The ITO, Ward-4(4), Baroda V. M/s. Tonira Pharma Ltd., Baroda

ITA 1034/AHD/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6361 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 31-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 11-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Presumptive income; Business income
• Section: 143(3); 10B; 10

Judgement Text

ITA NO. 1030 AND 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM] ITA NO. 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER WARD 4(4), VADODARA .............APPEL LANT VS TONIRA PHARMA LIMITED .......RESPONDEN T PLOT NO 23-24, GIDC ESTATE, NANDESARI VADODARA [PAN: AABCT0638F] ITA NO. 1030/AHD/2012 ASSESSMENT YEAR: 2007-08 TONIRA PHARMA LIMITED .............APPE LLANT PLOT NO 23-24, GIDC ESTATE, NANDESARI VADODARA [PAN: AABCT0638F] VS INCOME TAX OFFICER WARD 4(4), VADODARA .......RESPONDENT APPEARANCES BY V K SINGH FOR THE REVENUE SN SOPARKAR, ALONGWITH PARIN SHAH, FOR THE ASSESSEE DATES OF HEARING OF THE APPEAL : OCTOBER 13, 20 17 DATE OF PRONOUNCING THIS ORDER : JANUARY 02, 2 018 O R D E R PER PRAMOD KUMAR, AM: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER DATED 23 RD FEBRUARY 2012 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2007-08. THESE CROSS APPEALS A RE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. IN REVENUES APPEAL, IN SUBSTANCE, SOLITARY GRIE VANCE IS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES, AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCES UNDER SECTION 10B OVE RLOOKING THE FACTS BROUGHT BY THE AO REGARDING EXPENSES INCURRED JOINTLY AND APPO RTIONED BETWEEN THE GENERAL UNIT AND EOU, THUS THE DEDUCTION UNDER SECT ION 10B IS NOT ALLOWABLE TO ITA NO. 1030 AND 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 PAGE 2 OF 7 THE ASSESSEE, AS THE ASSESSEE DOES NOT FULFIL THE C ONDITION UNDER SECTION 10B OF THE ACT. 3. IN ASSESSEES APPEAL, THE GRIEVANCES PRESSED BEF ORE US, WHICH PERTAIN TO AND ARE CONNECTED WITH THE ABOVE GRIEVANCE RAISED BY THE RE VENUE, ARE AS FOLLOWS: 2. LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING THE VIEW TAKEN BY THE AO THAT PROFIT MARGIN OF 10% CHARGED ON TRAN SFER OF INTERMEDIATES BY THE GENERAL UNIT TO EOU UNIT WAS TO CLAIM EXCESS DEDUCT ION UNDER SECTION 10B OF THE ACT. LEARNED CIT(A) OUGHT TO HAVE ACCEPTED 10% PROF IT MARGIN THAT WAS CHARGED AS PER CENTRAL EXCISE VALUATION IN ABSENCE OF ANY COMPARABLE RATHER THAN HOLDING IT TO BE A PRESUMPTIVE TAXATION RATE F OR LEVY OF EXCISE DUTY. 3. LEARNED CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN RECOMPUTING THE PROFITS OF BOTH THE UNITS ON ESTIMATE BASIS BY DIST RIBUTING THE PROFITS OF BOTH THE UNITS. LEARNED CIT(A), DESPITE ADMITTING THAT MARKE T VALUE OF WIP WAS NOT DETERMINABLE, DIRECTED AO TO COMPUTE DEDUCTION UNDE R SECTION 10 B OF THE ACT ON THE BASIS OF 50% DISTRIBUTION OF PROFITS IN BOTH THE UNITS. THE DIRECTION OF LEARNED CIT(A) IS PERVERSE, ERRONEOUS AND AGAINST A CCOUNTANCY PRINCIPLES, AND THAT DESERVES TO BE QUASHED. 5. LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DIRE CTING AO TO EXCLUDE NET PROFIT ATTRIBUTABLE TO SALE OF 2 PRODUCTS NAMELY BE NZARONE PURE AND BFX-P FROM BOOK PROFITS FOR COMPUTING ALLOWABLE DEDUCTION UNDE R SECTION 10B OF THE ACT THAT OUGHT TO HAVE BEEN COMPUTED WITH REFERENCE TO PROFITS AND GAINS OF BUSINESS AS COMPUTED UNDER THE PROVISIONS OF THE INCOME TAX ACT. THIS DIRECTION BY THE AO DESERVES TO BE MODIFIED. 4. GROUND NOS. 1,6,7 AND 8, RAISED BY THE ASSESSEE, ARE GENERAL IN NATURE AND DONOT, AS SUCH, CALL FOR ANY SPECIFIC ADJUDICATION BY US. AS FOR GROUND NO. 4 RAISED BY THE ASSESSEE, LEARNED SENIOR COUNSEL SUBMITS THAT THE ASSESSEE HA S ALREADY RECEIVED THE REQUISITE RELIEF, IN THE COURSE OF RECTIFICATION PROCEEDINGS UNDER SECTI ON 154, AND, AS SUCH, THE SAME IS NOT PRESSED. ALL THESE GROUNDS ARE THUS SUMMARILY DISMI SSED. 5. COMING BACK TO THE GROUNDS OF APPEAL, RAISED BY THE PARTIES IN THESE CROSS APPEALS AND WHICH WE WILL TAKE UP TOGETHER, THE RELEVANT MATERI AL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF BUL K DRUGS, DRUG INTERMEDIATES AND FINE CHEMICALS. THE ASSESSEE HAS THREE MANUFACTURING UNI TS- AN EOU IN NANDESARI, ANOTHER EOU IN ANKLESHWAR, AND A NON EOU GENERAL UNIT IN ANKLES HWAR. AS FOR THE NANDESARI UNIT, IT HAS INCURRED LOSS OF RS 3,23,66,792 IN THE RELEVANT PRE VIOUS YEAR. AS FOR THE EOU UNIT IN ANKLESHWAR, ASSESSEE CLAIMED DEDUCTION OF RS 1,54,6 0,676 WHICH CAME UP FOR EXAMINATION DURING SCRUTINY ASSESSMENT PROCEEDINGS. THE ASSESSI NG OFFICER, FOR THE DETAILED REASONS SET OUT IN THE ASSESSMENT ORDER, WAS OF THE VIEW THAT T HE ASSESSEE IS NOT ELIGIBLE, IN PRINCIPLE, FOR DEDUCTION UNDER SECTION 10B OF THE ACT. HOWEVER, AS THE CIT(A) HAS, BASED ON THE DECISIONS OF THIS TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR, HAS REVERSED THE STAND OF THE ASSESSING OFFICER, AND THE MATTER RESTS THERE, IT IS NOT REAL LY NECESSARY TO GO INTO THIS MATTER IN ANY ITA NO. 1030 AND 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 PAGE 3 OF 7 FURTHER DETAILS. THE OTHER REASON OF THE ASSESSING