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2018 (1) TMI 323 - AT - Income TaxExemption u/s 10B - apportionment of expenditure between EOU and non EOU - Held that:- We find that this issue is covered, in favour of the assessee, by decisions of the coordinate benches, in assessee’s own case, for several assessment years. We have also noted that separate year end financial statements for the EOU are also placed before us and no specific defects, except for the inter unit transfer price, are pointed out in the same. 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. Denial of 10B exemption in respect of Benzarone Pure and BFX-P i.e. De Acid - “the process involved is only purification of product into final product” and that it involves only removal of some impurities, in effect the process did not lead to manufacture of a new product - Held that:- We find that the controversy is by now well settled inasmuch as Hon’ble Supreme Court has held, in the case of ITO Vs Arihant Tiles & Marbles Pvt Ltd [2009 (12) TMI 1 - SUPREME COURT] that even conversion of marble blocks by sawing them into slabs and tiles and polishing amounts to ‘manufacture or production of article or thing’. In the present case, the products as inputs and as outputs were different for all practical purposes of their use and application. On the similar lines is earlier judgment of Hon’ble Supreme Court in the case of India Cine Agencies Vs CIT [2008 (11) TMI 15 - SUPREME COURT] wherein conversion of jumbo rolls of photographic 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 different usage, value and applications does amount to a new product coming into existence. Transfer price of product from non EOU to EOU unit - Held that:- 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 cannot be brushed aside by saying that after all 10% is enough. The question before us is not of what will be reasonable profit in the hand of non EOU unit generally, but of what is reasonable and fair share of profit that should be allocated to the non EOU unit. The profits are to allocated 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 processing work done by the non EOU unit, by no stretch of logic, is less than the processing work 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 decline to interfere in the well reasoned findings of the CIT(A). We approve his action on this point. 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 confirmed.
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