GILLETTE INDIA LIMITED,SPA-65A, INDUSTRIAL AREA, BHIWADI, DISTRICT- ALWAR vs. PCIT, JAIPUR-1, JAIPUR

ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by the assessee aggrieved from the order of the Principal Commissioner of Income Tax, Jaipur-1 [ Here in after referred as Ld. PCIT ] for the assessment year 2016-17 dated 21.03.2023 which in turn arise from the order dated 31.03.2021 passed under section 143(3) r.w.s 144C(13) r.w.s. 143(3A) & 143(3B) of the Income Tax Act [ here in after “Act” ] by national National e-Assessment Centre [ here in after “NeFAC/ld. AO”].

2 Gillette India Ltd vs. PCIT 2. The assessee has marched this appeal on the following grounds:- “

2. On the facts and the circumstances of the case and in law, the Ld. PPCIT has erred by holding that employee’s contribution to PF amounting to Rs.2,59,71,570/- should have been disallowed by the AO without:- (a) appreciating that the employee contribution to provident fund amounting to Rs.2,14,97,991/- was paid by the assessee within the due date as specified in Explanation to section 36(1)(va). (b) appreciating that the employee contribution to provident fund amounting to Rs.2,14,97,991/- was paid by the assessee within the grace period as extended by EPFO Circular issued vide No. WSU/9(1) 2013/ Settlement/35631 dt. 08.01.2016. (c) considering that the payment of PF for the month of March of Rs.44,73,579/- was deposited on 16th of April 2016 due to bank holiday on 15th April.

3. On the facts and the circumstances of the case and in law, the Ld. PCIT has erred in holding that entire amount of International transaction reported in Form 3CEB of Rs.28,83,46,471/- should have been subjected to TDS u/s 195 of the Act and the difference of Rs.1,06,97,070 /- should have been disallowed by AO by:-

3 Gillette India Ltd vs. PCIT (a) failing to understand the basic difference between transactions on which TDS is to be deducted u/s 195 of the Act and the transactions that are required to be reported in Form 3CEB. (b) not appreciating that the transactions mentioned in Form 3CEB include certain amounts which are not liable for taxation u/s 195 of the Act being in the nature of business income (not having Business connection or Permanent Establishment in India) or reimbursement of expenses. (c) not considering the detailed reconciliation submitted along with documentary evidence in response to notice u/s 263 of the Act. (d) not appreciating the fact that clause 34(a) of the form only reflects the amounts on which TDS is deducted u/s 195 of the Act with regard to payments made to Non-Residents.

4. On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that no TDS was made on commission paid to directors of Rs.52,41,000/- and 30% of this amount i.e. Rs.15,72,300/- should have been disallowed u/s 40(a)(ia) of the Act by:- (a) ignoring that the TDS is deducted on Rs.44,00,000/- u/s 192 of the Act and duly deposited within the due dates. (b) not appreciating that the TDS on accrued amount of Rs.8,25,000/- is deducted and deposited in subsequent FY on payment basis u/s 192 of the Act.

5. On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that the total rent of Rs.8,74,00,000/- paid during the year should have been subjected to TDS under section 194-I of the Act and 30% of the balance amount of Rs.3,20,28,825/- on which no TDS was deducted u/s 194-I of the Act i.e. Rs.96,08,647/- should have been disallowed by AO by:- (a) not considering the basic threshold limit below which TDS is not deductible as provided u/s 194I of the Act, 1961. (b) not appreciating that on certain expenses included in rent, tax is deducted at source u/s 194C, for example, travel, logistics and transport etc. (c) not considering the party wise breakup of rent expense amounting to Rs.8,74,00,000/- and the corresponding section under which TDS was deducted submitted during proceedings u/s 263.

4 Gillette India Ltd vs. PCIT 6. On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that amount of club fees of Rs.2,08,800/- ought to be disallowed by the AO by:- (a) not considering the fact that assessee has incurred the club membership fee on account of business expediency which is an allowable expenditure u/s 37 of the Act, 1961. (b) not appreciating the submission filed in response to notice issued u/s 263 wherein it was brought to the kind attention of Ld. PCIT that aforementioned expenditure was reported under clause 21(a) of the Form 3CD only for disclosure purpose. (c) not appreciating that the reporting criteria of clause 21(a) of Form 3CD has not used the terms disallowance or inadmissible as compared to some other clauses which specifically require the tax auditor to report disallowable or inadmissible expense.

7. On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that there is under-reporting of scrap sales amounting to Rs.80,20,987/- which should have been added to the total income of the assessee by the AO by:- (a) not considering the fact mentioned under the submission filed in response to notice issued u/s 263 of the Act wherein it was submitted that sale of scrap amounting to Rs.1,29,20,987/- was duly included under schedule 18 of the audited financial statements under the head total-other operating revenues. (b) not examining the audited financial statement submitted during the course of assessment as well as submitted by tax auditors with Form 3CD.

8. On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that assessee has failed to submit the separate balance sheet and profit & loss account of eligible business along with Form 10CCB or during the course of assessment proceedings, therefore, the deduction claimed by assessee u/s 80IC is not legally allowable ignoring that separate audited balance sheet and profit & loss account was submitted in response to notice issued u/s 263 of the Act and that same is not required to be submitted along with the return. 8.1. On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that the figure of sales claimed in Form 10CCB is not tallying with the figures of sales disclosed in VAT ignoring that:- (a) deduction u/s 80-IC is available to any undertaking which has begun or begins to manufacture or produce any article or thing in 5 Gillette India Ltd vs. PCIT notified area & section does not require that entire sales should also be made in that notified area or state. (b) sales made in the state of Himachal Pradesh was only was Rs. 54 lakhs and the goods sent outside the state to other units of the assessee company for selling therefrom was Rs. 400.59 crores. 8.2 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that there was a diversion of sales and profits of non- eligible business to eligible business by:- (a) not appreciating that the net profit of eligible unit undertaking is derived from only one activity whereas the net profit of the assessee at the entity level is from multiple activities. (b) not appreciating that the total net profit ratio of the company has significantly increased in the year under consideration as compared to previous years. (c) not rebutting the explanation filed in proceedings u/s 263 that the revenue of eligible unit as compared to total revenue at entity level is a meagre 6.95% and that the deduction claimed on the profits of eligible unit as compared to total taxable income is a meagre 4.07%. 8.3 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that there was misreporting of facts in Form 3CEB ignoring that:- (a) in note 39 of audited financial statements all related party transactions has been disclosed both of domestic as well as international transactions. (b) transfer pricing audit has certified that the particulars given in the Annexure of Form 3CEB are true and correct. 8.4 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that there was a deliberate attempt of the appellant of non-disclosure by not filing Balance sheet in VAT15BS and Profit & loss account in VAT15PL with VAT returns of eligible unit to VAT authorities by not appreciating that:- (a) the separate audited financial statements of Baddi Unit (eligible unit) was filed in proceedings u/s 263. (b) filing of figures in VAT15BS and VAT15PL is optional. (c) there is no requirement under the Act to reconcile the figures from VAT return to claim deduction u/s 80IC.

6 Gillette India Ltd vs. PCIT 9. The Appellant craves leave to add to add/or or alter, amend, rescind, modify the grounds herein above and/or produce further documents before or at the time of hearing of this appeal”

3. The fact as culled out from the records is that in this case, return of income was e-filed on 29.11.2016 vide acknowledgement No. 545787771291116 declaring an income of Rs. 3,96,12,05,160/- and book profit u/s 115JB of Rs. 3,81,83,04,690/-. This case was selected for scrutiny under CASS. The statutory notice under section 143(2) of the Income Tax Act, 1961 was issued on 10.07.2017 which was duly served upon the assessee online and as well as through speed post. In compliance to the notice, the AR of the assessee company had furnished copy of ITR, Audit Report, Form-3CEB and computation of income for the year under consideration. Subsequently, notice u/s 142(1) along with a detailed questionnaire was issued on 04.11.2019 to the assessee fixing the case for hearing on 11.11.2019. During the year under consideration the assessee company was engaged in the manufacturing and sale of razors, blades, shaving systems, cartridges and other personal grooming products, tooth brushes, batteries and small electrical appliances, Mach-III and sensor blades are imported from overseas Gillette group companies and 7 Gillette India Ltd vs. PCIT sold in the domestic market. There was no change in the nature of business activities of the company as compared to earlier years. The assessee company continues to derive income from such activities. Based on the details so filed the ld. AO noted that the accounts of the assessee are audited. The audit reports in Form no. 3CD, 3CEB and other required details were furnished by the assessee. The assessee has maintained the Books of Account and other related records in an electronic form using “Fourth Shift”, and Enterprise Resource Planning based software “SAP”. The books of accounts maintained by the assessee comprise of cash book, bank book, general ledger and subsidiary ledgers like sale, purchase, debtors and creditors ledger, apart from this the assessee company maintains payroll record. Fixed asset record, stock register etc. The assessee filed details / documents on ITBA portal on various dates. On perusal of the details filed by the assesse and on a detailed deliberation the assessment in this case was finalised by making the following additions : Returned Income Rs. 3,96,12,05,160/- Add: 1. Addition on a/c of AMP expenses : Rs. 1,85,58,94,000/- 2. Addition on a/c of royalty payment : Rs. 11,83,50,107/- 3. Addition on intra group service charges payment: Rs. 22,09,573/- 4. Disallowance of Inventory Written Off : Rs. 5,98,33,389/- Total Income: Rs. 5,99,74,92,229/-

