TAKE GAS TEMPERATURE BELOW ITS DEEP POINT WHICH WOU LD LEAD TO FORMATION OF CONDENSATE. IN ORDER TO AVOID THE SAME, THE GAS IS HEATED BEFORE PRESSURE REDUCTION TAKES PLACE SO THAT NO CONDENSATE IS FORM ED. THEREFORE, GAS HEATERS ARE REQUIRED IN THE GAS TRANSPORTATION SYSTEM. IN O RDER TO REGULATE GAS PRESSURE, A PRESSURE CONTROL VALVE IS USED AT THE T ERMINAL. THE VALVE SENSES THE DOWNSTREAM PRESSURE AND ADJUST ITS VARIABLE APERTUR E TO MAINTAIN THE DOWNSTREAM PRESSURE. APART FROM THAT, TURBINE METER AND FLOW COMPUTER IS USED TO METER THE GAS AT TERMINALS. FLOW CONTROL VA LVES ARE INSTALLED TO ENSURE 25 ITA NOS. 4454 & 4642/DEL/2013 THAT THE CUSTOMERS DOES NOT DRAW MORE GAS THAN WHAT IS ALLOCATED FOR THE DAY AND THAT TOO AT A CONTROLLED RATE. TO SUM UP, COMPR ESSOR STATIONS AND TERMINAL STATIONS ARE GENERAL REQUIREMENTS RELATED TO LONG D ISTANCE TRANSPORTATION OF GAS THROUGH PIPELINES AND HAS NOTHING TO DO WITH PRODUC TION OF LEAN GAS/PURIFICATION OF LEAN GAS ETC. THE IMPURITIES IN THE FORM OF CONDENSATES CAUSED BY LOW TEMPERATURE, DIRT ETC. ARE REQUIRED T O BE REMOVED TO PROTECT THE GAS PIPELINE. FURTHER, THE CUSTOMERS INSTALL THEIR OWN PROCESSING SYSTEMS TO REMOVE IMPURITIES ETC. IN ORDER TO USE GAS. CHANGE OF PRESSURE AND HEAT ARE TRANSPORTATION REQUIREMENTS. IN TRANSPORTATION OF G AS THROUGH PIPELINES, GAS HAS TO BE COMPRESSED FOR FAST MOVEMENT AND ONCE GAS IS PRESSURIZED, ITS TEMPERATURE RISES. AS MENTIONED ABOVE, DUE TO LOW S UB-SOIL TEMPERATURE THE GAS IS COOLED AND THEREFORE, IT IS REQUIRED TO HEAT IT AGAIN. FURTHER, CLEANING OF GAS IS REQUIRED AT REGULAR INTERVALS TO REMOVE COND ENSATE AND DIRT ETC. WHICH IS THE GENERAL REQUIREMENT OF GAS TRANSPORTATION BY PI PES WORLD OVER. IN VIEW OF THE ABOVE FACTS, THE PLEA OF THE ASSESSEE THAT THER E IS PRODUCTION OF NEW PRODUCT AT TERMINALS/COMPRESSOR STATIONS FOR SUPPLY OF GAS AT TAILOR-MADE TEMPERATURE AND PRESSURE ETC. IS NOTHING BUT A PLOY TO MISPLACE AND DISTORT THE FACTS IN ORDER TO CLAIM DEDUCTION. AT TERMINAL STAT IONS THE NATURE AND COMPOSITION OF NATURAL/USE GAS REMAINS THE SAME EVE N AFTER REMOVING CONDENSATE AND DIRT PARTICLES AND IT CANNOT BE TREA TED AS MANUFACTURE/PRODUCTION OF A NEW PRODUCT BY ANY ST RETCH OF IMAGINATION. THE ISSUE WITH REGARD TO THE BREAK UP OF PROFITS IN TER MS OF UNITS ALSO NEEDS TO BE HIGHLIGHTED. IN THE COMPUTATION OF INCOME, THE ASSE SSEE HAS CLAIMED DEDUCTIONS U/S 80I II I, 80IA AND 80I UNIT-WISE. IT IS AN ACCEPTED FACT THAT THESE DEDUCTIONS ARE TO BE COMPUTED ON THE BASIS OF INDUS TRIAL UNITS. HOWEVER, IN THE CASE OF THE ASSESSEE, THE QUESTION THAT NEEDS TO BE ANSWERED IS WHAT CONSTITUTES A SEPARATE UNIT. THE CONTINUOUS PIPELIN E SYSTEM STARTING FROM HAZIRA, WHERE THE DE-SULPHURICATION PLANT IS LOCATE D. AS ON TRAVELS ALONG WITH THE PIPELINE, AT VARIOUS POINTS COMPRESSOR STATIONS HAVE BEEN LOCATED AND LPG AND PROPANE PANTENE EXTRACTING PLANTS HAVE ALSO BEE N LOCATED. AT THE POINT AT WHICH NATURAL GAS IS SUPPLIED TO THE ASSESSEES CLI ENTS, TERMINAL STATIONS HAVE 26 ITA NOS. 4454 & 4642/DEL/2013 BEEN LOCATED. THE ASSESSEE HAS BROKEN UP THE PIPELI NE SYSTEM INTO VARIOUS UNIT SUCH AS IPCI, GSFC, IOC, GGCI ETC. THE BREAK UP HAS BEEN MADE ON THE BASIS OF TAP OFF FROM THE MAIN HBJ PIPELINE TO THE VARIOU S CLIENTS. THERE ARE SOME CLIENTS WHICH ARE SITUATED ON THE MAIN HBJ PIPELINE . FOR CLIENTS WHO ARE SITUATED OFF THE MAIN HBJ PIPELINE, TAP-OFF HAVE BE EN MADE. THESE TAP-OFFS ARE SIMPLY OFF SHOOTS FROM THE MAIN HBJ PIPELINE. IT IS THESE TAP-OFFS WHICH THE ASSESSEE IS CLAIMING AS SEPARATE UNITS. IN THE COMP UTATION OF INCOME, THE ASSESSEE HAS COMPUTED THE PROFITS UNITWISE. THIS CO MPUTATION HAS BEEN MADE BY TAKING THE GROSS SALES, CLIENT/TAP-OFF VICE, AND THEN REDUCING THE EXPENSES RELEVANT TO EACH TAP-OFF, AND THE DEPRECIATION, OF THE PLANT & MACHINERY CAPITALIZED, FOR EACH TAP-OFF. HOWEVER, BULK OF THE EXPENSES AND DEPRECIATION ARE DEBITED TO THE HBJ UNIT. THE QUESTION WHICH NOW ARISES IS, WOULD ANY OF THE UNITS BE IN A POSITION TO FUNCTION WITHOUT THE MAIN HBJ PIPELINE. THE GAS IS PURCHASED FROM ONGC AT THE LANDFALL POINT, AT HAZIR A, WHERE IT IS SUBJECTED TO THE SWEETENING PROCESS. AT NO OTHER POINT IN THE WH OLE HBJ PIPELINE SYSTEM INCLUDING ITS TAP-OFFS, IS GAS PURCHASED FROM ANY F RESH SOURCES AND SWEETENED. THEREFORE, THE TAP-OFFS/UNITS, BY THEMSELVES DO NOT CONSTITUTE A SEPARATE ENTITY. THEY ARE SIMPLY EXTENSIONS OF THE MAIN HBJ PIPELINE , EVEN THOUGH THEY MAY NOT BE KNOWN BY THE SAME NAME IN THE BOOKS OF THE A SSESSEE. THEREFORE, THE VERY BASIS OF BREAKING UP THE PROFIT UNIT-WISE IS F AULTY. FOR EXAMPLE, THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA(2)(IV) CLAU SE (B) ON THE PROFITS OF UNIT TERMED AS OSWAL AGRO. THIS