OFFICER HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SECTION 10 B WAS AS FOL LOWS: B. FROM THE STOCK REGISTER SHOWING THE PURCHASES O F RAW MATERIALS; IT TRANSPIRES THAT RAW MATERIALS ARE JOINTLY PURCHASED FOR BOTH THE UN ITS OF ANKLESHWAR AND A COMMON REGISTER IS MAINTAINED FOR THIS PURPOSE. THIS FACT ALSO PROVES THAT THE ASSESSEE HAS NO SEPARATE E.O.U. AND WHATEVER IS THERE IN THE NAME O F E.O.U THE SAME IS CARVED-OUT BY WAY OF RECONSTRUCTION OF ALREADY EXISTING BUSINESS OR BUSINESS OF ONE COMPOSITE UNIT IS BEING SHOWN AS THE BUSINESSES OF TWO DIFFERENT UNIT S OR THE E.O.U IS ON PAPER ONLY. C. THE TOTAL EXPORT SALES OF THE ANKLESHWAR E.O.U. IS SHOWN AT RS.25,22,87369/- AND IT IS AVERRED BY THE ASSESSEE THAT THE SAID ANKLESHWAR E.O.U. ENJOYED G.P. MARGIN OF 28.34%. THUS IT CAN BE SAID THAT THE COST OF GOODS SOLD BY THE SO-CALLED ANKLESHWAR E.O.U; IS RS.19,65,773487-. OUT OF THE TOTAL SALE O F 14,66,72,339 BY THE GENERAL UNIT OF ANKLESHWAR, SALE OF WIP[WORK IN PROGRESS] OF RS 8,35,84,056/-IS SHOWN TO HAVE BEEN MADE TO THE ANKLESHWAR EOU. HERE IT IS WORTHWH ILE TO MENTION THAT WORK-IN- PROGRESS IS NOTHING BUT SEMIFINISHED GOODS. UNDER T HE CIRCUMSTANCES, IT CANNOT BE BELIEVED THAT WHATEVER IS SHOWN TO HAVE BEEN EXPORT ED BY THE ANKLESHWAR EOU WAS MANUFACTURED BY THE ANKLESHWAR EOU. THE PLAIN READI NG OF SECTION 10B MAKES IT VERY CLEAR THAT FOR ANY ASSESSEE WHO IS IN THE LIKE S OF THE ASSESSEE COMPANY AND WHO CLAIMS A DEDUCTION U/S 10B OF THE ACT SHOULD MANUFA CTURE OR PRODUCE ARTICLES OR THINGS ITSELF. BUT IN THE CASE OF THE ASSESSEE IT I S SEEN THAT THE LION'S CHUNK OF ASSESSEE'S EOU'S EXPORT TURNOVER WAS MANUFACTURED OR PRODUCED IN ITS GENERAL UNIT, ANKLESHWAR AS THE SAME IS BOUGHT BY THE EOU, ANKLES HWAR SHOWING IT AS THE SEMI- COMPLETED GOODS AT GENERAL UNIT, ANKLESHWAR AND THE SAME IS IN TURN EXPORTED. D. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT W AS SUBMITTED BY THE ASSESSEE THAT WORK-IN-PROGRESS OF RS 8,35,84,056/- WAS TRANSFERRE D BY THE GENERAL UNIT ANKLESHWAR TO THE EOU ANKTESHWAR AND THE SAME WAS SHOWN AS SAL ES BY THE GENERAL UNIT ANKLESHWAR. HERE, IT IS WORTH NOTING THAT BOTH GENE RAL UNIT ANKLESHWAR AND SO- CALLED EOU ANKLESHWAR ARE ADJACENT TO EACH OTHER. I T WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE SAID WORK-IN- PROGRESS OF RS 8,35 ,84,056/- WAS SOLD BY THE GENERAL UNIT ANKLESHWAR TO THE EOU ANKLESHWAR AFTER CHARGIN G PROFIT MARGIN OF 10% BECAUSE PRODUCTION OVERHEADS WERE INCURRED BY THE F ORMER TO CONVERT THE RAW MATERIAL INTO WORK-IN-PROGRESS. THIS