4. On culmination of assessment proceeding the case records were called for examination by the Principal Commissioner of Income Tax, Jaipur -1. On examination of the case records the PCIT noticed the following issue from the records of the assessing office:

1. On examination of the details available on record and on perusal of the details of payment of PF/ESI contributions of the employees, within the meaning of section 36(1)(va) of the Act reported by the auditors in form 3CD, it was seen that PF contributions of the employees were not deposited within the specified due date under the Provident Fund Act and should not have been deducted from income for the computation of the tax liability of the assessee. It was also noted that in the computation of income, the assessee had suo-moto disallowed the amount not paid with in grace period. For the remaining amounts, it was claimed that the same were paid within the grace period and thus not disallowable u/s 36(1)(va) of the Act. However, this contention is not acceptable. The provision of the grace period under the PF Act is for the contributions of the employer and not for the contributions of the employees collected by the assessee. Moreover the said grace period is for exemption of penalty leviable under the Provident Fund Act, which provides that in case the employer deposits the amount within the grace period no penalty under the Provident Fund Act would be levied upon it. As such this provision does not extend the due date of payment/deposit applicable so as to claim deduction u/s 36(1)(a) of the Act. Further, this grace period of five days, for late deposit of employer's contribution has also been withdrawn by EPFO Circular issued vide No WSU/9 (1) 2013/settlement/35631 dated 8.1.2016. Thus the claim of the assessee was legally incorrect and the AO should have further disallowed the amount of Rs. 25971570/- u/s 36(1)(va) read with section 2(24)(x) of the Act 2. Perusal of the record also shows that one of the main reasons for selection of the case for complete scrutiny was "large outwards remittances by the assessee and to check as to whether appropriate 9 Gillette India Ltd vs. PCIT provisions of withdrawal have been complied with." This was basically for examining the foreign remittances, reporting in form 15CA and TDS made thereon u/s 195 of the Act. It was noticed that in clause 34(a) of the Audit report Form 3CD, the Auditors had reported that the assessee had made total amount of foreign remittances of Rs 27,76,49,301/, on which TDS had been deducted u/s 195 of the Act. However, on verification of the same from the details of payments mentioned in the form 3CEB, it was noticed that the assessee had made payments of expenses to the Associate Enterprises which should have been subjected to TDS u/s 195 of the Act. As tax has been deducted at source only on Rs 277649301 u/s 195 of the Act, this implied that on balance amount of Rs. 10697070/-, no tax was deducted at source and thus the same was disallowable u/s 40(a)) of the Act.

3. The The assessee had paid commission of Rs. 52.41,000/- to the directors as claimed in ITR. In clause 34(a) of form 3CD total commission liable to TDS u/s 194H of the Act is shown at Rs 11564105/- but this amount does not include the commission paid to the directors. As per details filed by the assessee, during the course of assessment proceedings, vide reply dated 11.11.19, the payment of commission shown in clause 34(a) was to two concerns namely M/s Spencer Retails Ltd and M/s Universal enterprises. No tax was deducted at source on commission paid to directors as their names are not reflected in the list of deductees submitted by the assessee.

5. It was also noticed that as per clause 21(a) of form 3CD, there was an inadmissible claim of club fees of Rs. 2,08,800/- u/s 37 of the Act. This amount was neither been added back by the assessee in computation of business income nor was the same been disallowed by the AO.

6. It was noted that in the ITR, the assessee had disclosed income from sale of scrap at Rs 49,00,000/-, whereas, in clause 34(a) of form 3CD, the amount of scrap sale, on which TCS has been made u/s 206C, has been reported at Rs. 1,29,20,987/-. As such there is a prima facie case of under disclosure of sales of scrap by Rs 80,20,987/-. During the assessment proceedings the AO has neither questioned the said issue nor has he otherwise examined it as to why the sales of scrap have been under reported in ITR as compared to figures reported in clause 34(a) of form 3CD for amounts liable to TCS. From the facts on records it became apparent that there was under disclosure of sales of Rs 80,20,98/- resulting in to under assessment/computation of total income by this amount.

7. On examination of the ITR and other records available on system, it is observed that the assessee. had claimed a deduction of Rs 16,15,77,820/- u/s 80IC of the Act. For this purpose, the assessee had filed form 10CCB of the Act, which reflected that the assessee had a manufacturing concern at Plot No 4, Apparel park Industrial Area KhathaBhatoliKalan, Baddi Himachal Pradesh. As per claims made in the form 10CCB, the assessee had recorded sales of Rs. 144.83 crore on which a profit of Rs 53.86 crore has been earned and out of that profit, deduction @ 30 % has been claimed u/s 80TC of the Act. On verification/examination of the other details/documents filed during the course of assessment proceedings, this claim u/s. 80TC is prima-facie not admissible for the following reasons:

11 Gillette India Ltd vs. PCIT (i) One of the basic and mandatory conditions for claiming deduction u/s 801C of the Act is furnishing of Audit report in from 10CCB along with separate accounts of the eligible unit. Rule 18BBB of the Income Tax Rules, 1962( the Rules) mandates maintenance of separate accounts and submission of separate balance sheet and profit and loss account of the eligible unit along with Form 10CCB. However, on verification of the records, it is found that no separate balance sheet and profit and loss account of the eligible units are filed along with the Form 10CCB or during the course of assessment proceedings. The balance sheet and profit and loss account filed with Form 10CCB are consolidated balance sheet and profit and loss account. As such, since the mandatory condition required for claiming of deduction u/s 80IC of the Act is not fulfilled, the claim is not legally allowable. (ii) In absence of separate profit and loss account of the eligible unit, the correctness of claims made in Form 10CCB was not subject to any verification/examination. In order to ascertain the correctness of the facts related to the eligible unit, as mentioned in form 10CCB, the details/claims made by the assessee in VAT return filed for this unit were examined. The assessee had filed VAT return of the eligible unit in Form VAT-XV-A vide acknowledgement No 90190251589873 on 18.10.2016 for the period 1.4.2015 to 31.3.2016. A copy of this VAT return was filed by the assessee during the assessment proceedings, which revealed that total sales of the eligible unit were of Rs 54.41 lakh only during FY 2015-16. Clause 24(1) of VAT return clearly states that sale price received and receivable for goods sold during return period are of Rs 54,41,233/- only, which consisted taxable sales of Rs 33,02,58/-. This figure of taxable sales is further confirmed from details enclosed in form LS-1 with VAT return. As against this sale (disclosed by you before the VAT authorities), the sales claimed in form 10CCB are of Rs 144.83 crore. This figure did not tally with the figures of sales disclosed in VAT return. (iii) The VAT return further disclosed transfer of goods within or outside the state otherwise than sales are of Rs 400.95 crores. This implies that the eligible unit was mainly involved in the activities of inter unit transfers of goods. It may be seen that if the claims made by the assessee in Form 10CCB were to be accepted, then the assessee would show a Net Profit(NP) rate of 37.18%. However, the overall NP rate declared in audit report form 3CD is 17.90% only. The overall NP included a receipt of Rs 65.51 crore which was received as discontinuation facilitation income for discontinue of 'duracel’l business. If this income were to be excluded, being an extra ordinary item, the overall NP rate of non- eligible business 12 Gillette India Ltd vs. PCIT would only be 13.50% only. It was thus a clear case of diversion of sales and profits of non-eligible business to eligible business. (iv) If the claims made in VAT return were compared with the domestic transactions disclosed in from No 3CEB, it would be seen that as against inter unit transfer to goods of Rs 400.95 crores from eligible unit to non- eligible units, form 3CEB (clause 23A) shows NIL amount. Similarly in clause 24 of form 3CEB, it was reported that transactions with any eligible unit which had resulted in more than ordinary profits to an eligible business was "NIL". This showedmis-reporting of facts in Form 3CEB and that is why the out ward transactions of Rs 400.95 crores from eligible unit to non-eligible units remained unnoticed by the TPO and were not subjected to any TP adjustments by him. (v) With the VAT return, there is a mandatory requirement of filing of balance sheet in form VAT15BS and profit and loss account in form VAT15PL. It is noticed that in these two forms, filed with VAT return, the assessee had reported NIL figures for all columns of balance sheet as well as of profit and loss account. Thus, it shows a deliberate attempt not to disclose separate financial statements of the eligible unit either to the Income Tax authorities with Form 10CCB or to VAT authorities with VAT return. In view of above it was clear that the deduction claimed u/s 801C of the Act was not allowable firstly for the reason of not fulfilling the mandatory requirements of submission of separate accounts of the eligible unit as per mandate of rule 18BBB of the Act and secondly the facts on record showed no substantial profit of this unit. The AO failed to examine the case properly on this issue and did not disallow the claim causing an under assessment/computation of income by Rs 16,15,77,820/-.”