DEDUCTION IS AVAILABLE W HERE AN INDUSTRIAL UNIT IS SITUATED IN A SPECIFIED BACKWARD AREA. THE PIPELINE FROM HBJ TO SHAHJAHANPUR IS VERY MINUSCULE PART OF THE TOTAL HBJ PIPELINE SY STEM. THE ASSESSEE WAS ASKED TO GIVE DETAILS OF CAPITALIZATION UNIT-WISE. THIS THE ASSESSEE HAS GIVEN VIDE ITS LETTER DATED 17.03.1999. THE DEPRECIATION CHART HAS BEEN MADE SITE- WISE AND NOT UNIT-WISE BY THE ASSESSEE. THERE IS NO WAY IN WHICH ONE CAN RELATE THE MACHINERY, GIVEN VIDE THE SAID LETTER. IN FACT, THE WHOLE COMPUTATION OF DEDUCTION U/S 80HH, 80IA AND 80I IS PURELY A HYPOTH ETICAL COMPUTATION. THE GROUND REALITY IS THAT THE ENTIRE HBJ PIPELINE SYST EM AND ITS TAPS-OFFS CONSTITUTE ONE UNIT. SUBSEQUENTLY, IN THE FOLLOWING YEARS, THE ASSESSEE HAS SET 27 ITA NOS. 4454 & 4642/DEL/2013 UP NEW PIPELINE SYSTEMS IN SOUTH AND EAST INDIA, WH ICH CAN BE SAID TO REPRESENT SEPARATE UNITS. BUT IN THE FINANCIAL YEAR 1995-96, FOR ALL PRACTICAL PURPOSE, THERE IS ONLY ONE SINGLE UNIT I.E. THE HBJ PIPELINE SYSTEM. IT IS ONLY THIS UNIT WHICH IS PARTIALLY ELIGIBLE FOR DEDUCTION U/S 80I II I, KEEPING IN VIEW THE OTHER FACTORS WHICH WAS REFERRED EARLIER. THE A SSESSEE IS, THEREFORE, NOT ELIGIBLE FOR DEDUCTION U/S 80IA AND 80I, EXCEPT ON ITS LPG UNITS AT VIJAYPUR AND VADODHIA. THE CLAIM OF THE ASSESSEE IN RESPECT OF D EDUCTION AT CUSTOMER TERMINALS MAY BE COMPARED TO CLAIM OF DEDUCTION ON TRANSPORTATION OF ICE- CREAM. A PERSON WHO IS PROVIDING TRANSPORTATION SER VICES TO ICE-CREAM MANUFACTURER, HAS TO PROVIDE OPTIMUM TEMPERATURE SO THAT ICE CREAM IS NOT MELTED. IT IS THE WORK OF THE TRANSPORTER TO ARRANG E PROPER COLD CHAIN FACILITIES. ONLY BECAUSE A CERTAIN TEMPERATURE IS REQUIRED TO B E MAINTAINED IN REFRIGERATION EQUIPMENT THE TRANSPORTATION LORRIES, THE TRANSPORTER WILL NOT BE ELIGIBLE FOR DEDUCTION U/S 80IA/80HH. SAME WAY A TR ANSPORTER HAS TO UNLOAD GOODS FROM A BIG LORRY TO SMALL LORRY DEPENDING ON THE AREA OF APPROACH ROAD. THE LOADING AND UNLOADING ARE PART OF THE WORK OF T RANSPORTER. THE ASSESSEE IS TRANSPORTER OF GAS AND IN THE PROCESS OF TRANSPORTA TION IT HAS INSTALLED TERMINAL STATIONS AND COMPRESSOR STATIONS FOR SMOOTH TRANSPO RTATION OF GAS AT THE DELIVERY POINTS. CONSIDERING THE ABOVE FACTS, THE C LAIM OF DEDUCTION U/S 80HH/80I/80IA IN RESPECT OF COMPRESSOR UNITS AND TE RMINAL STATIONS IS NOT ADMISSIBLE. 18. THE LD. DR RELIED UPON THE FOLLOWING CASE LA WS: I) ARB INC. VS. JCIT (2005) 93 ITD 520 (DEL TRI) II) IDANDAS VS. ANANT RAMCHARANARA PHADKE AIR 1982 SC 127 III) CIT VS. SRI MEENAKSHI ASPHALT (2004) 266 ITR 6 30 (MAD.) IV) CIT VS. GEM INDIA MANUFACTURING CO. (2001) 249 ITR 308 (SC) V) CIT VS. GITWAKO FARMS (I) P. LTD. 332 ITR 471 (D EL) 28 ITA NOS. 4454 & 4642/DEL/2013 VI) DY. CST (LAW) VS. PIO FOODS PACURE (1980) 46 ST C 63 (SC) VII) CIT VS. S.K. TRANSFORMERS (P) LTD. (2014) 45 T AXMANN.COM 171(ALLH.) VIII) CIT VS. STERLING FOODS (1999) 104 TAXMAN 204 (SC) IX) INDIAN HOTELS CO. LTD. VS. ITO 112 TAXMAN 46 ( SC) X) CIT VS. DEWAN CHAND SATYAPAL (2013) 29 TAXMANN.C OM 235 (DEL) XI) CIT VS. RELISH FOODS (1999) 103 TAXMANN.COM 235 (DEL) XII) SACS EAGLES CHICORY VS. CIT (2002) 123 TAXMAN 221 (SC) XIII) CIT VS. GEORGE MAIJO (2000) 107 TAXMAN 265 (M AD) XIV) REGAL IND. LTD. VS. CIT 328 ITR 175 (P&H) XV) COMM. OF CUSTOMS (IMPORT), MUM VS. M/S DILIP KU MAR & CO. & ORS. (CIVIL APPEAL NO. 3327 OF 2007) ORDER DATED 30.07.2 018 (SC- 5 JUDGES BENCH) XVI) SANDOZ INDIA LTD. VS. UOI 1980 ELT 696 XVII) S.D. PUNE CHEM P LTD. VS. COLLECTOR OF CENTRA L EXCISE (1991) 56 ELT 393 XVIII) COROMANDEL PRODONITE P LTD. VS. GOVT. OF IND IA (1985) 2 ELT 257 XIX) MCNICOL VS. PINCH (1906) 2 KB 352 XX) MAHABIRPRASAD BIRHIWALA VS. STATE OF WEST BENGA L, (1973) 31 STC 628 (CAL) XXI) MOHANLAL VISHRAM VS. CST (1969) 24 STC 101 (MP ) XXII) CIT VS. HINDUSTAN METAL REFINING WORDS P. LTD . (1981) 128 ITR 472 (CAL) XXIII) UNIVERSAL CHEMICALS & INDUSTRIES P. LTD. VS. CST (1986) 62 STC 197(MP) XXIV) STERLING FOODS VS. STATE OF KARNATAKA 1986 (6 3) STC 239 (SC) 29 ITA NOS. 4454 & 4642/DEL/2013 XXV) ENNER REFINERIES VS. ASSL CCT (1994) 92 STC 78 (GUJ) XXVI) SINGH ENGINEERING WORKS P. LTD. VS. CIT (1979 ) 119 ITR 891 (ALLH) XXVII) KOSHYS PR. LTD. VS. CIT (1985) 154 ITR 53 ( KAR.) XXVIII) KAMAL BISCUIT FACTORY VS. CST (1985) 60 STC 344 (ALLH.) XXIX) DY. CST VS. PIO FOOD PACKERS (1980) 46 STC 63 XXX) SOUTH BIHAR SUGAR MILLS VS. UOI (1978) ELT (J) 3 XXXI) EMPIRE INDUSTRIES LTD. VS. UOI (1986) 162 ITR 846 (SC) XXXII) CIT VS. LUCKY MINERAL PVT. LTD. 226 ITR 245 19. THE LD. DR FURTHER SUBMITTED THAT AS REGARDS TH E CLAIM OF THE ASSESSEE THAT DEDUCTION ALLOWED IN EARLIER YEARS CANNOT BE D ENIED IN SUBSEQUENT YEAR, THE ASSESSEE CLAIMED DEDUCTION U/S 80IA OF THE ACT WITH RESPECT TO PROFIT DERIVED