ITAT : Manufacturing pan-masala with excessive carcinogenic substance "prohibited by law"; Disallows expenses u/s 37

Ahmedabad ITAT invokes Explanation 1 to Sec. 37(1), disallows cost of production of goods incurred by assessee (manufacturer of pan masala) which were found to containing magnesium carbonate, a known carcinogenic substance, in excess of permissible limits; ITAT notes that  in terms of a court order under the Prevention of Food Adulteration Act, the goods had to be destroyed, thus holds that expenditure for making this product was something "prohibited by law"; Observes that "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", thus holds expenditure on manufacturing such products whether deliberately or inadvertently, cannot be allowed as deduction; Rejects assessee’s contention that no penalty, etc. was imposed on it, observes that "... 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"; Further remarks that "What is even more disturbing is the indifferent attitude to the assessee to the possible damage their products could have caused, and, without any remorse or regret in his conduct, claim business deduction of expenses incurred ...":ITAT