ASSERTION OF T HE ASSESSEE ALSO SUBSTANTIATES THE NOTION THAT GOODS EXPORTED WERE NOT MANUFACTURED/PR ODUCED BY THE SO-CALLED EOU, ANKLESHWAR. IT IS NOT ASCERTAINABIE AS TO WHAT EXTE NT/ STAGE THE RAW MATERIAL WAS CONVERTED INTO WORK-IN-PROGRESS AS THE ASSESSEE WAS UNABLE TO FURNISH THE DETAILS THEREOF BUT ONE THING IS FOR SURE THAT WHEN THE GEN ERAL UNIT ANKLESHWAR IS CHARGING 10% PROFIT MARGIN ON SALE OF SUCH WORK-IN-PROGRESS OF RS 8,35,84,056/- TO THE EOU, ANKLESHWAR IT CAN SAFELY BE PRESUMED THAT THE SAID WORK-IN-PROGRESS AT THE TIME OF SALE TO THE EOU, ANKLESHWAR MUST HAVE BEEN ALMOST A FINAL PRODUCT. E. THE ASSESSEE STATES THAT IT HAS A CERTIFIC ATE DATED 15.10.2003 ISSUED BY KANDLA SPECIAL ECONOMIC ZONE. THE ASSESSEE HAS FURTHER STA TED THAT IT IS AN 100% EOU AND IS GOVERNED UNDER SPECIAL REGULATI ONS PRESCRIBED BY THE GOVERNMENT OF INDIA AND SUPERVISED BY THE CENTRAL EXCISE. HER E IT IS WORTH MENTIONING THAT THE ASSESSEE'S ASSESSMENT IS TO BE FINALIZED IN ACCORDA NCE WITH THE I.T. ACT AND I.T. RULES. ITA NO. 1030 AND 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 PAGE 4 OF 7 UNLESS THE ASSESSEE CONFORMS TO THE MANDATORY CONDI TIONS AS LAID DOWN U/S 10B, IT CANNOT BE ALLOWED THE DEDUCTION BEING CLAIMED BY IT . F. THE EXPRESSION 'HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PE R CENT EXPORT-ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF B Y THE CENTRAL GOVERNMENT UNDER SECTION 14 OF THE INDUSTRIES ( DEVELOPMENT AND REGULATION) ACT,1951. STATUTORY APPROVAL BY THE BOARD AS 100 PER CENT EOU HAS TO BE OBTAINED FOR AVAILING DEDUCTION U/S 10B; A 100% EOU UNDER FTZ CA NNOT BE EQUATED WITH 100 PER CENT EOU APPROVED BY THE BOARD. DESPITE HAVING BEEN GIVEN AMPLE OPPORTUNITY TO JUST IFY ITS CLAIM OF DEDUCTION OF RS.1,54,60,676 MADE U/S 10B OF THE ACT, THE ASSE SSEE DID NOT FURNISH ANY CERTIFICATE FROM THE BOARD. 4.2 ON THE BASIS OF THE ABOVE DISCUSSION AND FIN DINGS WHICH MAKE IT ABUNDANTLY CLEAR THAT THE ASSESSEE HAS NOT FULFILLED ALL THE M ANDATORY CONDITIONS AS PRESCRIBED UNDER THE PROVISIONS OF SECTION 10B, THE CLAIM OF T HE ASSESSEE COMPANY AS REGARDS THE DEDUCTS OF RS.1,54,60,676 MADE U/S 10B OF THE ACT I S NOT ALLOWABLE AND IS, THEREFORE, REJECTED. PENALTY PROCEEDINGS U/S 271(1)(C) ARE ALS O INITIATED. 6. