TMI Blog2023 (3) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. We noted that as contended by assessee, these products were launched in recent years i.e. for and from the year 2019 and 2020 and hence, these are not relevant for consideration for assessment year 2011-12. Certificate as approved by DSIR in Form No.3CM 3CL, which categorically mentions nature of business activity of the assessee as manufacture and marketing of personal care products , which clearly proves that the assessee company is engaged in manufacture or production of articles or things, which is eligible for claim of deduction u/s.35(2AB) - Further, sub-section(3) of section 35 clearly provides that 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 should refer question to the prescribed authority and whose decision shall become final and binding. Neither the Assessing Officer nor the PCIT can sit on judgement on the approval granted by the prescribed authority i.e., DSIR, as in the present case. In the present case before us, even on assumption of jurisdiction, apart from merits as discussed above, the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 framed allowing claim of deduction u/s.35(2AB) of the Act is erroneous and prejudicial to the interests of revenue for the reason that the assessee is not eligible for claim of deduction u/s.35(2AB) of the Act for the relevant assessment year 2011-12, as the assessee company was engaged in production of articles listed in the Eleventh Schedule. The PCIT noticed from case records that the assessee company was engaged in manufacture of cosmetic item, which is listed in Eleventh Schedule and he referred to Para B(1) of the Director s Report at page 5 dated 07.09.2011 prepared for the year ended 31.03.2011, wherein observations in regard to personal care business was made as under:- 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, Deodoran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 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 regard to the provisions contained in Section 35(1) of the Act, the assessee company is thus not entitled for deduction u/s 35(2AB) of the Act. 5.4 As stated above, cosmetics and toilet preparations are mentioned at Sl.No.3 of the list of articles or things, under The Eleventh Schedule'. An assessee engaged in production or manufacture of cosmetic products, in view of the specific provisions contained in sub-section (1) to Section 35(2AB), is not entitled to deduction u/s 35(2AB). Meaning of cosmetic, as per Oxford Dictionary is substance designed to beautify skin, hair etc, ;- intended to improve appearances'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erification 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 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, wherein it was held that, an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous: It may be mentioned here that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the purpose of availing customs duty and central excise duty exemption. IV. Form No.3CK submitted by the appellant to DSIR along with annexures. V. Auditors certificate dated 15.09.2011 submitted along with Form No.3CK. VI. Form No.3CM issued by the Hon ble Ministry Science and Technology granting approval for Research and Development Facility of the appellant for the purpose of Section 35(2AB) from 01.04.2009 to 31.03.2016. VII. Form No.3CL submitted by the lIonble Ministry of Science and Technology to the Income Tax Department uls.35(2AB) of the Income Tax Act, 1961. VIII. Annual Report of the appellant for the Financial Year 2010-11. The learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous. 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. Similar view has been taken by the Hon ble Madras High Court in Jai Bharath Tanners (264 ITR 673). The Hon ble High Court of Madras in the case of Ashok Leyland Ltd Vs CIT (260 ITR 599) has held that when the Assessing Officer was required to examine claim of the assessee, but has failed to do so, the order passed by him was not only erroneous, but also prejudicial to the interest of the revenue. Further, the Hon ble Madras High Court in K. A. Ramaswamy Chettiar vs. CIT (220 ITR 657) has held that when the Officer is expected to make an enquiry of income and if he does not make an enquiry as expected, it is to be a ground to interfere with the order passed by the Assessing Officer, since such an order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 otherwise applied to, the human body or any part thereof [or cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component of cosmetic The products manufactured by the assessee are available in the website of their company, where the type and purpose of the products have been explained. Bare reading of them proves undoubtedly that their products are Shampoos with different brand names to nourish the hair, Dye to colour the hair, Powders and Creams to nourish the face and skin, Disinfectants and cleaning liquids/spray for toilet, surface and vegetable cleaning and Massage creams and other products for use at their beauty saIons. The product description ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 Fairness Cream has been created from years of knowledge and decades of listening to the needs of Indian women. Fairever contains the goodness of Saffron and Milk - two pure, perfectly safe and nourishing ingredients that have been known since time immemorial to enhance the complexion and quality of skin. Health Hygine Bacto-V - Disinfectant for Toilets and Hand Wash. Germ Flush - Toilet Cleaner Electrix - Surface disinfectant liquid Spray Saafoo - SaaFoo as a brand is committed to your food (vegetables fruits) hygiene and safety. Our range of wash are prepared with I00% food grade ingredients only and are fortified with the germicidal/antimicrobial properties of neem, turmeric, apple cider vinegar and salt. We are safe on food and tough on germs. Professional C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified 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 deduction u/s 35(2AB) of the Act, as the same are listed in Schedule-Xl.It is pertinent to note that the Hon ble Allahabad High Court in the case of The Commissioner Trade Tax Vs. Singhal Brothers, dated 28.10.2005, had an opportunity to discuss and decide whether Boroplus a product of Himani generally used in protection of skin is a medicine or cosmetic. After elaborate discussions about the definition of the term Cosmetic available in various dictionaries and with due regards to the decisions of various other courts, it was held by the Hon ble High Court that the product is cosmetic and shall be liable to tax accordingly.In the instant case, the product description and in their website clearly suggest that those products are cosmetics and toilet preparations. On the contrary, just because, the assessee categorise them with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistry 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, for the purpose of claiming deduction under the section, a company should have incurred expenditure on eligible business as approved by the prescribed authority. In the present case, prescribed authority u/s.35(2AB) of the Act is the Department of Scientific Industrial Research (DSIR) and the assessee got approval for claim of deduction u/s.35(2AB) of the Act from very same department. 14. Now, the question arises whether once the assessee is covered under approval granted by DSIR, does the Assessing Officer has any power to question the same as approval granted by DSIR under power vested under the provisions of section 35(2AB) of the Act. In our view, the Assessing Officer has rightly allowed claim of deduction u/s.35(2AB) of the Act based on Form No.3CM Form No.3CL issued by DSIR, as per provisions of section 35(2AB) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 (hereinafter the Rules ) dealing with prescribed authority for expenditure on scientific research . Sub-Rule 5A of Rule 6 of the Rules clearly states that DSIR, if satisfied will issue certificate u/s.35(2AB) of the Act and an order in writing in Form No.3CM. The relevant subrule (5A) reads as under:- (5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in subsection (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No.3CM. 17. As regards argument of the Revenue that the assessee is engaged in manufacturing of cosmetics and toilet preparations, in our view, observations of the Revenue is not based on facts. We noted the arguments of the Revenue, wherein many products cited by the Department are such as Bikers, Bacto-V, Germ Flush, Electric, Saafoo, Paaga Professional and Lav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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