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Income Tax Officer Versus Tonira Pharma Limited

2018 (1) TMI 323 - ITAT AHMEDABAD

Exemption 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 entir .....

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se 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 .....

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he 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 u .....

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e 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. - ITA No. 1034/Ahd/2012, ITA No. 1030/Ahd/2012 - Dated:- 2-1-2018 - Pramod Kumar AM And .....

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in the circumstances, and in law, the learned CIT(A) has erred in deleting the disallowances under section 10B overlooking the facts brought by the AO regarding expenses incurred jointly and apportioned between the general unit and EOU, thus the deduction under section 10B is not allowable to the assessee, as the assessee does not fulfil the condition under section 10B of the Act. 3. In assessee s appeal, the grievances pressed before us, which pertain to and are connected with the above grievan .....

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earned CIT(A) further erred in law and on facts in recomputing the profits of both the units on estimate basis by distributing the profits of both the units. Learned CIT(A), despite admitting that market value of WIP was not determinable, directed AO to compute deduction under 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 accountancy principles, and that deserves to be quashed. 5. Learned .....

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call for any specific adjudication by us. As for ground no. 4 raised by the assessee, learned senior counsel submits that the assessee has already received the requisite relief, in the course of rectification proceedings under section 154, and, as such, the same is not pressed. All these grounds are thus summarily dismissed. 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 material facts are like this. The asse .....

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. The Assessing Officer, for the detailed reasons set out in the assessment order, was of the view that the 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 really necessary to go into this matter in any further details. The other reason of the Assessing Officer holding that .....

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it is being shown as the businesses of two different units or the E.O.U is on paper only. c. The total export sales of the Ankleshwar E.O.U. is shown at ₹ 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 ₹ 19,65,773487-. Out of the total sale of 14,66,72,339 by the General Unit of Ankleshwar, sale of WIP[Work In Progress] of ₹ 8,35, .....

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cles or things itself. But in the case of the assessee it is 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, Ankleshwar showing it as the semicompleted goods at General Unit, Ankleshwar and the same is in turn exported. d. During the course of assessment proceedings it was submitted by the assessee that work-in-progress of ₹ 8,35,84,056/- was transferred by the General .....

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to work-in-progress. This assertion of the assessee also substantiates the notion that goods exported were not manufactured/produced by the so-called EOU, Ankleshwar. It is not ascertainabie as to what extent/ 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 General Unit Ankleshwar is charging 10% profit margin on sale of such work-in-progress of ₹ 8,35,84,056/- to the EOU, Ankleshwa .....

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d in accordance with the I.T. Act and I.T. Rules. Unless the assessee conforms to the mandatory conditions 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 per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government under section 14 of the Industries ( Development and Regulation) Act,1951. Statutory ap .....

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conditions as prescribed under the provisions of section 10B, the claim of the assessee company as regards the deducts of ₹ 1,54,60,676 made u/s 10B of the Act is not allowable and is, therefore, rejected. Penalty proceedings u/s 271(1)(c) are also 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 partial relief to the assessee by observing as follows: 6.2 I have considered the appellant' .....

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lue of such goods. It is just a presumptive rate for taxation purposes. For the purposes of section 10B, the two undertakings of the appellant are having distinct identities though owned 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 ₹ 14,66,72,339/- out of which .....

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ome earned by the general unit, which is not eligible for deduction u/s 10B. Hence, the profit and gain of general unit and the EOU on account of such inter unit transfers are required to be recomputed as per the provisions of sub-section 8 of section 80IA. 6.3 Since the market values of WIP are not known, hence such working can be done only on a reasonable basis. This is because since such WIP are not sold in the market and hence determination of their market value is not possible. Hence, the c .....

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es of WIP in the total sales is 56.99%. The GP is ₹ 2,97,31,466/., Hence, the percentage of GP attributable to sale of WIP comes to ₹ 1,69,43,048/-. .Thus, the total GP of EOU and general unit relatable to the WIP comes to ₹ 5,70,81,2357-. This 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 different stages as already mentioned above. Hence, it is not possible to exa .....

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o 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 computing the taxable income of the appellant and the grant of deduction u/s 80IB. 7. As already held, the A.O. will not grant any deduction u/s 10B to t .....

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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 Officer is aggrieved of the impugned relief being granted by the CIT(A). 8. We have heard the rival contentions, per .....

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are placed before us at pages 77 to 86 of paperbook. We have also noted that separate year end financial statements for the EOU are also placed before us at page 35-41 of the paperbook, 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. As regards the grievances of the assessee, there are two .....

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nasmuch as Hon ble 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 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 Age .....

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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 profit element as well. The assessee has adopted 10% mark up on the basis of excise rules. However, the CIT(A) has held that the transfer price so adopted is much less than appropriate, since, after minimal processing involved in the EOU unit, the goods eventually fetches gross prof .....

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