FROM ELIGIBLE UNITS HAS BEEN ALLOWED BY REV ENUE TILL A.Y. 1995-96, THE SAME CANNOT BE DENIED SUBSEQUENTLY. IN A.Y. 1990-91 , THE ASSESSING OFFICER MENTIONED IN THE ASSESSMENT ORDER THAT WHAT THE ASS ESSEE WAS DOING WAS SIMPLY BUYING NATURAL GAS AND REMOVING IMPURITIES F ROM IT AND THEN SELLING AS LEAN GAS AND LPG. THIS THEREFORE, IS NOT A MANUFACT URING ACTIVITY, NOTHING NEW IS BEING PRODUCED AND THEREFORE, THIS CLAIM OF THE ASSESSEE WAS NOT TENABLE AND WAS REJECTED. IN FACT, TILL A.Y. 1992-93, NO CLAIM OF DEDUCTION WAS MADE DUE TO INADEQUACY OF ELIGIBLE PROFITS. THE CIT(A) NOTED TH AT THE ASSESSING OFFICER RE- OPENED THE ASSESSMENTS OF A.YS. 1992-93 AND 1993-94 UNDER SECTION 147 OF THE ACT DISALLOWING THE CLAIM OF DEDUCTION HOLDING THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING. THE SAID REOPENING WAS SE T ASIDE BY THE TRIBUNAL WITH SPECIFIC DIRECTIONS. FURTHER, IN A.Y. 1994-95 AND 1995-96, DEDUCTION U/S 80HH, 80I & 80IA WAS DISALLOWED ON THE GROUND THAT AFTER ADJUSTMENT OF BROUGHT FORWARD LOSSES, THE ASSESSEE WAS NOT HAVING ANY TAXABLE INCOME. IN THE SAID TWO ASSESSMENT YEARS DISPUTE WAS WITH RESPECT TO SET OFF OF LOSSES FROM ELIGIBLE UNITS U/S 80IA VIS--VIS PROFITS FROM ELIG IBLE UNITS. IN VIEW OF THE 30 ITA NOS. 4454 & 4642/DEL/2013 PROVISIONS OF SEC. 80AB, THE SAID DEDUCTIONS WERE D ISALLOWED. THE DEPARTMENT FILED THE APPEAL BEFORE THE TRIBUNAL, FATE OF WHICH WAS NOT YET KNOWN. IN VIEW OF THE ABOVE, THE CLAIM OF THE ASSESSEE REGARDING ALLO WING DEDUCTION IN EARLIER YEARS BY THE REVENUE IS NOT BASED ON CORRECT FACTS. THE ISSUE HAS BEEN RAISED BY THE REVENUE IN EARLIER YEARS AND DEDUCTION U/S 8 0HH/80I/80IA WAS DISALLOWED. IN THE INSTANT CASE, ALLOWABILITY OF DE DUCTION U/S 80HH, 80I & 80IA CAME UP FOR THE FIRST TIME IN THE RELEVANT A.Y. 199 6-97. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION U/S 80IA/80I/80HH IN RESPECT OF MANUFACTURING OF LEAN GAS AT LPG PLANTS AND ALSO CL AIM OF DEDUCTION IN RESPECT OF PRODUCTION / MANUFACTURE OF NEW PRODUCT ON ACCOU NT OF CHANGE OF TEMPERATURE, PRESSURE AND CLEANING AT THE CUSTOMER TERMINALS. 20. WITHOUT PREJUDICE TO THE ABOVE, THE LD. DR SUB MITTED THAT SINCE THE ASSESSEE HAS MADE THE ABOVE CLAIM, ONUS IS ON THE A SSESSEE TO SUBSTANTIATE THE CLAIM WITH SUPPORTING DOCUMENTS. NO SUBSTANTIATING DOCUMENTS HAVE BEEN FILED BY THE ASSESSEE. THE SAID CLAIM OF THE ASSESS EE HAS BEEN FOUND TO BE WRONG BY THE CIT(A) IN RESPECT OF A.Y. 1997-98. THE LD. DR POINTED OUT THAT IN THE INSTANT CASE, NEW FACTS CAME TO THE NOTICE OF T HE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS AND REMAND PROCEEDINGS WHICH WERE NOT BEFORE THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS OF THE EARLIER YEARS. FOR EXAMPLE, IT CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER THAT SWEETENING OF GAS WAS DONE BY THE ONGC BEFORE THE SUPPLY OF GAS T O GAIL. IT WAS ALSO NOTICED BY THE ASSESSING OFFICER THAT GAIL WAS ESSENTIALLY RECEIVING TRANSPORTATION CHARGES FROM THE CUSTOMERS WHICH WAS ITS REVENUE WH ILE REMAINING AMOUNT COLLECTED FROM THE CUSTOMERS WAS REMITTED TO ONGC O R MINISTRY OF PETROLEUM & NATURAL GAS. THEREFORE, IN THE EARLIER YEARS, THE A SSESSING OFFICER HAS NOT TAKEN A VIEW ON THESE FACTS WHICH IS BEING REVERSED IN TH E YEAR UNDER CONSIDERATION. THE LD. DR FURTHER POINTED OUT THAT THE ASSESSEE HA S MAINLY RELIED ON THE DECISION OF GUJARAT HIGH COURT IN CASE OF SAURASHTR A CEMENT & CHEMICAL INDIA VS. CIT 123 ITR 669 (GUJ.) AND OTHER DECISIONS OF V ARIOUS HIGH COURTS WHICH ARE DIFFERENT FROM THE PRESENT CASE. IN SAURASHTRA CEMENTS (SUPRA), THE CLAIM U/S 80J WAS ALLOWED IN THE INITIAL ASSESSMENT YEAR BY TREATING THE EXTENSION IN 31 ITA NOS. 4454 & 4642/DEL/2013 CAPACITY OF THE PLANT AS FORMATION OF A NEW INDUSTR IAL UNDERTAKINGS. HOWEVER, IN THE SUBSEQUENT YEAR, THE ASSESSING OFFICER SOUGH T TO DENY THE SAID CLAIM ON THE CONSIDERATION OF THE SAME FACTS, WHICH WAS SET ASIDE BY THE HONBLE GUJARAT HIGH COURT. IN CASE OF PAUL BROS. (SUPRA), THE ISSU E WAS RELATED TO JURISDICTION ASSUMED BY THE CIT U/S 263 OF THE ACT. HENCE, THE F ACTS OF THE SAID CASE ARE DIFFERENT FROM THOSE OF THE PRESENT APPEAL AND THE RATIO OF THE SAID DECISIONS IS DISTINGUISHABLE AND NOT APPLICABLE IN THE INSTANT C ASE. THE DECISION OF CIT VS. ESCORT LTD. 338 ITR WAS DISTINGUISHED BY THE HONBL E DELHI HIGH COURT IN THE CASE OF THOMOSON PRESS (INDIA) LTD. (2015) 379 ITR 222 (DEL). THE DECISION IN THE CASE OF CIT VS. TATA COMMUNICATION LTD. 251 CTR 290 (DEL) WAS IN RESPECT OF SPLITTING UP OR RECONSTRUCTION OF BUSINESS AND T HE FACTS ARE NOT RELEVANT IN THIS CASE. IN THE CASE OF CIT VS. GITWAKO FARMA (I) LTD. 332 ITR 471 (DEL), THE HONBLE DELHI HIGH COURT CONSIDERED THE CASE OF RAD HA SOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC). THE HONBLE COURT HELD THA T SINCE EACH YEAR ASSESSMENT IS INDEPENDENT OF THE PREVIOUS YEAR, THE RE WAS NO BAR AGAINST THE REVENUE TO EXAMINE THE CASE OF THE ASSESSEE FROM TH E LEGAL PERSPECTIVE. IN THE INSTANT CASE ALSO, THE MATTER IS NOT CONFINED TO TH E FACTUAL MATRIX BUT ON THE LEGAL ISSUES CONCERNING THE CLAIM MADE U/S 80IA/80I /80HH. THE LD. DR ALSO TRIED TO DISTINGUISH THE FOLLOWING DECISIONS: I) SAMRUDHI INDIA LTD. VS. JCIT (2011) 12 TAXAMNN.C OM 231 (PUNE) II) KRISHAK BHARATI CORPORATION LTD. VS. DCIT (2012 ) 23 TAXMANN.COM 265 III) ROHITASAVA CHAND VS. CIT (2008) 306 ITR 242 (D EL) IV) ANUP SHARMA VS. ADDL. CIT (ITA NO. 161/CHD/2012 ORDER DATED 26.08.2014, ITAT CHANDIGARH) V) MEERAJ ESTATE & DEVELOPERS VS. DCIT (2014) 148 I TD 166 (AGRA TRI.) VI) K K KHULLAR VS. DCIT (2009) 116 ITD 301 (DEL) VII) DWARKADAS KESARDEO MORARKA VS. CIT (1962) 44 I TR 529 (SC) 32 ITA NOS. 4454 & 4642/DEL/2013 VIII) C. K. GANGADHARAN VS. CIT (2008) 72 TAXMAN 87 (SC) IX) CIT VS. SWAPNA ROY (2011) 331 ITR 367 (ALLAH) 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(A) ACCEPTED THAT BENEF IT OF DEDUCTION UNDER SECTION 80I/ 80IA OF THE ACT IS ADMISSIBLE ON LEAN GAS MANUFACTURED/ PRODUCED, BUT HELD THAT SUCH DEDUCTION IS ADMISSIBL E AT THE STAGE OF TWO LPG PLANTS AT VIJAIPUR AND VAGHODIA. THE CIT(A) HELD TH AT ACTIVITIES UNDERTAKEN BY THE ASSESSEE AT ITS CUSTOMER TERMINALS DID NOT CONS TITUTE 'MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING SO AS TO BE ELI GIBLE FOR DEDUCTION UNDER SECTION 80I/ 80IA OF THE ACT. AS A CONSEQUENCE OF T HE AFORESAID, THE ASSESSEE HAS BEEN DENIED DEDUCTION IN RESPECT OF PROFITS DER IVED FROM SUPPLY OF PROCESSED NATURAL GAS AT VARIOUS CUSTOMER TERMINALS , WHICH ARE NOT ROUTED THROUGH LPG PLANT. MOREOVER, SINCE DEDUCTION IS ADM ISSIBLE FOR SPECIFIED YEARS, AS A CONSEQUENCE OF THE ORDER OF THE CIT(A), DEDUCT ION 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 T ERMINAL AT WHICH SUCH PROCESSED LEAN GAS IS SUPPLIED TO THE CUSTOMER. EXT ENSIVE PROCESSING ACTIVITIES UNDERTAKEN BY THE ASSESSEE AT THE CUSTOMER TERMINAL S TO MAKE LEAN GAS AND NATURAL GAS MARKETABLE AND FIT FOR USE, CLEARLY CON STITUTE MANUFACTURE. THE CONTENTION OF THE ASSESSEE IS THAT THE CLAIM OF DED UCTION MADE BY THE ASSESSEE UNDER SECTION 80I/80IA/ 80HH ARE GENUINE AS THE SIM ILAR CLAIMS HAVE BEEN ALLOWED IN THE EARLIER YEARS BY THE REVENUE. DEDUCT ION ALLOWED IN EARLIER YEARS CANNOT BE DENIED IN SUBSEQUENT YEARS. SINCE DEDUCTI ON 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 CANN OT BE DENIED SUBSEQUENTLY. THE LD. AR MADE REFERENCE TO THE DECI SION OF THE CIT(A) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1994-95 . THEREFORE, THE CIT(A) HAS NOT TAKEN INTO ACCOUNT THE REVENUES STAND IN THE E ARLIER YEARS AND DEVIATED FROM THE SAME WITHOUT ANY SUBSTANTIAL REASONS OR EV IDENCE ON RECORD. THUS, THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE UNDER S ECTION 80I/80IA/ 80HH 33 ITA NOS. 4454 & 4642/DEL/2013 ARE GENUINE IN THIS YEAR AS WELL. GROUND NO. GROUND NO. 1 AND 2 OF THE ASSESSEES APPEAL ARE ALLOWED AND GROUND NO. 1 AND 2 OF REVENUES APPEAL ARE DISMISSED. 22. AS REGARDS TO GROUND NO. 3 OF ASSESSEES APPEAL AND REVENUES APPEAL RELATING TO INTEREST INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA, 80I AND 80HH, THE LD. AR SUBMITTED THAT INTEREST INCOME OF RS. 18711.37 LACS COMPRISED OF FOLLOWING COMPONENTS: I. INTEREST ON FIXED DEPOSITS, BONDS AND INTER-CORP ORATE DEPOSITS II. INTEREST ON EMPLOYEES LOANS AND ADVANCES III. INTEREST ON CUSTOMER OUTSTANDING MISCELLANEOUS INCOME OF RS. 926.70 LACS IS DERIVED FROM ELIGIBLE UNDERTAKING AS IT COMPRISES OF INCOME FROM SALE OF SCRAP, RECOVERY FROM EMPLOYEES FOR ELECTRICITY AND WATER CHARGES, OTHER MISCELLANEOUS RECOVERIES FROM CONTRACTORS, ETC. THE CIT(A) HELD THAT DEDUCTION IS ADMISSIBLE I N RESPECT OF INTEREST ON CUSTOMER OUTSTANDING. IN RESPECT OF INTEREST ON FIX ED DEPOSITS, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER SHOULD BE DIRE CTED TO ALLOW DEDUCTION IN RESPECT OF INTEREST ON FIXED DEPOSITS UNDER SECTION 80IA OF THE ACT, BEING DISTINCT FROM SECTION 80HH AND SPECIFICALLY IN VIEW OF THE FOLLOWING JUDICIAL PRECEDENTS: I. CIT VS. JAGDISHPRASAD M. JOSHI 318 ITR 420 (BOM. HC ) II. M/S TEMA EXCHANGERS MANUFACTURES PVT. LTD. VS. ACIT ITA NO. 415 OF 2004 (BOM. HC) WHEREIN IN CONTEXT OF DEDUCTION AVAI LABLE UNDER SECTION 80IA, THE HONBLE HIGH COURT HELD THAT INTE REST INCOME EARNED BY ASSESSEE ON FIXED DEPOSITS WITH BANK AND OTHER I NTEREST INCOME WERE ELIGIBLE FOR DEDUCTION UNDER THAT SECTION. III. CIT VS. SHAH ALLOYS LTD. 396 ITR 711 (GUJ. HC) IV. ARUL MARIAMMAL TEXTILES LTD. VS. ACIT 97 TAXMANN.CO M 298 (MAD. HC) 34 ITA NOS. 4454 & 4642/DEL/2013 V. CIT VS. HEWLETT PACKARD GLOBAL SOFT LTD. 299 CTR 11 8 (KAR. HC FULL BENCH) WHEREIN IN CONTEXT OF SIMILAR PROVISIONS OF SECTION 10A OF THE ACT, THE HONBLE HIGH COURT HELD THAT INTEREST INCO ME EARNED BY THE ASSESSEE ON SHORT TERM DEPOSITS MADE OUT OF THE SUR PLUS FUNDS WOULD BE ELIGIBLE FOR EXEMPTION UNDER SECTION 10A OF THE ACT INASMUCH AS SUCH DEPOSITS WERE MADE BY THE ASSESSEE IN THE ORDI NARY COURSE OF THE EXPORT BUSINESS. ACCORDINGLY, THE CONTENTION OF THE DEPARTMENT REGARDING TAXABILITY OF THE SAID INTEREST INCOME AS INCOME FROM OTHER SOURCES WAS REJECTED BY THE HONBLE HIGH COURT. THE LD. AR ALSO RELIED UPON THE FOLLOWING DECISIONS : I. ACIT VS. MAXCARE LABORATORIES LIMITED 92 ITD 11 (CU TTACK TRI.) II. DLF POWER LIMITED IN ITA NO. 1195/DEL/2002 (DEL. TR I.) III. BHARAT RASAYAN LTD. VS. JCIT ITA NO. 4639/DEL/2000 (DEL. TRI.) AS REGARDS TO EMPLOYEES LOANS AND ADVANCES, THE LD. AR SUBMITTED THAT THE INTEREST ON LOAN PROVIDED TO EMPLOYEES IS INEXTRICA BLY LINKED TO THE BUSINESS OF THE ASSESSEE AND CONSTITUTES BUSINESS INCOME ELIGIB LE FOR DEDUCTION. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: I. CIT VS. ELTEK SGS (P) LTD. 300 ITR 6 (DEL) II. JOYCO INDIA (P) LIMITED VS. ITO 122 TTJ 940 (DEL.) III. MARUTI UDYOG LTD. VS. DCIT 92 ITD 119 (DEL.) IV. KIRLOSKAR EBARA PUMPS LTD. VS. DCIT 138 TTJ 211 (PU NE) V. SHIPPING CORPORATION OF INDIA LTD. VS. ADDL. CIT LE X DOC ID 415851 AS REGARDS TO INTEREST ON CUSTOMER OUTSTANDING IS P ROFIT DERIVED FROM ELIGIBLE UNDERTAKINGS AND ENTITLED FOR DEDUCTION UNDER SECTI ON 80IA/80I, IN DEPARTMENTS APPEAL, THE LD. AR SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY FOLLOWING DECISIONS OF HIGH COUR T: I. CIT VS. JACKSONS ENGINEERING 341 ITR 518 (DEL HC) 35 ITA NOS. 4454 & 4642/DEL/2013 II. CIT VS. ADVANCE DETERGENTS LTD. & BHARAT RASAYAN LT D. 339 ITR 81 (DEL) III. CIT VS. VIDYUT CORPN. 324 ITR 221 (BOM.) AS REGARDS TO MISCELLANEOUS INCOME, THE LD. AR SUBM ITTED THAT MISCELLANEOUS INCOME WERE INEXTRICABLY LINKED TO AND HAVE FIRST D EGREE NEXUS WITH THE PROFITS AND GAINS OF THE ELIGIBLE UNDERTAKING AND THE SAME WERE ELIGIBLE FOR DEDUCTION. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: I. CIT VS. SADHU FORGING LTD. 336 ITR 444 (DEL HC) II. CIT VS. ARVIND CONSTRUCTIONS 172 TAXMAN 5 (DEL) III. FENNER (INDIA) LTD. VS. CIT 241 ITR 803 (MAD) IV. CIT VS. MEGHALAYA STEELS LTD. 383 ITR 217 (SC) V. CIT VS. INDO SWISS JEWELS LTD. 284 ITR 389 (BOM) VI. DLF POWER LIMITED IN ITA NO. 1195/DEL/2002 (DEL) VII. ASIA INVESTMENTS LTD. VS. DCIT 90 ITD 630 (MUM) S ALE OF SCRAP VIII. ACIT VS. MAXCARE LABORATORIES LTD. 92 ITD 11 (CUTTA CK) SALE OF SCRAP IX. ACIT VS. BIOTECH MEDICALS (P) LTD. 310 ITR (AT) 47 (HYD) SALE OF SCRAP X. ITO VS. KIRAN ENTERPRISES 92 TTJ 104 (CHD.) XI. DCIT VS. CHAMAN LAL & SONS 93 TTJ 132 (ASR) 16. THE LD. DR SUBMITTED THAT THE ASSESSEE EARNED I NTEREST OF RS. 185.05 CRORES ON FIXED DEPOSITS, BONDS AND ICD ON WHICH DE DUCTION U/S 80IA HAS BEEN CLAIMED. THE LD. DR POINTED OUT THAT THE ASSESSEE F IRSTLY SUBMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE. HOWEVER, THE ASSESSEE JUSTIFIED ITS CLAIM BY RELYING ON THE DECISIONS, THE LD. DR DISTINGUISH ES THESE DECISIONS. THE LD. DR SUBMITTED THAT IN CASE OF JAGDISHPRASAD (SUPRA), THE HONBLE HIGH COURT RELIED ON THE DECISION OF DELHI HIGH COURT IN CASE OF CIT VS. ELTEK SGS P LTD. 300 ITR 6. FURTHER, IN CASE OF TEMA EXCHANGERS (SUP RA), RELIANCE WAS MADE ON JAGDISHPRASAD (SUPRA). THE LD. DR POINTED OUT THAT IN CASE OF ELTEK SGS (SUPRA), THE HONBLE APEX COURT IN CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218/183 TAXMAN 349 WAS NOT CONSIDERED. FURTHER, IN CASE OF SHAH ALLOYS, LANDMARK DECISIONS OF THE HONBLE SUPREME COURT IN CASE OF STERLING FOODS 237 36 ITA NOS. 4454 & 4642/DEL/2013 ITR 579 AND LIBERTY INDIA (SUPRA) HAVE NOT BEEN CON SIDERED. THE FACTS IN THE CASE OF ARUL MARIAMAL TEXTILES (MADRAS), RELIED UPO N BY THE LD. AR ARE DIFFERENT FROM THE FACTS OF THE INSTANT CASE AND HENCE, DISTI NGUISHABLE. IN THE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579, IT WAS HELD BY THE HONBLE SUPREME COURT THAT THERE MUST BE FOR THE APPLICATION OF TH E WORDS DERIVED FROM, A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. THAT DECISION WAS IN REFERENCE OF DEDUCTION CLAIMED UNDER SECTION 80HH OF THE ACT. THE ISSUE WAS RAISED WHETHER THE SAID RATIO IS APPLICABLE IN THE CASE OF EDUCATION CLAIMED UNDER SECTION 80IA/80IB. THIS CON TROVERSY WAS PUT TO REST BY THE HONBLE SUPREME COURT IN CASE OF LIBERTY IND IA (SUPRA) BY HOLDING THAT IT IS EVIDENT THAT SECTION 80IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINES S. THE WORDS DERIVED FROM IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS A TTRIBUTABLE TO. IN OTHER WORDS, BY USING THE EXPRESSION DERIVED FROM, PARL IAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. IN THIS CASE, THE ASSESSEE HAS EARNED INTEREST INCOME ON FS, ICD AND BONDS. THE SOURCE OF FIRST DEGREE IS FD, ICD AND BONDS AND THEREFORE, THE INTEREST INCOME IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE LD. DR RELIED UPON THE FOLLOWING D ECISIONS: I. LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) II. CIT VS. RITESH INDUSTRIES LTD. (2005) 142 TAXMA N 551 (DEL.) III. CIT VS. STERLING FOODS (1999) 104 TAXMAN 204 ( SC) IV. CAMBAY ELECTRICAL SUPPLY IN. CO. LTD. VS. CIT 1 13 ITR 673 (SC) V. INDIA COMMET INTERNATIONAL VS. ITO (2013) 354 IT R 673 (SC) VI. CIT VS. MENON IMPEX (P.) LTD. 259 ITR 403 (MADR AS) VII. CIT VS. NAGESH KNITWARE LTD. (2012) 345 ITR 1 35 (DEL.) VIII. ESSAR POWER LTD. VS. ADDL. CIT (2013) 32 TAXM ANN.COM 346 (MUM. TRI.) 37 ITA NOS. 4454 & 4642/DEL/2013 17. AS REGARDS TO INTEREST ON EMPLOYEE LOANS AND AD VANCES, THE LD. DR SUBMITTED THAT THE FIRST DEGREE OF SOURCE OF INTERE ST INCOME IS FROM LOANS GIVEN TO EMPLOYEES AND IS NOT DERIVED FROM INDUSTRIAL UND ERTAKING. HENCE, THE RATIO OF LIBERTY INDIA (SUPRA) READ WITH STERLING FOODS ( SUPRA) IS SQUARELY APPLICABLE. FURTHER, RELIANCE IS PLACED ON THE DECISION OF ESSA R POWER LTD. VS. ADDL. CIT (2013) 32 TAXMANN.COM 346 (MUM. TRI.) WHEREIN IT HA S BEEN HELD BY THE TRIBUNAL THAT THE ASSESSEE IS NOT ENTITLED TO THE D EDUCTION U/S 80IA OF THE ACT ON THE INTEREST ON EMPLOYEES LOAN AND ADVANCES, INT EREST ON MARGIN MONEY AND INTEREST INCOME DUES TOWARDS INCOME TAX REFUND ADJU STMENT FROM ESSAR POWER LTD. 18. AS REGARDS TO MISC. INCOME, THE LD. DR SUBMITTE D THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT SCRAP SALE WAS DERIVED FROM INDUSTRIAL UNDERTAKING. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS TO MISC. INCOME, TH E ASSESSEE HAS PRODUCED ALL THE RELEVANT EVIDENCE AS REGARDS TO HOW THE SCRAP S ALE IS DERIVED FROM THE INDUSTRIAL UNDERTAKING. AS REGARDS TO INTEREST ON F IXED DEPOSITS, VARIOUS DECISIONS OF THE HONBLE HIGH COURT CATEGORICALLY H ELD 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 SHOU LD BE DENIED TO THE ASSESSEE. THE CASE LAWS GIVEN BY THE REVENUE IN FAC T 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 OFFIC ER 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 CONCER NED, THE INTEREST ON LOAN PROVIDED TO EMPLOYEES IN OUR OPINION IS INEXTRICABL Y LINKED TO THE BUSINESS OF THE ASSESSEE AND CONSTITUTES BUSINESS INCOME ELIGIB LE FOR DEDUCTION. AS REGARDS TO INTEREST ON CUSTOMER OUTSTANDING IS PROFIT DERIV ED FROM ELIGIBLE UNDERTAKINGS AND ENTITLED FOR DEDUCTION UNDER SECTION 80IA/80I, IN DEPARTMENTS APPEAL, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIO US DECISIONS OF HIGH COURT. AS REGARDS TO MISCELLANEOUS INCOME, THE SAID INCOME IS INEXTRICABLY LINKED TO AND HAVE FIRST DEGREE NEXUS WITH THE PROFITS 38 ITA NOS. 4454 & 4642/DEL/2013 AND GAINS OF THE ELIGIBLE UNDERTAKING AND THE SAME WERE ELIGIBLE FOR DEDUCTION. THEREFORE, GROUND NO. 3 IN ASSESSEES APPEAL IS ALL OWED AND GROUND NO. 3 IN REVENUES APPEAL IS DISMISSED. 20. AS REGARDS TO GROUND NO. 4 OF THE ASSESSEES AP PEAL RELATING TO INTEREST TRANSFERRED TO EXPENDITURE DURING CONSTRUCTION LI ABLE TO BE EXCLUDED FROM ELIGIBLE PROFITS, THE LD. AR SUBMITTED THAT WHILE E XCLUDING INTEREST AND MISCELLANEOUS INCOME FOR DEDUCTION UNDER SECTION 80 I/80IA OF THE ACT, THE ASSESSING OFFICER HAS EXCLUDED GROSS INTEREST AND M ISCELLANEOUS INCOME. OUT OF INTEREST INCOME OF RS. 18711.37 LACS AND MISCELLANE OUS INCOME OF RS. 926.70 LACS, INTEREST OF 21.06 LACS AND MISCELLANEOUS INCO ME OF RS. 170.01 LACS ARE REDUCED FROM INCOME AND TRANSFERRED TO IEDC A/C AND CAPITALIZED AND BALANCE INTEREST INCOME OF RS. 18690.31 LACS AND BALANCE MI SCELLANEOUS INCOME OF RS. 756.69 LACS WAS CREDITED TO THE P&L ACCOUNT. THE AF ORESAID ISSUE OF CAPITALIZATION HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 22.01.2010 FOR THE A.Y. 1997-98. THE TRIBUNAL FOLLOWED THE DECISION OF THE HONBLE SUPRE ME COURT IN CASE OF CIT VS. BOKARO STEEL 236 ITR 315 AND KARNAL COOPERATIVE SUG AR MILLS 243 ITR 2. THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) SHOULD HAV E DIRECTED THE ASSESSING OFFICER TO REDUCE THE AFORESAID INTEREST AND MISCEL LANEOUS INCOME CAPITALIZED WHILE EXCLUDING THE SAME FROM THE ELIGIBLE PROFITS. 19. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT O UT OF INTEREST INCOME OF RS. 18711.37 LACS AND MISCELLANEOUS INCOME OF RS. 926.7 0 LACS, INTEREST OF 21.06 LACS AND MISCELLANEOUS INCOME OF RS. 170.01 LACS AR E REDUCED FROM INCOME AND TRANSFERRED TO IEDC A/C AND CAPITALIZED AND BALANCE INTEREST INCOME OF RS. 18690.31 LACS AND BALANCE MISCELLANEOUS INCOME OF R S. 756.69 LACS WAS CREDITED TO THE P&L ACCOUNT BY THE ASSESSEE WHICH W AS PLACED BEFORE THE REVENUE AUTHORITIES. THE AFORESAID ISSUE OF CAPITAL IZATION HAS BEEN DECIDED IN 39 ITA NOS. 4454 & 4642/DEL/2013 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 FOLLO WED THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF CIT VS. BOKARO STE EL 236 ITR 315 AND KARNAL COOPERATIVE SUGAR MILLS 243 ITR 2. THEREFORE, THE C IT(A) SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO REDUCE THE AFORESAID INTER EST AND MISCELLANEOUS INCOME CAPITALIZED WHILE EXCLUDING THE SAME FROM THE ELIGI BLE PROFITS WHICH THE CIT(A) FAILED TO DO SO. THEREFORE, WE ARE REMANDING BACK T HIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO REDUCE THE AFORESAID INTEREST AND MISCELLANEOUS INCOME CAPITALIZED WHILE EXCLUDING TH E SAME FROM THE ELIGIBLE PROFITS. THUS, GROUND NO. 4 OF THE ASSESSEES APPEA L IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 21. AS REGARDS TO GROUND NO. 5 OF THE ASSESSEES AP PEAL RELATING TO AMORTIZATION OF LEASEHOLD RENT, THE LD. AR SUBMITTE D THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE HONBLE DELHI HIGH COUR T IN ASSESSEES OWN CASE FOR A.Y. 1996-97. 22. THE LD. DR RELIED UPON THE DECISION OF THE HON BLE DELHI HIGH COURT, ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE IS DECIDED BY THE HO NBLE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR A.Y. 1996-97 AGAINST THE AS SESSEE. THE FACTS ARE IDENTICAL IN THE PRESENT ASSESSMENT YEAR RELATING T O THIS ISSUE. THEREFORE, GROUND NO. 5 OF THE ASSESSEES APPEAL IS DISMISSED. 24. AS REGARDS TO GROUND NO. 4 OF REVENUES APPEAL RELATING TO HORTICULTURE EXPENSES, THE LD. DR SUBMITTED THAT THE SAID EXPENS ES ARE RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. THE LD. DR RELIED UPON TH E ASSESSMENT ORDER. 25. THE LD. AR SUBMITTED THAT DURING THE RELEVANT P REVIOUS YEAR, THE ASSESSEE INCURRED HORTICULTURE EXPENSES AMOUNTING T O RS. 85,21,221/- COMPRISING OF EXPENDITURE INCURRED, INTER ALIA, ON PLANTING OF TREES, MAINTENANCE OF LAWNS AND AREAS IN THE CLOSE VICINIT Y OF THE OFFICES/ PLANTS OF 40 ITA NOS. 4454 & 4642/DEL/2013 THE ASSESSEE IN ACCORDANCE WITH THE MANDATE OF THE GOVERNMENT. THE LD. AR SUBMITTED THAT THE ASSESSEE IS PRIMARILY ENGAGED IN THE BUSINESS OF EXPLORATION, PRODUCTION AND DISTRIBUTION OF GAS. IN ORDER TO CONDUCT SUCH BUSINESS ACTIVITIES, THE ASSESSEE REQUIRES VARIOUS REGULATORY APPROVALS INCLUDING ENVIRONMENTAL CLEARANCES. FURTHER, BEING A GOVERNMENT COMPANY, THE ASSESSEE IS BOUND TO FOLLOW POLICIES WHICH ARE FLOATED BY THE GOVERNMENT FROM TIME TO TIME. IN TERMS OF THE APPLICABLE POLLU TION CONTROL LAWS, IT IS MANDATORY FOR THE ASSESSEE COMPANY TO EXPEND CERTAI N AMOUNT EACH YEAR ON HORTICULTURE, I.E., PLANTATION OF TREES AND OTHER A CTIVITIES IN ORDER TO MINIMIZE ENVIRONMENTAL HAZARDS, BEFORE THE RELEVANT AUTHORIT IES ACCORD VARIOUS ENVIRONMENTAL CLEARANCES TO THE ASSESSEE. THE LD. A R FURTHER POINTED OUT THAT UNLESS THE ASSESSEE HAS, IN FACT, INCURRED EXPENDIT URE ON HORTICULTURE, THE ASSESSEE WOULD NOT BE ABLE TO OBTAIN THE EXPENDITUR E IS A PRE-CONDITION FOR CARRYING ON OF BUSINESS AND IS THUS EXPENDITURE INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. THE L D. AR MADE REFERENCE OF THE APPROVALS GRANTED BY VARIOUS REGULATORY AUTHORITIES AS FOLLOWS: A) OFFICER MEMORANDUM DATED 30.03.1992 ISSUED BY MI NISTRY OF ENVIRONMENT AND FORESTS FOR SETTING UP OF UP PETROL EUM COMPLEX B) LETTER DATED 29.04.1992 WRITTEN BY THE ASSISTANT INSPECTOR GENERAL OF FORESTS TO THE SECRETARY, DEPARTMENT OF FORESTS, GO VERNMENT OF U.P., INTIMATING THE DIVERSION OF 35.52 HECTARES OF FORES T LAND FOR CONSTRUCTION OF GAS- BASED PETROCHEMICAL PROJECT BY THE ASSESSEE IN ETAW A DISTRICT, SPECIFICALLY REQUIRED THE ASSESSEE TO UNDERTAKE COMPENSATORY PL ANTATION TO BE RAISED FOR EQUIPMENT NON-FOREST LAND, WHICH WILL BE NOTIFIED A S PROTECTED FORESTS UNDER THE INDIAN FORESTS ACT. THE APPROVAL OF DIVERSION OF THE AFORESAID LAND FOR CONSTRUCTION OF THE PETRO-CHEMICAL COMPLEX OF THE A SSESSEE WAS MADE SPECIFICALLY SUBJECT TO THE AFORESAID CONDITION OF UNDERTAKING COMPENSATORY PLANTATION. C) THE MINISTRY OF ENVIRONMENT & FORESTS, GOVT. OF INDIA, WHILE GRANTING ENVIRONMENTAL CLEARANCE VIDE LETTER NO J-11011/143/ 2004-IA II(I) DT. 41 ITA NOS. 4454 & 4642/DEL/2013 12.01.2004 HAD SPECIFICALLY IMPOSED A CONDITION THA T GREEN BELT SHALL BE PROVIDED TO MITIGATE THE EFFECTS OF FUGITIVE EMISSI ONS ALL AROUND THE PLANT IN A MINIMUM OF 25% OF THE PLANT AREA. D) GUJARAT POLLUTION CONTROL BOARD ACCORDED CONSENT AND AUTHORIZATION UNDER THE WATER POLLUTION ACT, THE AIR POLLUTION AC T AND THE HAZARDOUS