In view of the above mentioned facts, it appeared that the assessment order passed u/s. 143(3) r.w.s.144C of the Act in the case of the assessee was erroneous in so far as it is prejudicial to the interest of the revenue. Based on these observation the ld. PCIT proposed to modify the order u/s. 263 of the Act and 13 Gillette India Ltd vs. PCIT therefore, the assessee was given an opportunity of being heard to the assessee vide notice dated 28.02.2023 generated on the ITBA. The assessee filed the reply dated 09.03.2023 and on perusal of the reply the ld. PCIT noted as under :

“16. I have perused the assessment order of the AO, the reply of the assessee along with the documents placed on record. Perusal of the above documents shows the following:- (1) On going through details of PF/ESI contributions of employees, it is seen that the assessee has not deposited ESI/PF contribution of employees within the due date as prescribed in those acts. Total of such delayed amount comes out to be Rs 3,01,86,158/- which is liable to be disallowed u/s 36(1)(va) of the Act read with section 2(24)(x) of the Act. However, the assessee has itself disallowed only Rs 42,14,588/- in its computation. Thus the remaining amount Rs 2,59,71,570/- should have been disallowed by the AO. (ii) It is seen that in clause 34(a) of the audit report form 3CD the auditors have reported that the assessee has made total amount of foreign remittances of Rs 27,76,49,301/-, on which TDS has been made u/s 195 of the Act. When this fact is verified from the details of payments mentioned in the form 3CEB it is noticed that the assessee has made total payments of expenses to the AES of Rs 28,83,46,471/- which should have been subjected to TDS u/s 195 of the Act. Thus no TDS has been made on difference of Rs 1,06,97,070/- which should have been disallowed by the AO. iii) The assessee has paid commission of Rs. 52.41,000/- to its directors as claimed in ITR. However no TDS was made on commission paid to directors. As such 30% of this amount of Rs 5241000/- i.e. Rs 15,72,300/- should have been disallowed u/s 40(a)(a) of the Act. (iv) As per ITR the assessee has paid total rent of Rs 8,74,00,000/- during the year. However in clause 34(a) of Form 3CD the total amount of rent paid as well as payment liable to TDS are shown at Rs 8,05,089/- u/s 1941A and Rs 5,45,66.086/- u/s 1941B. Thus balance amount of Rs 3,20,28,825/- of rent was paid without TDS and 30% of this amount i.e. Rs. 96,08,647/- should have been disallowed u/s. 40(a)(ia) of the Act. (v) On going through ITR it is seen that as per clause 21(a) of form 3CD, there is an inadmissible claim of club fees of Rs 2.08,800/- u/s 37 14 Gillette India Ltd vs. PCIT of the Act. This amount has neither been added back by the assessee in computation of business income nor has the same been disallowed by the AO. Thus the amount of Rs 2,08,800/- ought to be disallowed and added back to the income of the assessee. (vi) Ongoing through ITR and other details furnished by the assessee it is seen that the assessee has disclosed income from sale of scrap at Rs 49,00,000/-, whereas, in clause 34(a) of form 3CD, the amount of scrap sale, on which TCS has been made w/s 206C, has been reported at Rs. 1,29.20,987/-. Thus,difference of Rs 80,20,987/- is under reporting of scrap sale by the assessee which should have been added to the total income of the assessee by the AO. (viii) On going through ITR and other details furnished by the assessee, it is seen that the assessee has claimed a deduction of Rs 16,15,77 820/- u/s 801C of the Act. As per claims made in the form 10CCB, the assessee has made sales of Rs. 144.83 crore on which a profit of Rs 53.86 crore has been earned and out of that profit deduction @ 30% has been claimed u/s 801C of the Act. However following anomalies have been observed with regard to the said deduction: (a) On verification of the records, it is seen that no separate balance sheet and profit and loss account of the eligible units are filed along with the form 10CCB or during the course of assessment proceedings. The balance sheet and profit and loss account filed with form 10CCB are consolidated balance sheet and profit and loss account of the assessee. As such, since the mandatory condition required for claiming of deduction u/s 801C is not fulfilled, the claim is not legally allowable. (b) The assessee has filed VAT return of the eligible unit in Form VAT- XV-A vide acknowledgement No 90190251589873 on 18.10.2016 for the period 1.4.2015 to 31.3.2016 A copy of this VAT return has been filed by the assessee during the assessment proceedings, which reveals that total sales of the eligible unit were of Rs 54.47 lakh only during FY 2015-16. As against this sale (disclosed by the assessee voluntarily before the VAT authorities), the sales claimed in form 10CCB are of Rs 144 83 crore. This figure is not tallying with the figures of sales disclosed in VAT. (c) The VAT return further discloses transfer of goods within or outside the state otherwise than sales are of Rs 400.95 crores. It means, the eligible unit was, mainly involved in the activities of inter unit transfers of goods. It may be seen that if the claims of the assessee in form 10CCB are accepted than it shows a NP rate of 37.18%, whereas the overall NP rate declared in audit report form 3CD is 17.90% only. The overall NP of the assessee included a receipt of Rs 65.51 crore received as discontinuation facilitation income for discontinue of its duracell business. If this income is excluded. being an extra ordinary item, the overall NP rate of non-eligible business is just 13,50% only.

15 Gillette India Ltd vs. PCIT This points to diversion of sales and profits of non-eligible business to eligible business. (d) If the claims made in VAT return are compared with the domestic transactions disclosed in from No 3CEB, it may be seen that as against inter unit transfer to goods of Rs 400.95 crores from eligible unit to non- eligible units, form 3CEB (clause 23A) shows NIL amount. Similarly in clause 24 of form 3CEB, the assessee has again reported that transactions with any eligible unit which has resulted in more than ordinary profits to an eligible business are also reported at "NIL" This shows clear mis- reporting of facts in form 3CEB and that is why the out ward transactions of Rs 400.95 crores from eligible unit to non- eligible units remained unnoticed by the TPO and were not subjected to any TP adjustments by him. (e) With the VAT return, there is a mandatory requirement of filing of balance sheet in form VAT 15BS and profit and loss account in farm VAT 15PL. It is noticed that in these two forms, filed with VAT return, the assessee has reported NIL figures for all columns of balance sheet as well as of profit and loss account. Thus, it is shows a deliberate attempt of the assessee not to disclose separate financial statements of the eligible unit neither to the Income Tax authorities with form 10CCB nor to VAT authorities with VAT return." Thus on the basis of above facts, the deduction claimed u/s 801C by the assessee should have been disallowed by the AO.

1.

2. In the present case, the Ld. PCIT at Para-16, Pg 18 to 20 held the order of AO erroneous on following issues:- (i) Delay in deposit of employees contribution to PF (ii) Non-deduction of TDS on all foreign remittance (iii) Non-deduction of TDS on commission paid to directors (iv) Non-deduction of TDS on payment of rent (v) Inadmissible claim of club fees (vi) Under-reporting of scrap sale (vii) Anomaly in deduction claimed u/s 80-IC 3. It is submitted that there is no delay in deposit of employee’s contribution to PF as explained before the PCIT (Pg 9-11 of the order) and explained with reference to Ground No.2 below. There is no default 18 Gillette India Ltd vs. PCIT of non-deduction of tax at source as explained in Ground No.3, 4 and 5 below. Further this issue has been thoroughly examined by the AO in course of assessment proceeding as is evident from notice u/s 142(1) dt. 04.11.2019 and reply of the assessee dt. 11.11.2019. The payment of club fees is not inadmissible expenditure as explained to PCIT supported by the case laws mentioned at Page 13 of the order and further explained in Ground No.6 below. There is no under-reporting of scrap sale as explained at Page 14 of the order and further explained in Ground No.7 below. There is no anomaly in claim of deduction u/s 80-IC as explained to PCIT at Page 14 to 18 of the order and further explained in Ground No.8 below. This issue was also examined by the AO in course of assessment proceeding as evident from reply dt. 29.11.2019. Thus, on none of the issues raised in notice u/s 263, the order of the AO can be held to be erroneous so far as prejudicial to the interest of the revenue. In this connection reliance is placed on the following cases:- PCIT Vs. Kwality Steel Suppliers Complex (2017) 395 ITR 1 (SC) Where two views are possible and the AO has taken one view, the assessment order cannot be treated as erroneous or prejudicial to the interest of revenue. This is for the reason that while exercising the revisionary jurisdiction, the PCIT is not sitting in appeal. In the instant case, the assessee firm was constituted with two partners viz., mother and son. It stood dissolved by the operation of law in view of the death of one of the partners, i.e. the mother but the business did not come to an end as the other partners, viz., son who inherited the share of the mother continued with the business. In this situation, there was no question of selling the assets of the firm including stock-in-trade and therefore, it was not necessary to value stock-in-trade at market price. Thus, the view taken by AO in accepting the book value of the stock-in- trade was a plausible and permissible view and therefore, the PCIT could not exercise his powers u/s 263. PCIT Vs. Max India 295 ITR 282 (SC) Where two views are possible and the ITO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. When the PCIT passed the impugned order under sec. 263, two views were inherently possible on the word “profits” occurring in the proviso to s. 80HHC(3). Subsequent amendment of sec. 80HHC(3) made in the year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue and PCIT could not exercise powers under sec.

