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
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