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TMI Blog2018 (10) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... of sophisticated machinery. Our attention was invited to various pages of the paper book. It was claimed that wage register is also maintained. The Ld. counsel further asserted that manufacturing started on 27/03/2010 and the Ld. Assessing Officer has not disputed the books and purchase of raw materials. Plea was also raised that the assessee also filed sales tax and excise returns, which were accepted by the respective department. 2.1. On the other hand, the Ld. DR, Ms. N. Hemalatha, defended the addition made by the Ld. Assessing Officer by advancing arguments, which are identical to the ground raised. The crux of the argument is that actually no manufacturing activity was done by the assessee and merely the paper work has been done. Our attention was invited to the observation made in the assessment order. 2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is an individual engaged in the business of manufacturing of watches at the manufacturing unit claim to be established at Parwanoo which is a notified industrial area for the purpose of section 80IC of the Act. The assessee declared nil incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducing hereunder the uncontroverted finding recorded by the Ld. Commissioner of Income Tax (Appeal) for ready reference and analysis:- "2.3.2. The AO has stated that the Audit Report in Form No.CCB Col. No.25(f) has been stated. yes', with regard to article or things specified, in 14th Schedule. The appellant has stated that its auditor has made a mistake in The Audit Report , that it was covered under section 80IC(2)(b)(ii), although it was covered under section 80IC(2)(a)(ii).Hence mere typographical error cannot be held responsible for denial of deduction. In fact the Hon'ble Bombay High Court in the case of Sanchit'Software and Solutions Pvt, Ltd vs. CIT (2012) ITR as held that the Income tax Department cannot take advantage of assessee's mistakes in not claiming exemption in return and not giving him exemption. The entire object of administration of tax is to secure the revenue for the development of the country and not to charge assessee more tax than which is due and payable by the assessee. In the case of the appellant there has been a claim of deduction although under wrong sub section due to error of the auditor and in my view, the same cannot be held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. Ground is partly allowed." 2.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before adverting further, we are expected to analyze section 80IC of the Act, therefore, it is reproduced hereunder:- "Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise,- (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning- (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains. (4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanations 1 and 2 to sub-section (3) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oram, Nagaland and Tripura; (viii) "Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (ix) "Substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken; (x) "Theme Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government." 2.5. If the provision of section 80IC of the Act is analyzed, it speaks about gross total income of the assessee, which includes any profit & gains "derived by", an undertaking or an enterprises from "any business" referred to in sub-section (2)............ shall be allowed while computing the total income of the assessee. Sub-section (2) to section 80IC speaks about that any undertaking or enterprise (a) which has begun or begins to manufacture or produce any article or thing. The assessee un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rs. 6,63,956/-). However, under section 154 of the Act, necessary correction was made by the AO himself by restricting the disallowance to Rs. 6,63,956/- as claimed by the assessee. On appeal, the learned CIT(A) affirmed the disallowance which is under challenge before the Tribunal. 3.1 Before coming to any conclusion, we are reproducing hereunder the relevant portion from the impugned order :- "2.3 I have carefully examined the issue in dispute. Soap is a product which has passed through evolution in many centuries. The process for making soap, has evolved with generations. Earlier it was prepared by mixing fatty acid with caustic soda and sodium silicate in a chemical process. After learning the process of synthesizing natural oil a new product called linear alkyl benzene (LAB) was developed which is used in making of modern day soap known as detergent soap. The chemical process for making soap has not gone through any metamorphic change. The soaps earlier were made by mixing chemicals like fatty acid, caustic soda, sodium silicate. The modern day detergent soaps are also made by mixing chemicals like LAB, sodium silicate and caustic soda. The only new material used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... removal Glycerine is more valuable than soap, so most of it is removed. Some is left in the soap to help make it soft and smooth. Soap is not very soluble in salt water, whereas glycerine is, so salt is added to the wet soap causing it to separate out into soap and glycerine in salt water. Step 3 - Soap purification Any remaining sodium hydroxide is neutralised with a weak acid such as citric acid and two thirds of'the remaining water removed. Step 4 - Finishing Additives such as preservatives, colour and perfume are added and mixed in with the soap and it is shaped into bars for sale. Detergents are similar in structure and function to soap, and for most uses they are more efficient than