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). LEARNED CIT(A) GAVE PA RTIAL RELIEF TO THE ASSESSEE BY OBSERVING AS FOLLOWS: 6.2 I HAVE CONSIDERED THE APPELLANT'S SUBMISSION. THE APPELLANT IS RELYING UPON THE RULES OF CENTRAL EXCISE VALUATION TO CLAIM THAT THE PROFIT MARGIN OF 10% CHARGED BY THE GENERAL UNIT TO EOU ARE CORRECT AND THE WIP HAS BEEN TRANSFERRED AT MARKET RATE. BUT THESE RULES ARE ONLY FOR ASCERTAINING THE AMOUN T OF EXCISE DUTY TO BE LEVIED ON EXCISABLE GOODS WHICH ARE NOT SOLD BY THE ASSESSEE BUT ARE USED FOR CONSUMPTION BY HIM OR ON HIS BEHALF IN THE MANUFACTURE OR PRODUCTI ON OF OTHER ARTICLES AND ARE NOT AT ALL CONCERNED WITH MARKET VALUE OF SUCH GOODS. IT I S JUST A PRESUMPTIVE RATE FOR TAXATION PURPOSES. FOR THE PURPOSES OF SECTION 10B, THE TWO UNDERTAKINGS OF THE APPELLANT ARE HAVING DISTINCT IDENTITIES THOUGH OWN ED BY THE SAME PERSON. FROM THE DETAILS SUBMITTED BY THE APPELLANT, IT IS SEEN THAT THE GP RATIO OF EOU IS 28.34% AND NP RATIO IS 15.25% WHEREAS, THE GP RATIO OF GENERAL UNIT IS 20.27% AND NP RATIO IS LOSS OF 3.10%. IT IS ALSO SEEN THAT THE TOTAL SALE MADE BY THE GENERAL UNIT IS RS. 14,66,72,339/- OUT OF WHICH SALE OF RS. 8,35,84,056 /- IS OF WIP TO EOU. THUS, 56.99% OF SALE MADE BY THE GENERAL UNIT GOES TOWARDS THE E OU ON WHICH ONLY 10% GP IS SHOWN. BUT BY DOING SOME FURTHER PROCESSES ON THIS WIP, THE EOU IS EARNING GP OF 28.34% AND THE ENTIRE INCOME EARNED BY EOU IS CLAIM ED AS DEDUCTION U/S 10B. THIS IS CLEARLY A SITUATION WHERE THE APPELLANT IS SHOWI NG MORE PROFIT IN ITS EOU AND LESS PROFIT IN ITS GENERAL UNIT IN ORDER TO CLAIM EXCESS DEDUCTION U/S 10B AND THUS TO AVOID PAYMENT OF TAX ON THE INCOME EARNED BY THE GENERAL UNIT, WHICH IS NOT ELIGIBLE FOR DEDUCTION U/S 10B. HENCE, THE PROFIT AND GAIN OF GE NERAL UNIT AND THE EOU ON ACCOUNT ITA NO. 1030 AND 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 PAGE 5 OF 7 OF SUCH INTER UNIT TRANSFERS ARE REQUIRED TO BE REC OMPUTED AS PER THE PROVISIONS OF SUB-SECTION 8 OF SECTION 80IA. 6.3 SINCE THE MARKET VALUES OF WIP ARE NOT KNOWN, H ENCE SUCH WORKING CAN BE DONE ONLY ON A REASONABLE BASIS. THIS IS BECAUSE SINCE S UCH WIP ARE NOT SOLD IN THE MARKET AND HENCE DETERMINATION OF THEIR MARKET VALUE IS NO T POSSIBLE. HENCE, THE COMPUTATION OF PROFIT AND GAIN OF THE ELIGIBLE BUSINESS IN THE MANNER SPECIFIED IN SECTION 80IA(8) PRESENTS EXCEPTIONAL DIFFICULTIES. IT IS SEEN THAT THE EOU, RAW MATERIAL CONSUMED IS RS.17,47,48,437/- OUT OF WHICH THE WIP TRANSFERRED BY GENERAL UNIT IS RS.8,35,84,056/-. THE G.P. IS RS.8,39,16,548/-. HEN CE, THE GP ATTRIBUTABLE TO THE WIP TRANSFERRED BY GENERAL UNIT COMES TO RS.40138187/-. SIMILARLY, IN THE GENERAL UNIT THE SALES IS RS.14,66,72,339/-. THE PERCENTAGE OF SALES OF WIP IN THE TOTAL SALES IS 56.99%. THE GP IS RS.2,97,31,466/., HENCE, THE PERC