263. Malabar Industrial Co. Ltd. Vs. PCIT 243 ITR 83 (SC) A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the 19 Gillette India Ltd vs. PCIT Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent i.e. if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase ‘‘prejudicial to the interests of the Revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. Sir Dorabji Tata Trust Vs. DPCIT(E) 188 ITD 38 dt. 28.12.2020 (Mum.) (Trib.) The Hon’ble ITAT Mumbai Bench in Para 19-21 held as under:- “19. The question that we also need to address is as to what is the nature of scope of the provisions of Expln. 2(a) to s. 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the Revenue" when PCIT is of the view that "the order is passed without making inquiries or verification which should have been made".

23 Gillette India Ltd vs. PCIT AO having specifically looked into the issue before accepting the detailed submission made by the assessee, the assessment order cannot be said to be erroneous and prejudicial to the interest of revenue merely because the AO has not written the specific reasons for accepting the explanation of the assessee and therefore, invocation of powers u/s 263 was not justified. In view of above, order passed u/s 263 is illegal, bad in law and be quashed. Ground No.2 On the facts and the circumstances of the case and in law, the Ld. PPCIT has erred by holding that employee’s contribution to PF amounting to Rs.2,59,71,570/- should have been disallowed by the AO without:- (d) appreciating that the employee contribution to provident fund amounting to Rs.2,14,97,991/- was paid by the assessee within the due date as specified in Explanation to section 36(1)(va). (e) appreciating that the employee contribution to provident fund amounting to Rs.2,14,97,991/- was paid by the assessee within the grace period as extended by EPFO Circular issued vide No. WSU/9(1) 2013/ Settlement/35631 dt. 08.01.2016. (f) considering that the payment of PF for the month of March of Rs.44,73,579/- was deposited on 16th of April 2016 due to bank holiday on 15th April. Facts and Submission:-

1. 1. The Ld. PCIT at Page 18, Para 16(i) held that the total delayed payment of employee’s contribution to PF is Rs.3,01,86,158/- out of which assessee itself disallowed Rs.42,14,588/- in its computation. Hence, the remaining amount of Rs.2,59,71,570/- should have been disallowed by the AO.

2. The details of the amount of Rs.2,59,71,570/- as given at Page 10 of the order is as under:- S. No. Amount (INR) Due Date of Actual Date of Delay in Deposit Deposit Days 1 41,90,834/- 15.05.2015 18.05.2015 3 days 2 42,07,642/- 15.07.2015 16.07.2015 1 day 3 42,67,718/- 15.10.2015 16.10.2015 1 day 4 44,14,532/- 15.12.2015 18.12.2015 3 days 5 44,17,265/- 15.01.2016 20.01.2016 5 days 6 44,73,579/- 15.04.2016 16.04.2016 1 day Total 2,59,71,570/- From the above it can be noted that the delay is between 1 day to 5 days. As per Paragraph 38(1) of EPF Scheme, 1952 read with Para 5.1.3 of manual of accounting procedure, a grace period of 5 days is allowed to remit the contribution. This has been withdrawn vide order dt. 08.01.2016 (PB 24) to apply from February, 2016 (contribution for the month of January, 2016 and payable in the month of February, 2016). Thus, where delay is upto 5 days, the same is treated as paid within due date prescribed under the relevant statute. In the present case, the amount mentioned at S. No.1 to 5 is paid within the grace period of 5 days and therefore the same having been paid within due date cannot be disallowed u/s 36(1)(va) of the Act. For this proposition reliance is placed in the case of PCIT Vs. Hind Filter Ltd. [2018] 90 Taxmann.com 51 (Bom.), CIT Vs. Rambal (P) Ltd. [2018] 96 Taxmann.com 170 (Madras) and CIT Vs. Bharat Hotel Limited [2019] 103 Taxmann.com 295 (Delhi) where it is held that contribution made after the due date of the relevant fund but within the grace period allowed under the relevant statute is to be allowed as deduction. So far as contribution for the month of March, 2016 payable on 15.04.2016 but paid on 16.04.2016 is concerned, it can be noted that the cheque was sent for clearing on 15.04.2016 but the same cleared from the bank on 16.04.2016. Otherwise also, 15th April was bank holiday (PB 25) and therefore amount cleared on 16.04.2016 is within due date as per section 10 of General Clauses Act, 1977.

3. Thus the employee’s contribution to PF having been deposited within the due date of the relevant statute, the same cannot be disallowed u/s 36(1)(va) of the Act and therefore the order passed u/s 263 on this issue is not sustainable in law. Ground No.3 On the facts and the circumstances of the case and in law, the Ld. PCIT has erred in holding that entire amount of International transaction reported in Form 3CEB of Rs.28,83,46,471/- should have been subjected to TDS u/s 195 of the Act and the difference of Rs.1,06,97,070 /- should have been disallowed by AO by:-

25 Gillette India Ltd vs. PCIT (e) failing to understand the basic difference between transactions on which TDS is to be deducted u/s 195 of the Act and the transactions that are required to be reported in Form 3CEB. (f) not appreciating that the transactions mentioned in Form 3CEB include certain amounts which are not liable for taxation u/s 195 of the Act being in the nature of business income (not having Business connection or Permanent Establishment in India) or reimbursement of expenses. (g) not considering the detailed reconciliation submitted along with documentary evidence in response to notice u/s 263 of the Act. (h) not appreciating the fact that clause 34(a) of the form only reflects the amounts on which TDS is deducted u/s 195 of the Act with regard to payments made to Non-Residents. Facts and Submission:-

1. 1. The Ld. PCIT at Pg 18, Para 16(ii) of the order has observed that clause 34(a) of Form No.3CD (PB 120) has reported that total foreign remittance is of Rs.27,76,49,301/- on which TDS has been made u/s 195 of the Act. However, in Form No.3CEB total payment of expenses to associated enterprises is of Rs.28,83,46,471/- (PB 123-134) on which tax should have been deducted and therefore difference of Rs.1,06,97,070/- should have been disallowed by the AO.

2. It is submitted that Ld. PCIT has not appreciated the facts and the purpose of reporting in Form No.3CD and Form No.3CEB. In clause 34(a) of Form No.3CD the accountant is to report the tax deducted u/s 195 of the Act with regards to payment made to non-residents whereas in Form No.3CEB the accountant is required to report the international transaction or specified domestic transaction which may not be liable for taxation u/s 195 of the Act being in the nature of business income or reimbursement of the expenses. Hence on the basis of the difference in the figures reported in two Forms, it cannot be presumed that the same is disallowable. The assessee before the PCIT has filed a reconciliation statement along with necessary documentary evidences by way of invoice and Form No.15CA to highlight that no deduction u/s 195 is required to be made on certain amount reported in Form No.3CEB (PB 26). The Ld. PCIT without pointing out any discrepancy in the same has held that the difference of Rs.1,06,97,070/- should have been disallowed by the AO even when the tax auditor has not reported any disallowance u/s 40(a)(i) of the Act. Further AO in course of assessment proceeding has also examined this issue as per Point No.31 of notice dt. 04.11.2019 (PB 70). Hence, the disallowance proposed by the Ld. PCIT is unjustified, unwarranted and beyond the scope of section 263.