WASTE (MANAGEMENT AND HANDLING) RULES TO THE ASSESSEE COM PANY VIDE LETTER DATED 12.04.2004. THE SAID AUTHORIZATION WAS MADE SPECIFI CALLY SUBJECT TO FULFILLMENT OF CONDITIONS STIPULATED THEREUNDER WHICH INTER ALI A, REQUIRED THE ASSESSEE COMPANY TO INSTALL AND OPERATE AIR POLLUTION CONTRO L SYSTEM IN ORDER TO ACHIEVE NORMS PRESCRIBED IN THE SAID LETTER. THE LD. AR SUBMITTED THAT THE AFORESAID EXPENDITURE IS REQUIRED TO BE INCURRED AS A MEASURE OF RESTORING THE ENVIRONMENTA L IMPACT RESULTING FROM THE ACTIVITIES OF THE ASSESSEE, AND FOR THAT REASON; TO O, THE SAME IS AN ALLOWABLE BUSINESS DONATION. THE EXPENDITURE ON HORTICULTURE EXPENSES AMOUNTING TO RS. 85,21,221 WAS REVENUE EXPENDITURE AND NOT CAPITAL I N NATURE, INASMUCH AS, AS A RESULT OF THE AFORESAID EXPENDITURE, THERE IS NEI THER THE ACQUISITION OF ANY CAPITAL ASSET NOR ANY ENDURING BENEFIT TO THE ASSES SEE IN THE CAPITAL FIELD. THE AFORESAID EXPENDITURE HAS BEEN INCURRED PURELY AS A MATTER OF STATUTORY OBLIGATION AND AS A CONDITION PRECEDENT TO CONDUCT ITS BUSINESS. FURTHER, THE ASSESSEE HAS TO INCUR SUCH EXPENSES ON A CONTINUING BASIS IN ORDER TO COMPLY WITH THE CONDITIONS PUT BY VARIOUS APPROVALS AND TO MINIMIZE THE IMPACT OF ITS BUSINESS ACTIVITIES ON THE ENVIRONMENT. BEING SO, T HE LD. AR SUBMITTED THAT THE AFORESAID EXPENDITURE IS LIABLE TO DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: I. SRI VENKATA SATYANARAYANA RICE MILL VS. CIT 223 ITR 101 (SC) II. CIT VS. D.T.T.D.C. LTD. 350 ITR 1 (DEL.) III. CIT VS. MADRAS REFINERIES LTD. 266 ITR 170 (MAD.) IV. CIT VS. INDIA RADIATOR LTD. 236 ITR 719 (MAD.) V. GUJARAT GUARDIAN LTD. VS. DCIT ITA NO. 3214/DEL/201 3 (DEL. ITAT) VI. AIRPORT AUTHORITY OF INDIA VS. CIT 340 ITR 407 (DEL HC) 42 ITA NOS. 4454 & 4642/DEL/2013 26. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE HORTICULTURE EXPENSES ON P LANTING OF TREES, MAINTENANCE OF LAWNS AND AREAS IN THE CLOSE VICINIT Y OF THE OFFICES/ PLANTS OF THE ASSESSEE IN ACCORDANCE WITH THE MANDATE OF THE GOVERNMENT AND THE ASSESSEE HAS TO COMPLY WITH THE GOVERNMENT REGULATI ONS FOR ENVIRONMENTAL CAUSE. THUS, THE CIT(A) HAS GIVEN A CATEGORICAL FIN DING WHILE ALLOWING THESE EXPENSES. GROUND NO. 4 OF REVENUES APPEAL IS DISMI SSED. 27. AS REGARDS TO GROUND NO. 5 OF THE REVENUES APP EAL RELATING TO DEFERRED REVENUE EXPENDITURE, THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN ALLOWING THE SAID EXPENDITURE. 28. THE LD. AR SUBMITTED THAT THE ASSESSEE PAID A S UM OF RS. 72,000/- TO TATA ECONOMIC CONSULTANCY FOR CONDUCTING MARKET SUR VEY TO ASSESS THE DEGREE AND EXTENT OF UTILIZATION OF ADDITIONAL ETHYLENE PR OPOSED TO BE PRODUCED BY THE ASSESSEE AT UP PETROCHEMICALS PROJECT. THE SAID PRO JECT WAS INTENDED AT EXPANDING THE EXISTING BUSINESS OF THE ASSESSEE OF PRODUCTION, PROCESSING, TRANSMISSION AND DISTRIBUTION OF VARIOUS GASES WHIC H ARE CAPABLE OF BEING USED AS INDUSTRIAL OR HOUSEHOLD FUEL. IT IS SETTLED LAW THAT REVENUE EXPENDITURE INCURRED BY AN EXISTING BUSINESS FOR EXPANSION OR S ETTING UP OF NEW UNIT IN THE SAME BUSINESS IS ALLOWABLE BUSINESS DEDUCTION. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: I. CIT VS. PRIYA VILLAGE ROADSHOWS LTD. 332 ITR 594 (DEL) II. INDO RAMA SYNTHETICS (I) LTD. 333 ITR 18 (DEL) III. JAY ENGINEERING WORKS LTD. VS. CIT 311 ITR 405 (DEL) IV. CIT VS. MONNET INDUSTRIES LTD. 221 CTR 266 (DEL ) V. PREM SPINNING AND WEAVING MILLS CO. LTD. VS. CIT 98 ITR 20 (ALL) VI. CIT VS. ALEMBIC GLASS INDUSTRIES LTD. 103 ITR 7 15 (GUJ) 43 ITA NOS. 4454 & 4642/DEL/2013 VII. CIT VS. SHAH THEATRE PVT. LTD. 169 ITR 499 (R AJ) VIII. CIT VS. HINDUSTAN MACHINE TOOLS LTD. 175 ITR 212 (KAR) IX. CIT VS. GHANASHYAM MACHINE TOOLS LTD. LEX ID 39 0033 (GUJ) X. DCIT VS. SAMTEL COLOR LTD. (ITA NO. 4623 & 4624/ DEL/2001 (DEL ITAT) XI. RAYMOND LIMITED VS. JCIT ITA NO. 6243/BOM/1995 (MUM ITAT) XII. HAVELLS INDIA LTD. VS. ADDL CIT ITA NO. 1300/D EL/2010 (DEL ITAT) 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT E XPENDITURE INCURRED ON MARKET SURVEY TO ASSESS THE DEGREE AND EXTENT OF UTILIZATI ON OF ADDITIONAL ETHYLENE PROPOSED TO BE PRODUCED BY THE ASSESSEE IS RELATED TO THE BUSINESS RELATED. THUS, REVENUE EXPENDITURE INCURRED BY AN EXISTING B USINESS FOR EXPANSION OR SETTING UP OF NEW UNIT IN THE SAME BUSINESS IS ALLO WABLE BUSINESS DEDUCTION. THEREFORE, THE CIT(A) RIGHTLY ALLOWED THE SAID EXPE NDITURE. GROUND NO. 5 OF THE REVENUES APPEAL IS DISMISSED. 30. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26TH DAY OF OCTOBER, 2020 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 26/10/2020 PRITI YADAV, SR. PS /R.N* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 44 ITA NOS. 4454 & 4642/DEL/2013 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK