AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 338
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding the same as erroneous and prejudicial to the interests of revenue for the reason that the assessee is engaged in production of cosmetic articles listed in the Eleventh Schedule. For this, the assessee has raised various grounds which are argumentative and exhaustive, hence need not be reproduced. 3. Brief facts are that original assessment was framed by the Assessing Officer for the relevant assessment year 2011- 12 u/s.143(3) of the Act vide order dated 20.03.2014. The assessee is engaged in manufacturing of food products, chemicals and the assessee company is also engaged in trading of cosmetics as noted by the Assessing Officer in assessment order. The assessee made claim of deduction for an amount of Rs.1274.33 lakhs comprising of sum of Rs.1197.94 lakhs claimed as revenue expenditure and a sum of Rs.76.39 lakhs as capital expenditure u/s.35(2AB) of the Act. The Assessing Officer completed assessment after making two disallowances of Rs.7,98,37,813/- u/s.36(1)(ii) and Rs.1,19,70,421/- u/s.14A of the Act. The Assessing Officer, however, allowed claim of the assessee u/s.35(2AB) of the Act. 4. The PCIT, on verification of assessment records noted that assessment order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ufacturing cosmetic items, but the company is manufacturing only 'personal care items', but, the PCIT has not accepted contention of the assessee and held the assessment order as erroneous and prejudicial to the interests of revenue by observing in para 5.3 to 5.7 as under:- '5.3 The assessee has submitted that it is not manufacturing Cosmetic items. It is stated that the company is manufacturing personal care Items. However, such contention is not correct and hence not acceptable. Production Manufacture of cosmetic items is admitted by the assessee itself, which is evident from its Director's Report dated 7.9.2011, for the year ended 31.3.2011, wherein there is clear mention regarding production of 'Hair Colour Cosmetics', in addition to other cosmetic products, in form of skin care, Deodrants and hair care products etc. Such report, as referred to and reproduced in para 2.3 above, was brought to the notice of the assessee, vide that notice dated 5.2.2016, issued u/s 263 of the Act, to the assessee. As may be noticed, the assessee has remained silent with regard to such fact admitted in its case, in the said Director's report. Under these circumstances, having....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has allowed such deduction/relief erroneously, in the case of the assessee, for the A.Y 2011-12. The case of the assessee is squarely covered under the provisions of Clause (a) & (b) of Explanation 2 to Section 263 of the Act, inserted vide Finance Act, 2015 w.e.f 1.6.2015, which read as under :- Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; 5.6 In this context, it is further pertinent to keep in mind the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd. vs CIT (2000), 243 ITR 83, relied on by the assessee, Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests....
X X X X Extracts X X X X
X X X X Extracts X X X X
....produced as under:- "I. Notice u/s.142(1) dated 03.08.2012 issued by the Assessing Officer requiring the appellant to submit nature of exemption / deduction claimed and the relevant documents and audit reports in support of such exemption / deduction (Page 16 of Paper Book) II. Notice uls.142(1) dated 14.11.2013 issued by the Assessing Officer requiring the appellant to submit the approval for claim of deduction u/s.35D, Form 3CM, Form 3CL etc. (Page 17 of Paper Book)." The learned counsel also filed following details which were filed before the Assessing Officer during the course of assessment proceedings:- I) Certificate of recognition of in-house R&D Units of the appellant by the Department of Scientific & Industrial Research (DSIR) bearing No.TU-IV/2518/2009 dated 30.09.2005. II. Certificate of renewal of recognition of in-house R&D Units of the appellant by the Department of Scientific & Industrial Research (DSIR) bearing No.TU-IV/2008/RDI/25I8 dated 29.04.2008 Ill. Certificate of registration of R&D Units of the appellant with the Department of Scientific & Industrial Research (DSIR) bearing No.TU-IV/2518/2009 dated 24.062009 fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer has correctly allowed deduction u/s.35(2AB) of the Act and details of products manufactured by the assessee for which research was conducted during the year and product was in the nature of 'personal care' and not cosmetics. 9. On the other hand, learned CIT DR, Mr.R.Mohan Reddy relied on written submissions filed by the Department on 03.11.2021 and particularly filed by Mr. M. Rajan, CIT DR. He referred to the written submissions and argued that issue of assumption of jurisdiction for revision u/s.263 of the Act raised by the assessee is not in favour of the assessee for the reason that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. For this, he relied on the case law of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd.(supra). Further, he relied on the decision of Hon'ble High Court of Allahabad in the case of M/s. Swarup Vegetable Products Vs CIT (187 ITR 412),wherein it is held that when the Assessing Officer accepted the assessee's claim without making proper enquiries, the Commissioner acting under section 263 of the Act, was justified in setting aside the assessment order. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PCIT has observed that, at page 5 of the Director's Report dated 07.09.2011 relevant to the AY, it was stated as follows: "Personal care division has contributed about 63% to the turnover and your Company's personal care business is focused on providing branded consumer goods under the broad categories of Hair Care, Skin Care, Deodorants, Hair Colour Cosmetics and strategic distribution arrangements which address various consumer needs including look and feeling their best at an affordable rate". (Emphasis supplied) In view of this, he argued that admissions of the Director of the assessee company that the products clubbed under the category as 'Personal Care Products' are nothing but cosmetic products with a different nomenclature. Just because, the company calls their cosmetic products with a different category, name cannot be a reason to claim deduction u/s 35(2AB) of the Act, so long their products are undoubtedly cosmetics listed in Schedule-Xl. The term Cosmetic" is defined in section 3(aaa) of The Drugs and Cosmetics Act, 1940, as follows: "cosmetic" means any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wash your hair with the new Karthika Range of Shampoos and Hairwash powder. Hair Care: * Indica - Launched in 1995, Indica Herbal hair colour has goodness of 5 herbal ingredients that colours your hair safely and effectively. In 2009, brand Indica was relaunched with a new consumer insight and innovation of 70 minutes and thus Indica 10 minutes herbal hair colours was born. Men's Grooms * Bikers - Bikers brand vision Is to be an exclusive brand for all male consumers, by offering a whole range of innovative and accessible personal care products. We boost of a strong portfolio with 2-in-1 shampoo & conditioner, shower gels, body wash, beard oils and beard cream, Trust, perseverance, and winning attitude are our brand ethos. The products are curated with love and care. Skin Care & Fragrance: Spinz- When the World Cup Cricket fervour reached fever pitch in 1996, it was not just the men who were having fun. In the offices of Cavinkare, an exciting new range of deodorants and talcs for women were taking form. inspired by spin bowling, the range was called Spinz' and was launched in the markets in 1997. * Fairever - Fairever ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issued by the DSIR, the AO is prohibited from looking into the amount of admissibility of deduction. The decision relied deals with how much of the quantum out of the claim would constitute actual 'scientific expenditure'. Whereas the present case is not about the quantum expense, but about engagement in production of items specified in Schedule-Xl, which is disqualified for claim of deduction u/s 35(2AB) of the Act.Approval of DSIR is a condition prerequisite for the claim of deduction u/s 35(2AB) of the Act. Because, the assessee succeeded in obtaining approval of the DSIR quoting a different nomenclature that is not mentioned in Schedule-Xl, but ultimately engaged in products listed therein cannot be allowed to get away with the deduction specifically denied for such products. Having known fact that products are those specified in ScheduleXI, deduction can be allowed throwing away responsibility on the strength of approval obtained for research from DSIR. Approval and licence are in fact mandatory even for manufacture of cosmetics in accordance with section 18(c) of The Drugs and Cosmetics Act. However, manufacturing of Cosmetics and Toilet preparations does not qualify for dedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of inhouse R&D units of the assessee approved by DSIR bearing No. TU-IV-RD/2518/2005 dated 30.09.2005 and even certificate of renewal of recognition of in-house R&D units bearing No.2(35)/2008/RDI/2518 dated 29.04.2008. The assessee had also submitted certificate of recognition of R&D units of the assessee with DSIR bearing No.TU-IV/2518/2009 dated 24.06.2009 issued for the purpose of availing customs duty and central excise duty exemption. The assessee also submitted auditor certificate along with Form No.3CK to the DSIR. The assessee also submitted Form No.3CM issued by Ministry of Science & Technology granting approval for Research & Development facility of the assessee for the purpose of claim of deduction u/s.35(2AB) of the Act from 01.04.2009 to 31.03.2016. The assessee also submitted copy of Form No.3CL filed with Ministry of Science & Technology to the Income-tax department u/s.35(2AB) of the Act. The Assessing Officer has gone into these details, documents filed during scrutiny assessment proceedings and after examining the same allowed claim of deduction u/s.35(2AB) of the Act. In view of the above and in accordance with the provisions of section 35(2AB) of the Act, fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such form and within such time as may be prescribed." 16. Further, the learned counsel for the assesseealso drew our attention to the provisions of section 35(3), which answers the question whether approval granted by DSIR can be questioned by the Assessing Officer. This has been answered in this provision, which reads as under:- "35(3)- " If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to - (a) the Central Government, when such question relates to any activity under clauses (ii) and (iii) of sub-section (1), and its - shall be final; (b) the prescribed authority, when such question relates to any activity other than the activity specified in clause (a), whose decision shall be final." From the above, sub-section (3) of section 35, it is clear that as per clause (b), decision of DSIR will be final, because as per Rule 6 of Income Tax Rules, 1962 (herei....