26 Gillette India Ltd vs. PCIT Ground No.4 On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that no TDS was made on commission paid to directors of Rs.52,41,000/- and 30% of this amount i.e. Rs.15,72,300/- should have been disallowed u/s 40(a)(ia) of the Act by:- (c) ignoring that the TDS is deducted on Rs.44,00,000/- u/s 192 of the Act and duly deposited within the due dates. (d) not appreciating that the TDS on accrued amount of Rs.8,25,000/- is deducted and deposited in subsequent FY on payment basis u/s 192 of the Act. Facts and Submission:-

1. 1. The Ld. PCIT at Pg 18, Para 16(iii) observed that assessee has paid commission of Rs.52,41,000/- to its directors but no tax is deducted at source. Accordingly, he held that 30% of such amount, i.e. Rs.15,72,300/- should have been disallowed u/s 40(a)(ia) of the Act.

2. It is submitted that Ld. PCIT has not looked into the facts correctly. In the Profit & Loss A/c, the assessee has claimed commission paid to directors at Rs.52,25,000/- and not Rs.52,41,000/-. In fact in reply dt. 16.12.2019 to the AO (PB 118), commission paid to the directors is wrongly totaled at Rs.52,41,000/- whereas the correct total is Rs.52,25,000/-. It may be noted that at each year end assessee made provision for commission payable to directors which is reversed on the next date and actual payment of commission is made in the next year after approval by the Board of Directors. Accordingly the commission which was provided in FY 2014-15 was paid during the year on 31.08.2015 on which tax was deducted at source (PB 89). Similarly in FY 2015-16 commission was provided at the year end which was actually paid after the approval in the meeting of Board of Directors held on 10.08.2016 (PB 53-54) and actual payment was made on 23.08.2016 when tax is deducted at source. Thus, when on the entire commission paid to the directors, tax has been deducted at source, no disallowance u/s 40(a)(ia) can be made. The tax auditor has also not reported any disallowance u/s 40(a)(ia) of the Act. Further AO in course of assessment proceedings has also examined this issue at Point No.31 of notice dt. 04.11.2019 (PB 70) and Point No.J of reply dt. 16.12.2019 (PB 118). Hence, disallowance proposed by the Ld. PCIT is unjustified, unwarranted and beyond the scope of section 263. Ground No.5 On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that the total rent of Rs.8,74,00,000/- paid during the year should have been subjected to TDS under section 194-I 27 Gillette India Ltd vs. PCIT of the Act and 30% of the balance amount of Rs.3,20,28,825/- on which no TDS was deducted u/s 194-I of the Act i.e. Rs.96,08,647/- should have been disallowed by AO by:- (d) not considering the basic threshold limit below which TDS is not deductible as provided u/s 194I of the Act, 1961. (e) not appreciating that on certain expenses included in rent, tax is deducted at source u/s 194C, for example, travel, logistics and transport etc. (f) not considering the party wise breakup of rent expense amounting to Rs.8,74,00,000/- and the corresponding section under which TDS was deducted submitted during proceedings u/s 263. Facts and Submission:-

1. 1. The Ld. PCIT at Pg 18, Para 16(iv) of the order observed that assessee paid rent of Rs.8,74,00,000/- but in clause 34(a) of Form No.3CD the amount of rent paid u/s 194-IA and 194-IB liable to TDS is shown at Rs.5,53,71,175/-. Accordingly, he held that 30% of the balance amount of Rs.3,20,28,825/-, i.e. Rs.96,08,647/- should have been disallowed u/s 40(a)(ia) of the Act.

2. It is submitted that Ld. PCIT has not properly appreciated the facts. In the Profit & Loss A/c, assessee has debited rent expenses of Rs.8,74,49,998/- (PB 55). This includes payment of taxi hire charges as well as payment of rent. In the tax audit report, in clause 34(a) of Form No.3CD rent payment on which tax is deducted at source u/s 194-I(a) & 194-I(b) is reported at Rs.5,53,71,175/-. On the balance amount tax is deducted u/s 194-C being payment made towards taxi hiring charges or transport charges or for carrying out any work or tax was not deductible being below the threshold limit. The tax auditor has also not reported any disallowance u/s 40(a)(ia) of the Act. Further AO in course of assessment proceeding has also examined this issue at Point No.31 of notice dt. 04.11.2019 (PB 70) and at Point No.5 of reply dt. 11.11.2019 (PB 74 & 80-112). Hence, disallowance proposed by the Ld. PCIT is unjustified, unwarranted and beyond the scope of section 263. Ground No.6 On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that amount of club fees of Rs.2,08,800/- ought to be disallowed by the AO by:- (a) not considering the fact that assessee has incurred the club membership fee on account of business expediency which is an allowable expenditure u/s 37 of the Act, 1961.

28 Gillette India Ltd vs. PCIT (b) not appreciating the submission filed in response to notice issued u/s 263 wherein it was brought to the kind attention of Ld. PCIT that aforementioned expenditure was reported under clause 21(a) of the Form 3CD only for disclosure purpose. (c) not appreciating that the reporting criteria of clause 21(a) of Form 3CD has not used the terms disallowance or inadmissible as compared to some other clauses which specifically require the tax auditor to report disallowable or inadmissible expense. Facts and Submission:-

1. 1. The Ld. PCIT at Pg 18-19, Para 16(v) of the order observed that as per clause 21(a) of Form No.3CD, there is an inadmissible claim of club fees of Rs.2,08,800/- u/s 37 of the Act. This amount ought to be disallowed and added back to the income of assessee.

2. It is submitted that expenditure incurred on payment of club membership fees is towards business expediency as it provides an opportunity to develop business contacts. The reporting in clause 21(a) of Form No.3CD is only for disclosure. There is no section in the Income Tax Act to disallow the club membership fees. Hon’ble ITAT Jaipur Branch in case of ACIT Vs. Popular Art Palace Private Ltd. 82 Taxman 274 has held that clubs like Lions Club provide an opportunity to the assessee to develop business contacts, whereas Dinners Club besides providing business facilities at important centers also provides credit card facility which may be useful at certain business meetings and in travelling. Hence, it was in interest of business to become members of this clubs, the subscription of which is allowable as business expenditure. Thus, when AO has taken a plausible view, the same cannot be subject matter of action u/s 263 of the Act. Ground No.7 On the facts and the circumstances of the case and in law, the Ld. PCIT has erred by holding that there is under-reporting of scrap sales amounting to Rs.80,20,987/- which should have been added to the total income of the assessee by the AO by:- (a) not considering the fact mentioned under the submission filed in response to notice issued u/s 263 of the Act wherein it was submitted that sale of scrap amounting to Rs.1,29,20,987/- was duly included under schedule 18 of the audited financial statements under the head total-other operating revenues. (b) not examining the audited financial statement submitted during the course of assessment as well as submitted by tax auditors with Form 3CD.

29 Gillette India Ltd vs. PCIT Facts and Submission:-

1. 1. The Ld. PCIT at Pg 19, Para 16(vi) of the order observed that assessee has disclosed income from sale of scrap at Rs.49,00,000/- whereas in clause 34(a) of Form No.3CD, the amount of scrap sale on which TCS has been collected u/s 206C is reported at Rs.1,29,20,987/-. He thus held that difference of Rs.80,20,987/- is under reporting of scrap sales and should have been added to the total income of the assessee by the AO.

2. It is submitted that in Note No.18 of the audited financial statements (copy enclosed), sale of scrap and other raw material is reported under other operating revenue of Rs.172 lacs comprising of sale of scrap Rs.49 lacs and sale of raw material Rs.123 lacs. The scrap has been defined u/s 206C to mean waste and scrap from the manufacturing or mechanical working of material which is definitely not usable as such because of breakage, cutting-up, wear and other reasons. Thus, part of the sale of raw material also is covered by the meaning of scrap u/s 206C. Accordingly, out of total other operating revenue of Rs.172 lacs, tax u/s 206C has been collected on scrap sale of Rs.129 lacs as reported in clause 34(b) of Form No.3CD. The details are enclosed. Thus, it is incorrect on part of PCIT to presume that assessee has under-reported scrap sale by Rs.80,20,987/- (Rs.1,29,20,987- Rs.49,00,000) by not appreciating that even the sale of raw material include sale of waste which is covered by the definition of scrap. Otherwise also, it is ridiculous to presume that such large multi- corporates would under-report the petty scrap sale. Hence, the addition proposed by PCIT without appreciating the explanation of the assessee is illegal and bad in law. Ground No.8 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that assessee has failed to submit the separate balance sheet and profit & loss account of eligible business along with Form 10CCB or during the course of assessment proceedings, therefore, the deduction claimed by assessee u/s 80IC is not legally allowable ignoring that separate audited balance sheet and profit & loss account was submitted in response to notice issued u/s 263 of the Act and that same is not required to be submitted along with the return. Ground No.8.1 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that the figure of sales claimed in Form 10CCB is not tallying with the figures of sales disclosed in VAT ignoring that:- (a) deduction u/s 80-IC is available to any undertaking which has begun or begins to manufacture or produce any article or thing in notified 30 Gillette India Ltd vs. PCIT area & section does not require that entire sales should also be made in that notified area or state. (b) sales made in the state of Himachal Pradesh was only was Rs. 54 lakhs and the goods sent outside the state to other units of the assessee company for selling therefrom was Rs. 400.59 crores. Ground No.8.2 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that there was a diversion of sales and profits of non- eligible business to eligible business by:- (a) not appreciating that the net profit of eligible unit undertaking is derived from only one activity whereas the net profit of the assessee at the entity level is from multiple activities. (b) not appreciating that the total net profit ratio of the company has significantly increased in the year under consideration as compared to previous years. (c) not rebutting the explanation filed in proceedings u/s 263 that the revenue of eligible unit as compared to total revenue at entity level is a meagre 6.95% and that the deduction claimed on the profits of eligible unit as compared to total taxable income is a meagre 4.07%. Ground No.8.3 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that there was misreporting of facts in Form 3CEB ignoring that:- (a) in note 39 of audited financial statements all related party transactions has been disclosed both of domestic as well as international transactions. (b) transfer pricing audit has certified that the particulars given in the Annexure of Form 3CEB are true and correct. Ground No.8.4 On the facts and the circumstances of the case, the Ld. PCIT has erred in holding that there was a deliberate attempt of the appellant of non- disclosure by not filing Balance sheet in VAT15BS and Profit & loss account in VAT15PL with VAT returns of eligible unit to VAT authorities by not appreciating that:- (a) the separate audited financial statements of Baddi Unit (eligible unit) was filed in proceedings u/s 263. (b) filing of figures in VAT15BS and VAT15PL is optional.