soap and so are more commonly used. In addition to the actual 'detergent' molecule, detergents usually incorporate a variety of other ingredients that act as water softeners, free-flowing agents etc. INTRODUCTION Soap is integral to our society today, and we find it hard to imagine a time when people were kept sweet-smelling by the action of perfume rather than soap. However, the current widespread use of soap is only a very recent occurrence, despite the fact that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofter than pure soap. However, it is also much more valuable than soap itself, so only a minimum of glycerine is left in the soap and the remainder is extracted, purified and sold. The glycerine is extracted from the soap with lye2 - a brine solution that is added to the soap at the saponification stage. Wet soap is soluble in weak brine, but separates out as the electrolyte concentration increases. Glycerine, on the other hand, is highly soluble in brine. Wet soap thus has quite a low electrolyte concentration and is about 30% water (which makes it easily pumpable at 70°C). To remove the glycerine, more electrolyte is added, 1 Surface active agent. 2 Pronounced "lee" in the UK and New Zealand and "lie" in the US. XI* Detergents-A - Soap- 2 causing the wet soap to separate into two layers: crude soap and a brine/glycerine mixture known as spent lye, neutral lye or sweet waters. The soap still contains some salt, which itself functions as an additive, altering the viscosity and colour of the soap. XXXXXXXXXXXXXXXXX Once the spent lye has been removed the soap is dried, chipped, mixed with other additives such as perfumes and preservatives and then plodded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... washing column then set such that the spent lye is 25 - 35 % glycerine. Glycerine is almost infinitely soluble in brine, but at greater than 35% glycerine the lye no longer efficiently removes glycerine from the soap. The soap is allowed to overflow from the top of the column and the lye ("half spent lye") is pumped away from the bottom at a controlled rate and added to the reactor. Step 4 - Lye separation The lye is added at the top of the washing column, and the soap removed from the column as overflow. As the lye is added near the "overflow pipe the washed soap is about 20% fresh lye, giving the soap unacceptably high water and caustic levels. Separating off the lye lowersthe electrolyte levels to acceptable limits. . The soap and lye are separated in a centrifuge, leaving a soap which is 0.5% NaCl and 0.3% NaOH, and about 31 % water. The lye removed is used as fresh lye. Step 5 - Neutralisation Although the caustic levels are quite low, they are still unacceptably high for toilet and laundry soap. The NaOH is removed by reaction with a weak acid such as coconut oil (which contains significant levels of free fatty acids), coconut oil fatty acids, citric acid or phosphor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DPU and is sent to the fitting pans, while the lye comes out the near end and is pumped back into one of the saponification pans. Step 4 - Fitting Here the remaining unwanted glycerine is removed from the soap by reboiling with water, NaCl and a small amount of NaOH solution. The electrolyte concentration in the water is such that the soap and water to separate out into two layers. The top layer is 'neat' wet soap, which is pumped off to be dried. The bottom layer is known as the 'nigre' layer, and consists of a solution of soap, glycerine and NaCI. This is left in the pan, reboiled with further salt and left to stand, forming a soap crust over a lower layer ofnigre lye (salt and glycerine). This soap is left in the pan and is mixed with the next intake of washed soap, while the nigre lye is pumped back to the DPUs to wash the next batch of crude soap. Step 5 - Drying Moisture is flashed off under vacuum in the same manner as was described above for the Colgate-Palmolive process. Laundry or 'hard' soap manufacture The base soap is mixed with colour and preservatives and milled. Perfume is then added and the mixture plodded then extruded into a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Bulking and free-flowing agent. Soap noodles Causes rapid foam collapse during rinsing. Zeolite Water softener (absorbs Ca2+ and Mg2+) in contries where STP is not used; granulating agent for concentrated detergents. Sodium carboxymethyl cellulose Increases the negative charge on cellulosic fibres such as cotton and rayon, causing them to repel dirt particles (which are positively charged). Liquids Ingredient Function Linear alkylbenzene sulphonic (LAS) acid Surfactant - the main active ingredient Caustic soda solution Neutralises the LAS. Coconut diethanolamide or a fatty alcohol ethoxylate Nonionic detergent and foam former Fluorescer Absorbs UV light and emits blue light, causing ageing cotton to appear white rather than Water Dissolves the various causing them to mix better ingredients, Liquid detergent manufacture Step 1 - Soap premix manufacture Liquid detergent contains soap as well as synthetic surfactants. This is usually made first as a premix, then other ingredients are blended into it. This step simply consists of neutralising fatty acids (rather than fats thems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h lye. When the glycerin content of the solution reaches 80 - 85% it is pumped to the crude settling tank where more salt separates out. XI - Detergents-A -Soap-I 0 Step 3 - Glycerine purification A small amount of caustic soda is added to the crude glycerine and the solution then distilled under vacuum in a heated still. Two fractions are taken off - one of pure glycerine and one of glycerine and water. The glycerine thus extracted is bleached with carbon black then transferred to drums for sale, while the water/glycerine fraction is mixed with the incoming spent lye and repeats the treatment cycle. ENVIRONMENTAL IMPLICATIONS Soap is designed as a product to be used once then flushed down the drain, so as expected the environmental implications of its manufacture are not nearly so great as many other chemical processes. There are two main areas of concern: the safe transport and containment of the raw materials, and the minimisation of losses during manufacture. The three main components of soap by both cost and volume are oils, caustic and perfumes. Oils and perfume are immiscible in water and if spilled create havoc, although the oils do solidify at room temperatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adable, being made from either natural or synthetic linear C12 - C15 alcohols. Phosphates from detergent products used in New Zealand are independently monitored and have been found to not be an environmental hazard. Detergent powder Detergent powder manufacture has some specific environmental issues associated with it that are not present in other areas of the industry. These are dust control and volatile organic emissions. Dust present during delivery and transfer of bulk powdered detergent (and powdered raw materials) is a potential problem. Dry and wet cyclones are used to filter out most of the dust, and all emissions are monitored. If the dust level in these does exceed acceptable limits, appropriate remedial action is taken. Dust levels in emissions must be kept below 50 mg m-3. The spray drying tower also releases volatile organics. These emissions are minimised by having tight specifications on what can be added as primary detergent active material. Any potentially hazardous material is added with the secondary actives after the tower so that it is not heated. Spot checks are done on the total hydrocarbon content of the exhaust gases using a flame ionisation detector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors physical properties such as dynamic flow rate, compressibility, particle size, colour and perfume. Liquid detergent The product is typically tested for viscosity, pH, cationic detergent (fabric conditioner) content, enzyme content, conductivity (a measure of detergent stability), colour and perfume. Compiled by Heather Wansbrough from two articles, one from Ralph Laing (Colgate Palmolive) and the other from Paul Milson (Lever Rexona) and with reference to: * The Enclyclopcedia Britannica (15th ed); Encyclopredia Britannica, Inc.; 1979 * Selinger, Ben; Chemistry in the Marketplace (3rd ed.); Harcourt Brace Jovanovich; 1986 XI - Detergents- A -Soap- I 3 Soap is the product of reaction between a fat and sodium hydroxide (Fat + 3NaOH - glycerine + 3 soap). The whole process of both the items is indicative of factor that both the products are altogether different and commercially also known differently. 3.5 For claiming deduction u/s 80IB of the Act, as per subsection (2), the any industrial undertaking has to fulfil the conditions mentioned in the section. As per sub-clause (iii) the article so manufactured should not be in the list of the Eleventh Schedule and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry amounts to manufacturing. v. The Hon‟ble Punjab & Haryana High Court in CIT vs HSED Corporation Ltd. held that activity of manufacturing of voter identity card amounts to manufacture. vi. Likewise, in CIT vs Zainav Trading pvt. Ltd. 333 ITR 144 (Mad.) conversion of paper corrugated sheets into paper boxes was held to be manufacturing. vii. Likewise, the Hon‟ble Apex Court in CIT vs Vinbros & Company (2012) 210 taxman 252 (SC) held that blending and bottling Indian manufacture foreign liquor would amount to manufacturing. viii. Identically, Hon‟ble Apex Court, in CIT vs Emptee Poly Yarn (P.) Ltd. held that twisting of yarn amounts to manufacturing. ix. Hon‟ble Madras High Court in CIT vs Balaji Hotels & Enterprises Ltd. 311 ITR 389 held that printing of paper labeles constitutes manufacturing. x. The Hon‟ble Apex Court in India Cine Agencies vs DCIT 210 taxman 253 (SC) held that even cutting of jumbo film roles into small marketable sizes amounts to manufacturing. xi. Hon‟ble Allahabad High Court in CIT vs Shiv Oil & Dal Mill 153 taxman 127 held that refining of oil amounts to manufacturing. xii. Even, buying tendu lives and tob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not manufacturing thus not entitle to relief. d) Foundation work was not held to be characterized as production or manufacture in CIT vs N.C. Buddha Raja and Company 204 ITR 412 (SC) e) In CIT vs Hindustan metal refining works Pvt. Ltd. 128 ITR 472 (Cal.) it was held that galvanization is not covered within the meaning of manufacturing and thus not entitled to the deduction. f) Rearing of Chicks was not held to be industrial undertaking and thus not entitled to deduction in CIT vs Venkateshawara Hatcheries Pvt. Ltd 237 ITR 174 (SC), Indian Poultry vs CIT 116 Taxman 493 (SC) and CIT vs JD Farms (2010) 187 taxman 151 (Del.) g) In CIT vs Relish Foods 237 ITR 59 (SC) held that processing of Shrimps could not be said to be manufacturing or production. h) Likewise in Bhatsons Acquatic Products vs ACIT 329 ITR 67 (Ker.) held that fish processing does not amount to manufacture or production. i) Likewise in CIT vs Gitwako Pharma (I.)(P) Ltd. (2011) 10 taxman.com 261 (Del.) held that converting raw fish into tinned fish does not amount to manufacturing. j) Likewise preparation of food stuffs/food packet by hotel does not amount to manufacture in India Hotels Company Ltd. vs ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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