PIONEER FOOD & AGRO INDUSTRIES,MUMBAI vs. ITO 21(2)(5), MUMBAI

Briefly stated the facts are that, the assessee which is engaged in the business of manufacturing of Honey, filed its return of income on 15.09.2010 declaring the income of ₹.20,276/-. The assessment was 2 ITA.No.4690/MUM/2016 (A.Y: 2010-11) M/s. Pioneer Food & Agro Industries completed on 31.01.2013 u/s.143(3) determine the income of the assessee at ₹.40,23,190/-. While completing the assessment Assessing Officer noticed that assessee had credited foreign exchange difference, sale proceeds on VKUY License, duty drawback and interest income to Profit and Loss Account. Assessing Officer noticed that assessee claimed deduction u/s.80IB of the Act on duty drawback, VKUY License, exchange difference which was credited to Profit and Loss Account. The Assessing Officer held that VKUY License, duty drawback and exchange difference are not income derived from manufacture/production activity of the assessee undertaking as referred to in section 80IB of the Act and the profits derived by way of such incentives did not fall with the expression profit derived from industrial undertaking in view of the decision of the Hon'ble Supreme Court in the case of M/s. Liberty India v. CIT [183 Taxman 349]. Thus, in view of the decision of the Hon'ble Supreme Court in the case of M/s. Liberty India v. CIT (supra), Assessing Officer disallowed the claim made by the assessee u/s. 80IB of the Act on the above incomes. Assessing Officer also initiated penalty proceedings for furnishing of inaccurate particulars of income.

Notice u/s. 274 r.w.s. 271(c) was issued to the assessee and the assessee in its reply placing reliance on the decision of the Hon'ble Supreme Court in the case of Reliance Petro Product Pvt Ltd [322 ITR

3 ITA.No.4690/MUM/2016 (A.Y: 2010-11) M/s. Pioneer Food & Agro Industries 128] Submitted that, the Hon'ble Supreme Court held that making a claim which may not be sustainable in law does not tantamount to furnishing of inaccurate particulars of income. Therefore, it was contended that there is no furnishing of inaccurate particulars by the assessee in making the claim for deduction u/s. 80IB of the Act. However, the Assessing Officer in the penalty order held that assessee has furnished inaccurate particulars of income and levied penalty u/s. 271(1)(c) of the Act. Assessee carried the matter to the Ld.CIT(A) and the Ld.CIT(A) sustained the penalty against which the assessee is in appeal before us.

Learned Counsel for the assessee reiterating the submissions made before the lower authorities submits that the income derived by the assessee is nothing but business profits eligible for deduction u/s. 80IB of the Act. The Learned Counsel for the assessee further referring to the decision of the Hon'ble Supreme Court in the case of CIT v. Meghalaya Steel Ltd [383 ITR 217] submits that Hon'ble Supreme Court held that transport interest and power subsidies given by the Government go to reimbursement of cost in production of goods and are eligible for deduction u/s. 80IB/80IC of the Act and they did not fall under income from other sources. He also submits that the CBDT issued a Circular No. 39 of 2016 dated 29.11.2016 clarifying that subsidies received from the Government are part of profits and gains of business derived from the 4 ITA.No.4690/MUM/2016 (A.Y: 2010-11) M/s. Pioneer Food & Agro Industries industrial undertaking/eligible business and they are admissible for applicable deduction under Chapter VI-A of the Act. Learned Counsel for the assessee, therefore submits that the sale proceeds from duty drawback, VKUY License on exports and exchange fluctuation is nothing but incomes derived from the undertaking and in any case it is a bonafide claim and all the particulars are given in the return of income and mere disallowance of a bonafide claim will not lead to furnish of inaccurate particulars.

Ld.DR vehemently supported the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below. it is the finding of the lower authorities that as on the date of filing of return i.e. 15.09.2010 the assessee is aware of the decision of the Hon'ble Supreme Court in the case of M/s. Liberty India v. CIT. (supra) which was rendered on 31.08.2009, as per this decision of the Hon'ble Supreme Court assessee is not entitled for the deduction u/s.80IB on exchange difference, sale proceeds on sale of VKUY License for exports and duty drawback. The Hon'ble Supreme Court held that the assessee is not eligible for deduction on such incentives sold by the assessee. Therefore, when the assessee is not entitled for deduction u/s.80IB of the Act on such incomes the claim made by the assessee in its return of income is against the decision of the Hon'ble Supreme Court

As per the admission of the appellant, the appellant firm was not eligible for deduction u/s 80IB on such incentives, once the decision of Hon'ble Supreme Court in the case of Liberty India vs CIT (supra) was rendered on 31 August, 2009. Making such a claim in the return of income of A.Y 2010-11 can only be termed as furnishing of inaccurate particulars of income with malafide intention because the appellant was very much aware that such a claim was patently wrong and inadmissible.

This is not a case where conflicting decisions of various High Courts were available on the date of filing of return. For earlier years viz.,A.Ys 2008-09 and 2009-10. The appellant may claim that he was under bonafide belief of the correctness of the claim u/s 80IB as the issue was not settled. However, with respect to A.Y. 2010-11, no such belief can be formed as the ratio of the decision of Hon'ble Supreme Court became binding on everybody including the appellant, the moment was delivered. It takes the shape of the “Law of the Land".

Apart from that I find that the reliance of the appellant in the case of Reliance Petro Products Pvt. Ltd. in 322 ITR 128 is misplaced. Hon’ble Supreme Court in this case has held in pars 9 that "9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:— "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." We have already seen the meaning of the word "particulars" in the earlier part of this judgment.

From the above, it is clear that in the aforesaid case there was a finding of the fact that no details supplied by the assessee in its return of income was found to be incorrect or erroneous or false by the Revenue. However, in the instant case, the AO has clearly giving the findings that the claim of the deduction u/s 80IB made in the return of income was incorrect or false, considering the fact that the appellant was fully aware of the decision of Hon’ble Supreme Court in the case of Liberty India vs CIT (supra) upholding the non-admissibility of deduction u/s 80 lB in such cases. This further establishes the malafide intention or mens rea on the part of the appellant in making such claim in the return of income. The focus of the AR of the appellant on the phrase used by the Hon'ble Supreme Court — "A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee”- cannot be read in isolation. In the instant case, during the assessment as well as the penalty proceedings, it was brought on record that the appellant had made the false claim knowing fully well, as the said judgment of the Apex Court was already delivered before filing of the return of income, that such claim was not admissible in law, will tantamount to furnishing of inaccurate particulars of income in the return of income filed by the appellant during A.Y. 2010-11. Similarly, reliance of the appellant on the 8 ITA.No.4690/MUM/2016 (A.Y: 2010-11) M/s. Pioneer Food & Agro Industries decisions of Hon'ble ITAT, Chandigarh bench in Pooja Industries vs ITO (supra) and Karna International, Ludhiana vs ITO (supra) are distinguishable on facts and of no help to the appellant.”

On a careful reading of the above findings and conclusions drawn by the Ld.CIT(A), we do not find any valid reason to interfere with the observations of the Ld.CIT(A) in holding that assessee had furnished inaccurate particulars of income in claiming deduction u/s. 80IB of the Act. Thus, we sustain the order of the Ld.CIT(A) and reject the grounds raised by the assessee.

In the result, appeal of the assessee is dismissed.