31 Gillette India Ltd vs. PCIT (c) there is no requirement under the Act to reconcile the figures from VAT return to claim deduction u/s 80IC. Facts and Submission:-

1.

1. The Ld. PCIT at Pg 19-20, Para 16(viii) of the order observed that assessee claimed deduction of Rs.16,15,77,820/- u/s 80-IC by filing Form No.10CCB but the same should have been disallowed by AO due to following anomalies:- a. Assessee has not filed separate Balance Sheet and Profit & Loss A/c of the eligible unit. b. In the VAT Return, total sales of eligible unit is declared at Rs.54.47 lacs but claimed in Form 10CCB at Rs.144.83 cr. c. The VAT Return discloses transfer of goods within or outside the state at Rs.400.95 cr. On sale of the transfer of goods from the eligible unit, the NP Rate declared is 37.18% whereas overall NP Rate as per audit report in Form No.3CD is 17.90% and if extraordinary income is reduced, the overall NP Rate would be only 13.50%. This point to diversion of sale and profits of non-eligible business to eligible business. d. Against the inter-unit transfer of goods of Rs.400.97 cr. from eligible unit to non-eligible unit, Form No.3CEB (clause 23A) shows Nil amount. Further clause 24 of Form No.3CEB which requires reporting of more than ordinary profits to the eligible business is reported at Nil. Due to mis-reporting of facts in Form-3CEB the inter-unit transfer of goods of Rs.400.95 cr. remained un-noticed by the TPO and not subjected to any TP Adjustment. e. With the VAT Return, there is a mandatory requirement of filing Balance Sheet in Form VAT-15BS and Profit & Loss A/c in Form VAT- 15PL, but assessee has reported Nil figure which shows a deliberate attempt not to disclose separate financial statements of eligible unit.

2. It is submitted that the Ld. PCIT has not correctly understood the fact and made incorrect observations. In fact deduction u/s 80-IC has been claimed in respect of the manufacturing unit established at Baddi. There are two units of which deduction u/s 80-IC is available only on one unit, i.e. Guard unit. In the VAT return of both units, transfer of products other than Guard unit are reflected whereas assessee has prepared separate financials for Guard unit where turnover declared is Rs.144 cr. which is lower than Rs.400.59 cr. disclosed in the VAT return. Each of the observation made by Ld. PCIT is explained hereunder:-

32 Gillette India Ltd vs. PCIT a. The assessee is having Guard manufacturing unit at Baddi, Himachal Pradesh which is a eligible unit for claim of deduction u/s 80-IC and the assessee has been regularly claiming such deduction from AY 2010-11 and is allowed such deduction. For claiming the deduction, assessee every year files audit report and Form No.10CCB (copy enclosed) along with separate audited financial statements (PB 56-67). b. The issue of claim of deduction u/s 80-IC was also raised at Point No.34 of notice u/s 142(1) dt. 04.11.2019 (PB 70) in course of the regular assessment proceedings. The assessee in its reply dt. 29.11.2019 at Point No.3 (PB 115) referred to Form No. 10CCB along with audited financial statement of Guard unit and statement showing computation of deduction u/s 80-IC in respect of profit and gains of the business of Guard unit. The AO after examining the same allowed the deduction u/s 80-IC. Thus, when AO has examined the claim in the original assessment proceedings, the same cannot be subject matter of proceedings u/s 263 to held the order of the AO erroneous. c. The Ld. PCIT has incorrectly stated that separate Balance Sheet and Profit & Loss A/c of the eligible unit is not filed with Form No.10CCB ignoring that assessee has prepared separate financial statement of Guard Unit which is also filed in proceedings u/s 263 of the Act (PB 18). The financial statements are duly audited by the Chartered Accountant on 23.11.2016 and on that basis AO has correctly allowed deduction u/s 80-IC at Rs.16,15,77,820/-. d. The sale of goods of Guard Unit as per the audited financial statement is of Rs.144.84 cr. but as per VAT return the sale is Rs.54.47 lacs apart from inter-unit transfer of goods of Rs.400.95 cr. This variation is for the reason that deduction u/s 80-IC is allowable under Profit and Gains of the manufacture and sale by eligible manufacturing unit anywhere. Thus sale can be in notified area or outside as well whereas in the VAT return of Himachal Pradesh only the sale made at Himachal Pradesh is required to be declared. Hence, comparison of the figures reflected in the VAT return has no relevance to the sale recorded in the audited financial statement of the eligible unit. e. The net profit ratio of eligible unit as per audited financial statement is 35.84% whereas net profit ratio of computed income of eligible unit is 37.18%. As against this the overall NP rate of the assessee is 17.90% only. This variation is for the reason that the eligible unit is exclusively engaged in manufacturing of razors and blades whereas assessee at entity level has multiple functional profiles which includes manufacturing and selling of grooming products, portable power and oral care business. Hence, it is incorrect to compare the assessee’s overall profitability at entity level with the profitability of the eligible unit. Otherwise also, out of total grooming sale of Rs.1496.71 cr., the sale of eligible unit is only Rs.144.83 cr. representative only 9.67% of grooming product sale and 6.95% of the total revenue at entity level.

33 Gillette India Ltd vs. PCIT Further deduction claimed u/s 80-IC at Rs.16.15 cr. is mere 4.07% of the total taxable income of Rs.396.12 cr. Therefore, it is incorrect on part of Ld. PCIT to presume that there is diversion of sales and profits of non-eligible business to the eligible business. f. The Ld. PCIT has incorrectly mentioned that in Form No.3CEB assessee has shown Nil amount in clause 23A in respect of transfer of goods by eligible business to any other business but he ignored that in clause 23B the assessee has reported inter-unit acquisition of goods from other business to the eligible business at Rs.13.95 cr. g. The Ld. PCIT has also incorrectly observed that it is a mandatory requirement of filing Balance Sheet in Form VAT-15BS and Profit & Loss A/c in Form VAT-15PL whereas there is no such mandatory requirement. Further the audited financial statement of eligible unit was signed on 23.11.2016 whereas Annual VAT return of Himachal Pradesh was filed on 18.10.2016 and therefore due to unavailability of audited financials, the optional figure of Balance Sheet and Profit & Loss A/c were not filed. However this cannot be a reason to allege that there is any deliberate attempt of the assessee not to disclose the financial statement of the eligible unit particularly when financial statement of eligible unit was filed with Form No.10CCB and deduction u/s 80-IC is also reported in clause 33 of the Tax Audit Report. In view of above, it is incorrect on part of Ld. PCIT to hold that AO should have disallowed the deduction claimed u/s 80-IC of the Act ignoring that assessee has explained the so called anomalies and such deduction has been allowed to the assessee in the past.”