ENTAGE OF GP ATTRIBUTABLE TO SALE OF WIP COMES TO RS.1,69,43,048/-. .THUS, THE TOTAL GP OF EOU AND GENERAL UNIT RELATABLE TO THE WIP COMES TO RS. 5,70,81,2357-. TH IS GP IS REQUIRED TO BE DISTRIBUTED EQUALLY BETWEEN THE GENERAL UNIT AND THE EOU, THIS IS BECAUSE THE WIPS BEING TRANSFERRED BY THE GENERAL UNIT TO THE EOU ARE AT D IFFERENT STAGES AS ALREADY MENTIONED ABOVE. HENCE, IT IS NOT POSSIBLE TO EXACT LY DETERMINE THE RATIO IN WHICH GP ATTRIBUTABLE TO SUCH WIP CAN BE DISTRIBUTED BETWEEN THESE UNITS. 6.4 ACCORDINGLY, THE PROFITS OF BOTH THE UNITS WILL BE RECOMPUTED AS GIVEN IN THE FOLLOWING TABLE: TONIRA PHARMA LTD., A.Y. 2007-08 ALL AMOUNTS ARE IN RS. ANKLESHWAR GENERAL UNIT ANKLESHWAR EOU UNIT TOTAL GP ATTRIBUTABLE TO WIP TOTA L SALES 1466722339 TOTAL PURCHASES 174748437 SALES OF WIP TO EOU UNIT 83584056 PURCHASE OF WIP 83584056 GROSS PROFIT 29731466 GROSS PROFIT 83916548 GP ATTRIBUTABLE TO WIP 16943048 GP ATTRIBUTABLE TO WIP 40138187 57081235 50% OF TOTAL GP ATTRIBUTABLE TO WIP 28540618 50% OF TOTAL GP ATTRIBUTABLE TO WIP 28540618 REVISED GP 41329035 REVISED GP 72318979 ORIGINAL NET PROFIT -4553599 ORIGINAL NET PROFIT 45162974 REVISED NET PROFIT 7043970 REVISED NET PROFIT 33565405 THE A.O. IS DIRECTED TO ADOPT THESE FIGURES FOR COM PUTING THE TAXABLE INCOME OF THE APPELLANT AND THE GRANT OF DEDUCTION U/S 80IB. ITA NO. 1030 AND 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 PAGE 6 OF 7 7. AS ALREADY HELD, THE A.O. WILL NOT GRANT ANY DED UCTION U/S 10B TO THE PROFIT ATTRIBUTABLE TO THE SALE OF BENZARONE PURE AND FINA L PRODUCT OF BFX-P BY THE EOU. THE PURCHASE OF BENZARONE CRUDE BY THE EOU FROM GEN ERAL UNIT IS OF RS.1,56,43,259/- AND OF BFX-P IS RS. 82,841/-. THE TOTAL COMES TO RS . 1,57,26,100/-. THE NET PROFIT OF THE EOU ATTRIBUTABLE TO THIS WILL BE RS.33565405/17 4748437*15726100= RS.30,20,645/-. THE BALANCE NET PROFIT WOULD BE RS. 3,05,44,760/- WHICH WOULD BE ELIGIBLE FOR DEDUCTION U/S 10B AS PER LAW. THE AO S HOULD KEEP IN MIND THAT ONLY 90% OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THINGS IS ELIGIBLE FOR DEDUCTION U/S 10B. 7. NONE OF THE PARTIES IS SATISFIED WITH THE STAND OF THE ASSESSING OFFICER, AND BOTH THE PARTIES, THEREFORE, ARE IN APPEAL BEFORE US. WHILE ASSESSEE IS AGGRIEVED OF THE DEDUCTION NOT BEING ALLOWED IN FULL AS CLAIMED, THE ASSESSING OFF ICER IS AGGRIEVED OF THE IMPUGNED RELIEF BEING GRANTED BY THE CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 9. SO FAR AS THE ISSUE RAISED BY THE REVENUE, REGA RDING DISENTITLEMENT FOR DEDUCTION UNDER SECTION 