5.1 The ld. AR appearing on the behalf of the assessee objected to the invocation of the provision of the section 263 of the Act and submitted that every order of the ld. AO is not subjected to provision of section 263 of the Act and if the issue is observed in such a way, then every order is found to be prejudicial to the interest of the revenue. The ld. AO has based on the details submitted passed a detailed order and the issue that has been 34 Gillette India Ltd vs. PCIT flagged are general and not specific faults that has been found by the ld. PCIT even from the submission so filed by the assessee. The ld. AR of the assessee carried to our attention to the notice dated 04.11.2019 demonstrated that the issue of TDS [ question no. 6, 31 – APB page 69 & 70 ] has already applied his mind and the ld. PCIT intend to invoke the provision of section 263 just to see the ld. AO should have made the enquiry the way he wanted and the same is not permissible under the law. As regards the delay in payment of ESI/PF the ld. AR of the assessee submitted that the delay is between 1 to 5 days and as per the manual of accounting procedure a grace period of 5 days is allowed to remit the contribution and therefore, the claim is in accordance with the limit line. As regards the remittance made outside India the assessee company has followed the law and filed all the details and has collected the withholding of the tax u/s. 195 of the Act. The assessee has also filed the reconciliation before the PCIT justifying that the no deduction u/s. 195 is required to be made. As regards the commission paid to directors commission was provided at the year end which was actually paid after the approval in the meeting of the board of directors and tax has been deducted when the actual payment is done and this explanation of the assessee is not 35 Gillette India Ltd vs. PCIT found at fault by the ld. PCIT. As regards the TDS on rent the same was on account of the rent and taxi hire charges and was not deductible being below the threshold limit under the law and even the tax auditor has not pointed out any discrepancies on that issue. As regards the club fees he has submitted that the same is in the interest of business activity of the assessee and it is thus allowable on the decision relied upon in the written submission. As regards the income on sale of scrap the ld. AR of the assessee submitted that difference is on account of sale of Raw material include sale of waste and therefore, in fact there is no under reporting of the sales. As regards the deduction u/s. 80 IC the ld. AR of the assessee submitted that PCIT incorrectly observed that it is mandatory requirement of filling balance sheet in form VAT-15BS and infact there is no such requirement and that cannot be reason to allege that there is deliberate attempt of the assessee not to disclose the financial statement of eligible unit, when financial statement of eligible unit was filed with the form no. 10CCB and deduction u/s. 80IC is duly reported in form no. 3CD. Based on these arguments the ld. AR submitted that the crux of various grounds raised by the assessee is that the revision-order passed by Ld. PCIT u/s 263 is bad in law, illegal and deserves to be quashed since the same has been passed even when the order of assessment is neither erroneous nor prejudicial to the interest of revenue. In support of the contentions so raised the ld.AR of the assessee relied upon the following documents :

S. No. Particulars Page No. 1 Copy of notice dt. 28.02.2023 issued u/s 263 of IT Act 1-4 2 Copy of assessee’s reply dt. 09.03.2023 in response to above notice 5-23 3 Copy of order dt. 08.01.2016 issued by Employees Provident Fund 24 Organisation withdrawing the grace period of 5 days from February, 2016 4 List of Rajasthan Bank Holidays 2016 25 5 Reconciliation statement of amount as per Section 195 vs. Form No. 26-51 3CEB along with invoice and Form No. 15CA showing that no deduction u/s 195 is required to be made on certain amount reported in Form No. 3CEB. 6 Papers relating to commission payable to Directors 52-54 7 Details of party wise rent expenses as per financial statement 55 8 Copy of Balance Sheet and P & L A/c of Guard Baddi unit 56-67 9 Copy of notice dt. 04.11.2019 issued by ACIT u/s 142(1) IT Act, 68-71 1961 10 Copy of assessee’s reply dt. 11.11.2019 in response to above notice 72-77 along with following documents:- 78 -Computation of total income 79 -Comparative gross profit and net profit ratios for three years 80-112 -TDS statement 113 -List of shareholders as on 31.03.2016 11 Copy of assessee’s further reply dt. 29.11.2019 in response to 114-116 above notice dt. 04.11.2019 12 Copy of assessee’s reply dt. 16.12.2019 in response to notice dt. 117-118 08.12.2019 issued u/s 142(1) of IT Act, 1961

S. No. Issues i. Whether value of international transactions are correctly shown in Form 3CEB and return of income. ii. Whether sales turnover/receipts has been correctly offered for tax. iii. Whether value of specified domestic transactions have been correctly shown in Form 3CEB and return of income. iv. Whether claim of deduction against business income is admissible. v. Whether deduction under Chapter VIA has been claimed correctly. vi. Whether value of international transactions in respect of business restructuring or reorganization are correctly shown in Form 3CEB and return of income.”

39 Gillette India Ltd vs. PCIT 7.1 On the issue flagged under scrutiny, it is evident that the case was selected for complete scrutiny to examine the international and domestic transaction, deduction claimed under chapter VI-A and admissibility of the expenses claimed therein. On these issues ld. AO issued notice u/s. 142(1) dated 04.11.2019 raising 37 queries (APB 68-71). At point no. 6, 31 and 34 of the notice the issue of TDS and deduction under chapter VI-A was specifically raised. The same was complied with by the assessee vide letter dated 11.11.2019, 29.11.2019, 16.12.2019. The ld. AO after considering the reply completed the draft order and thus as per the direction of the DRP, passed the final order. Hence, out of the issues flagged by the ld. PCIT even the issue of PF and ESI and club fees are covered by the selection criteria i.e. “whether claim of deduction against business income is admissible.” Thus, in fact when we see the contentions raised by the ld. PCIT and the criteria of selection of the scrutiny of the case then we find that on all most in all issues the ld. AO raised the query which were on 37 points and even on the specific points raised by the ld. PCIT the assessee has in detail explained the issue for deduction of TDS, remittance outside India and issue of deduction u/s. 80IC of the Act. However, so far as the issue of remittance outside India made 40 ITA No. 313/JP/2023 Gillette India Ltd vs. PCIT by the assessee, as per annexure-2 submitted by the assessee before the ld. PCIT, we note from annexure that at Sr. No. 11 that the assessee has disclosed amount u/s. 195 in column for an amount of Rs. 21,53,289/- paid to Procter & Gamble Company, USA as reimbursement of employee related expenses or FTS on this issue. We further find that the assessee still at the stage of the ld. PCIT and even before us has not given the complete information and submitted only Note No. 3 which reads that “Some of the payments to this recipient were taxable and hence TDS deducted u/s.

Thus, from these it is noted that assessee has not provided details of complete payment of Rs. 1,56,20,520/- even before the ld. PCIT justifying as to how only an amount of Rs. 21,53,289/- was considered for withholding of tax u/s. 195 of the Act and why not the other payments were considered. We note that there is a difference in the form No. 3CD and form No. 3CEB, wherein the auditor issuing these reports are not similar chartered accountant and the same needs to be explained. Thus, we have also reason to believe that both the independent auditors have not explained 41 Gillette India Ltd vs. PCIT as to why the same are different and why the same are differing in their perception. Thus, the assessee failed to establish as to why the withholding of the tax on the amount of Rs. 1,56,20,520/- is not made justifying the reasons thereof and therefore, since there was a specific flagged issue for scrutiny i.e. “whether value for international transactions are correctly shown in Form no. 3CEB and return of income”. Thus, we are of the considered view that the assessee has also missed the bus to justify the reasons of the difference before the ld. PCIT and before us. We also note that on this aspect of the case there is an error on the part of the ld. AO. On careful perusal of the records, it has been made available by the assessee and also by going through the order under disputes, we take note on the matter that the issue was raised by the ld. AO at point no. 36 of the notice dated 04.11.2019. Based on the paper book submitted by the assessee, we see no reply on the issue. The question no. 36 raised by the ld. AO is reproduced here in below: 36. As per details available on record, it revealed that during the year under consideration the assessee company has made large outward remittance. Please furnish details of all outward remittance made during the year under consideration with source of the same with documentary evidences. Also furnish copy of form No. 15CA for the relevant period. Please furnish all the reports prepared by the company for the foreign remittance during the year under consideration.”

42 Gillette India Ltd vs. PCIT 7.2 When the assessee was specifically called upon to furnish all the details and related information /evidence then we find that the order has been passed without submission of that information. Be that as it may the assessee whether replied to the query of the ld. AO or not and it has no clear submission demonstrating it as to why the remittance of Rs. 21,53,289/- is considered for deduction u/s. 195 and why not the other payments were made. The bench also noted that the submission made before the ld. PCIT that there is no whisper of furnishing this information in the submission so made. The bench further noted that even from the written submission so filed by the ld. AR of the assessee before us that there is no reference of the information so supplied to ld. AO and, in all fairness, it has not been pointed out as to why the same has not been placed on record in the paper book so filed by the assessee. Therefore, we are of the considered view that the order passed by the ld. AO is erroneous and prejudicial to the interest of the revenue. Since we have seen that the assessee miserably failed before the ld. AO, before the PCIT and before us to demonstrate the correct discharge of liability u/s. 195 of the Act and tax compliance thereof by filling in the correct information. Therefore, on this issue we find that the ld. AO failed to place on 43 ITA No. 313/JP/2023 Gillette India Ltd vs. PCIT record the required details and order has been passed without looking into the details required on the issue flagged for scrutiny. Hence, based on these observations we are of the considered view that there is sufficient reason to quash the order of the ld. AO and we find no infirmity in the finding of the ld. PCIT in holding the order is erroneous and prejudicial to the interest of the revenue. At this stage, we are aware that the ld. AR of the assessee cited various case laws, and on careful perusal of the facts of this case as well as fact of those case laws which are on different facts and are not applicable to the present fact and the assessee failed to establish the reasons for non-deduction of tax u/s. 195 of the Act and also failed to demonstrate before us that the relevant information have been in fact supplied to AO or not and even before the two stage after the order of the ld. AO.

7.3 Thus, now discussing the relevant details related to compliance of value of international transaction are correctly shown in form no. 3CEB and the return of income is concerned as the issue flagged for examination is concerned it is undisputed from the perusal of the record that the relevant information had never been placed on record. Thus, now we are examining 44 Gillette India Ltd vs. PCIT Explanation 2 inserted in section 263 by Finance Act, 2015, w.e.f. 01.06.2015, which has widened the powers of CIT to revise the already completed assessment. In the present case ld. PCIT has taken shelter of clause (a) and (b) of the same, which reads 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; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] 7.4 Thus, on careful perusal of above provision of the law it clarifies that order passed by assessing officer shall be “deemed to be erroneous and prejudicial to the interest of the revenue if (a) AO has passed such order without making inquiries or verification which should have been made and (b) AO has passed the order allowing any relief without inquiring into the claim”. Thus, it is worthwhile to note here that the phrase “the order is passed without making inquiries or verification which should have been 45 ITA No. 313/JP/2023 Gillette India Ltd vs. PCIT made;” is clearly attracted in this case. Thus, looking to this aspect of the case the ld. AO in this case has passed the order without taking the relevant details on record and the claim of the assessee was allowed without sufficient records where no inquires or verification appears to have been made by the AO. Therefore, the revision u/s. 263 in the light of explanation 2 of Section 263 of the Act is correctly invoked and we see no infirmity in the finding of the ld. PCIT on this issue. We draw the strength on the issue from the order of the apex court in the case of Malabar Industrial Co. Ltd. Vs CIT [243 ITR 83(SC)]} where in the apex court held that;

7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhov & Co. v. S.P. Jain [1957] 31 ITR 872 , the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 208 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/ 79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue.

9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).

Thus, here in this case also we find that the phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act but has to be understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhov & Co. v. S.P. Jain [1957] 31 ITR 872 , the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 208 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/ 79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue. Thus, it is observed that the assessee in this case has failed to establish as to why the withholding of the tax on the payment made u/s. 195 is not made on the full amount and the assessee failed to justify and establish that the same has been 48 Gillette India Ltd vs. PCIT verified by the ld. AO. In the light of this fact, we see no infirmity in the order of the PCIT and the same is sustained and the order of the ld. AO is quashed and thus, we confirm the direction of the ld. PCIT. Based on these observations the ground no. 1 (a),(b) & (c) stands dismissed.

8. As regards the ground no. 2 (a), (b) & (c) the bench noted that the ld. AO has raised the query for disallowance of liability vide question no.

9. As regards the ground no. 3 (a), (b), (c) & (d) we have while deciding ground no. 1 have given the finding on the issue raised in ground no. 3 and therefore, considering that finding recorded in

10. In ground no. 4 (a) & (b), the assessee raised the issue of TDS deducted on the payment made to directors. On this issue we note that the assessee in the Profit & Loss A/c, claimed commission paid to directors at Rs.52,25,000/- and not Rs.52,41,000/-. In fact in reply dt. 16.12.2019 to the AO (PB 118), commission paid to the directors is wrongly totaled at Rs.52,41,000/- whereas the correct total is Rs.52,25,000/-. The assessee explained that at each year end provision for commission payable to directors which is reversed on the next date and actual payment of commission is made in the next year after approval by the Board of Directors. Accordingly, the commission which was provided in FY 2014-15 was paid during the year on 31.08.2015 on which tax was deducted at source (PB 89). Similarly in FY 2015-16 commission was provided at the year end which was actually paid after the approval in the meeting of Board of Directors held on 10.08.2016 (PB 53-54) and actual payment was made on 23.08.2016 when tax is deducted at source. Thus, we see that when on the entire commission paid to the directors, tax has been deducted at source, no disallowance u/s 50 Gillette India Ltd vs. PCIT 40(a)(ia) can be made. We also note that even the tax auditor has also not reported any disallowance u/s 40(a)(ia) of the Act. Further AO in course of assessment proceedings has also examined this issue at Point No.31 of notice dt. 04.11.2019 (PB 70) and Point No.J of reply dt. 16.12.2019 (PB 118). Thus, we are of the view that on this issue the disallowance proposed by the Ld. PCIT is unjustified, unwarranted and beyond the scope of section 263 and therefore, the ground no. 4 raised by the assessee is allowed.

11. In ground no. 5 the assessee has challenged the observation of the ld. PCIT stating that total rent of Rs. 8,74,00,000/- paid during the year under consideration should have been subjected to TDS u/s. 194 I of the Act and 30 % of the amount which on which TDS is not seems to have been deducted should have been disallowed by the ld. AO. On this issue we note the assessee in the profit and loss account debited rent expenses of Rs. 8,74,49,998/-(APB-55), out this amount TDS on Rs. 5,53,71,175/- is deducted u/s 194 of the Act and even the said payment get reconciled with the figure reported at clause 34(a) of the form no. 3CD. On the balance amount we note that though the point no. 31 51 Gillette India Ltd vs. PCIT was raised by the ld. AO but in the submission the ld. AR demonstrates that the reply is given at point no. 5 of reply dated 11.11.2019(APB 74 & 80-112) on this issue we note that the reply is related to point no. 5 and not on the issue raised in the notice at point no. 31. We also take note that in the point no. 5 only those entries are reported on which tax is deducted and thus, the figure of the payment on which TDS is not deducted is not Even the ld. AR of the assessee failed to demonstrate whether the assessee filed any reply on the issue raised at point no 31 or not in the assessment proceeding. On this issue we also take note that the assessee is merely relying on the statement that no disallowance has been proposed by the auditor. We also persuaded the question no. 31 where in the ld. AO has called for the gross amount of expenditure and amount on which TDS is deducted this aspect of the matter we see has not been furnished and therefore, we are of the considered view that the ld. AR neither convinced to the PCIT on the issue nor before us demonstrated that the conviction on the issue by the ld. PCIT is incorrect. Thus, based on this observation we see no merits in the ground no 5 taken by the assessee and the same is dismissed.

52 Gillette India Ltd vs. PCIT 12. As regards ground no. 6(a), (b) & (c) raised by the assessee for an amount of Rs. 2,08,800/- the bench noted clause no. 5 to 30 extract has not been submitted by the assessee before us. Whereas the ld. AR of the assessee submitted that the details given in the clause 21(a) of form no. 3CD is only for disclosure but in support the ld. AR of the assessee for the best reason know not submitted the relevant part of the tax audit report in the paper book so filed therefore, we failed to agree with the arguments of the ld. AR of the assessee. The case law cited in the present case without examining the fact reported in the tax audit report that whether in the tax auditor reported the same are personal expenditure or not we do not want to fuss into the merits of the case as the assessee even before us failed to submit the relevant information as to decide the same are not in the nature of personal expenditure. We, in the absence of the information placed before us, do not agree with the argument advanced before us. Hence on this issue we concur the finding of the ld. PCIT on this issue and therefore, ground no. 6 raised by the assessee stands dismissed.

53 Gillette India Ltd vs. PCIT 13. As regards the ground no. 7(a) & (b) we note that the ld. PCIT noted that the assessee under reported sales of scrap for an amount of Rs. 80,20,987/-. Whereas on this issue we note that the assessee before us as well as before the ld. PCIT submitted by an evidence that the sale of scrap and other raw material is reported under other operating revenue of Rs. 172 lacs comprising of sale of scrap of Rs. 49 lacs and sales of raw material at Rs. 123 lacs and part of the sale of raw material consist of sale of scrap and the details there of has also been placed on record which even the ld. PCIT has not controverted in the order passed and has merely stated that the sale is under reported without commenting upon the submission of the assessee. Thus, on this issue we are of the view that the finding of the ld. PCIT is not correct and thus, we allow this ground no. 7 of the assessee.

58 Gillette India Ltd vs. PCIT 15. The ground no. 9 being general in nature same is not required to be adjudicated and as regards the ground no. 10 no arguments were advanced and therefore, the same is also not adjudicated.

In the result, the appeal of the assessee is partly allowed.