10B ON THE GROUND THAT THAT THERE IS APPORTIONMENT OF EXPENDITURE BETWEEN EOU AND NON EOU, IS CONCERNED, WE FIND THAT THIS I SSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY DECISIONS OF THE COORDINATE BENCHES, I N ASSESSEES OWN CASE, FOR SEVERAL ASSESSMENT YEARS. COPIES OF THESE DECISIONS ARE PLA CED BEFORE US AT PAGES 77 TO 86 OF PAPERBOOK. WE HAVE ALSO NOTED THAT SEPARATE YEAR EN D FINANCIAL STATEMENTS FOR THE EOU ARE ALSO PLACED BEFORE US AT PAGE 35-41 OF THE PAPERBOO K, AND NO SPECIFIC DEFECTS, EXCEPT FOR THE INTER UNIT TRANSFER PRICE, ARE POINTED OUT IN THE S AME. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE ARE UNABLE TO SEE ANY LEGALLY SUSTAINABLE MERITS IN THE GRIEVANCE OF THE REVENUE. AS REGARDS THE GRIEVANCES OF THE ASSESSEE, THERE ARE TWO PARTS OF THESE GRIEVANCES. THE FIRST ONE IS AGAINST DENIAL O F 10B EXEMPTION IN RESPECT OF BENZARONE PURE AND BFX-P I.E. DE ACID, ON THE GROUND THAT TH E PROCESS INVOLVED IS ONLY PURIFICATION OF PRODUCT INTO FINAL PRODUCT AND THAT IT INVOLVES ON LY REMOVAL OF SOME IMPURITIES. IN EFFECT THUS IT WAS HELD THAT SINCE THE PROCESS DID NOT LEA D TO MANUFACTURE OF A NEW PRODUCT, IT DID NOT AMOUNT TO MANUFACTURE OF NEW ARTICLE OR THING. AS F OR THIS ISSUE, WE FIND THAT THE CONTROVERSY IS BY NOW WELL SETTLED INASMUCH AS HONBLE SUPREME COURT HAS HELD, IN THE CASE OF ITO VS ARIHANT TILES & MARBLES PVT LTD [(2010) 320 ITR 79 (SC)], THAT EVEN CONVERSION OF MARBLE BLOCKS BY SAWING THEM INTO SLABS AND TILES AND POLI SHING AMOUNTS TO MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. IN THE PRESENT CAS E, THE PRODUCTS AS INPUTS AND AS OUTPUTS WERE DIFFERENT FOR ALL PRACTICAL PURPOSES OF THEIR USE A ND APPLICATION. ON THE SIMILAR LINES IS EARLIER JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF IN DIA CINE AGENCIES VS CIT [(2008) 308 ITR 98 (SC)] WHEREIN CONVERSION OF JUMBO ROLLS OF P HOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS IN DESIRED SIZE WAS HELD TO BE PRODUCTION AND MANUFACTURE. THE OBJECTION OF THE CIT(A) IS THUS NOT REALLY SUSTAINABLE ON FACTS AND IN LAW. EVEN A PURIFICATION PROCESS, OR REMOVAL OF IMPURITIES, AS ALONG AS THE END PRODUCT HAS DIFFERE NT USAGE, VALUE AND APPLICATIONS DOES AMOUNT TO A NEW PRODUCT COMING INTO EXISTENCE. THE ONLY OTHER ISSUE IS THE BASIS ON WHICH TRANSFER PRICE OF PRODUCT FROM NON EOU TO EOU UNIT IS TO BE DETERMINED. THERE IS NO DISPUTE THAT THE PRICE AT WHICH THE WORK IN PROGRESS IS TO BE TRANSFERRED FROM THE NON EOU UNIT TO THE EOU UNIT MUST TAKE INTO ACCOUNT SOME REASONABLE PRO FIT ELEMENT AS WELL. THE ASSESSEE HAS ITA NO. 1030 AND 1034/AHD/2012 ASSESSMENT YEAR: 2007-08 PAGE 7 OF 7 ADOPTED 10% MARK UP ON THE BASIS OF EXCISE RULES. H OWEVER, THE CIT(A) HAS HELD THAT THE TRANSFER PRICE SO ADOPTED IS MUCH LESS THAN APPROPR IATE, SINCE, AFTER MINIMAL PROCESSING INVOLVED IN THE EOU UNIT, THE GOODS EVENTUALLY FETC HES GROSS PROFIT OF 28.34%. THE CIT(A) HAS THUS HELD THAT THE PROFIT SHOULD BE EQUALLY DIV IDED BETWEEN THE EOU AND NON EOU UNIT. LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY HONBLE DELHI HIGH COURTS JUDGMENT I N THE CASE OF CIT VS SAMSUNG INDIA ELECTRONICS LTD [(2011) 338 ITR 186 (DEL)] WHEREIN WHAT IS HELD TO BE A REASONABLE MARGIN FOR CUSTOM DUTY PURPOSES WAS HELD TO A REASONABLE M ARGIN FOR THE PURPOSES OF SECTION 40A(2) AS WELL. THIS ARGUMENT, HOWEVER, DOES NOT APPEAL TO US. THE PRICE AT WHICH THE WORK IN PROGRESS HAS TO BE TRANSFERRED FROM NON EOU UNIT TO EOU UNIT MUST NOT ONLY BE REASONABLE BUT FAIR AND EQUITABLE AS WELL. IN CASE NON EOU HAS A LEGITIMATE RIGHT OVER MORE THAN 10% OF PROFITS, AS INDEED IS OUR OPINION, SUCH A RIGHT CAN NOT BE BRUSHED ASIDE BY SAYING THAT AFTER ALL 10% IS ENOUGH. THE QUESTION BEFORE US IS NOT OF WHA T WILL BE REASONABLE PROFIT IN THE HAND OF NON EOU UNIT GENERALLY, BUT OF WHAT IS REASONABLE A ND FAIR SHARE OF PROFIT THAT SHOULD BE ALLOCATED TO THE NON EOU UNIT. THE PROFITS ARE TO A LLOCATED TO BOTH THE UNITS IN A FAIR AND REASONABLE MANNER. LET US LOOK AT THE FACTS OF THIS CASE. THE OVERALL MARGIN IS 28.34%, THE PROCESSING IS DONE BY BOTH THE UNITS, AND THE PROCE SSING WORK DONE BY THE NON EOU UNIT, BY NO STRETCH OF LOGIC, IS LESS THAN THE PROCESSING WO RK DONE BY THE EOU UNIT. IN THE LIGHT OF THESE FACTS, IN OUR CONSIDERED VIEW, ALLOCATION OF EQUAL PROFITS TO EOU AND NON EOU UNIT ON AN EQUAL BASIS IS QUITE FAIR AND REASONABLE. WE DE CLINE TO INTERFERE IN THE WELL REASONED FINDINGS OF THE CIT(A). WE APPROVE HIS ACTION ON T HIS POINT. 10. THE ORDER OF THE CIT(A) IS THUS MODIFIED ONLY IN RESPECT OF EXCLUSION OF PROFITS IN RESPECT OF TWO PRODUCTS- I.E. BENZARONE PURE AND DI ACID. WE DIRECT THAT THE PROFITS IN RESPECT OF THESE PRODUCTS WILL ALSO BE ELIGIBLE FOR BENEFIT UNDER SECTION 10B. EXCEPT FOR THIS MODIFICATION, THE ORDER OF THE CIT(A) STANDS CONFIR MED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOU NCED IN THE OPEN COURT TODAY ON THE 2 ND DAY OF JANUARY, 2018. SD/- SD/- S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBE R) AHMEDABAD, THE 2 ND DAY OF JANUARY, 2018 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD