Case Law Details
Pushkar Chemical and Fertilisers Pvt. Ltd. Vs DCIT (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, disposed of two connected appeals involving the assessee and the Revenue for Assessment Years (AY) 2012-13 and 2014-15. Both appeals arose from proceedings under Section 154 of the Income-tax Act, 1961, and primarily concerned the characterization of fertilizer subsidy received under the Government of India’s Nutrient Based Subsidy (NBS) Policy and the scope of rectification proceedings.
The assessee, engaged in the manufacture of chemicals, dyes, fertilizers and bio-fertilizers, had originally offered the fertilizer subsidy received under the NBS Policy as revenue receipt. Subsequently, relying on the “purpose test” evolved through judicial precedents, it contended that the subsidy was capital in nature and therefore not chargeable to tax. According to the assessee, the subsidy was intended to encourage modernization, balanced fertilization, investment, competitiveness and long-term growth of the indigenous fertilizer industry, rather than to supplement profits or reimburse operational expenses.
Assessment Year 2012-13
For AY 2012-13, the original assessment was completed under Section 143(3), followed by reassessment under Section 143(3) read with Section 147 on 30.12.2018. The assessee filed a rectification application under Section 154 on 01.03.2019 against both the original assessment and reassessment orders. Apart from seeking MAT credit, the assessee claimed that the fertilizer subsidy constituted a capital receipt.
The Assessing Officer partly allowed the rectification application by granting MAT credit but rejected the claim relating to the subsidy, holding that such a claim could not be entertained because it had not been made in the original return of income.
Meanwhile, the reassessment dispute had been settled under the Direct Tax Vivad Se Vishwas (DTVSV) Act, 2020. The CIT(A) held that, following such settlement, the reassessment order became non est, and therefore the limitation period under Section 154(7) had to be reckoned from the original assessment order. On this basis, the rectification application was treated as time-barred.
The Tribunal disagreed with this approach. It held that the DTVSV Act is a dispute resolution mechanism intended to reduce litigation and does not extinguish or erase the legal existence of the assessment or reassessment order. Settlement under the scheme brings finality only to the disputes covered by the declaration and does not render the underlying order non est.
The Tribunal further held that once a reassessment order is passed, it becomes the operative order, and limitation under Section 154 must be computed with reference to that order. Since the reassessment order had been passed on 30.12.2018, the rectification application filed on 01.03.2019 was within the prescribed period.
The Tribunal also observed that the Assessing Officer himself had entertained the rectification application and granted relief relating to MAT credit. Therefore, it would be inconsistent to hold that the same application was time-barred with respect to another claim.
Regarding the scope of Section 154, the Tribunal held that rectification is not confined only to clerical or arithmetical mistakes. A legal mistake apparent from the record can also be corrected, provided all foundational facts are already available and no fresh investigation is required. Since the subsidy, the scheme under which it was received, and the relevant facts were already on record, the issue involved only the correct legal characterization of the receipt.
Applying the purpose test, the Tribunal held that the NBS subsidy was intended to promote modernization, investment, balanced fertilization, competitiveness and the development of the fertilizer industry. Consequently, it constituted a capital receipt. The Tribunal allowed the assessee’s appeal and directed the Assessing Officer to grant consequential relief.
Assessment Year 2014-15
For AY 2014-15, the Revenue challenged the CIT(A)’s order allowing the assessee’s claim that fertilizer subsidy amounting to Rs. 9,54,03,636 was a capital receipt and directing its exclusion while computing book profit under Section 115JB.
The assessee had initially offered the subsidy to tax as revenue receipt. Subsequently, through a rectification application under Section 154, it claimed that the subsidy had been wrongly treated as taxable income.
While considering the rectification application, the Assessing Officer examined the NBS Policy and acknowledged that its objectives included balanced fertilization, modernization, investment, competitiveness and the growth of the indigenous fertilizer sector. However, relief was denied solely on the technical ground that the assessee had not filed a revised return.
The CIT(A) held that the issue was purely legal and arose from facts already available on record. It concluded that the subsidy was capital in nature and that Goetze (India) Ltd. did not prevent appellate authorities from entertaining such claims.
The Tribunal affirmed the CIT(A)’s findings. It reiterated that the decisive factor in determining the nature of a subsidy is its purpose. Since the NBS Policy aimed at encouraging modernization, innovation, efficiency, investment and long-term development of the fertilizer industry, the subsidy could not be regarded as a revenue receipt intended merely to augment profits.
The Tribunal also noted that a coordinate bench had already held, in the assessee’s own case, that subsidy received under the same NBS Policy constituted a capital receipt. No distinguishing features had been brought on record by the Revenue.
The Tribunal further held that the absence of a revised return could not defeat a legal claim arising from admitted facts already on record. It observed that Section 154 permits rectification of apparent mistakes of law and cannot be restricted solely to arithmetic corrections.
With regard to Section 115JB, the Tribunal agreed that once the subsidy was held to be a capital receipt not chargeable to tax under the normal provisions, it could not be included in the computation of book profits.
Accordingly, the Tribunal dismissed the Revenue’s appeal for AY 2014-15.
In conclusion, the Tribunal held that the assessee’s rectification application for AY 2012-13 was maintainable and within limitation, and that settlement under the DTVSV Act did not render the reassessment order non est. It further held that fertilizer subsidy received under the NBS Policy was a capital receipt not chargeable to tax and was also liable to be excluded while computing book profits under Section 115JB. Consequently, the assessee’s appeal for AY 2012-13 was allowed, while the Revenue’s appeal for AY 2014-15 was dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid set of appeals comprises of one appeal filed by the assessee for the assessment year 2012-13 and another appeal filed by the Revenue for the assessment year 2014-15. Since both the appeals arise from proceedings under section 154 of the Income Tax Act, 1961, and the core controversy in both the years substantially revolves around the character of fertilizer subsidy received by the assessee under the Nutrient Based Subsidy Policy of the Government of India and the scope of rectification proceedings under section 154, both the appeals were heard together and are being disposed of by this consolidated order. Though the issues in both the years overlap on certain legal principles, the factual matrix and the manner in which the controversy has travelled to the Tribunal are slightly different; therefore, both the appeals are being dealt with separately, while maintaining a common thread of reasoning wherever the legal principle is identical.
2. The assessee company is engaged in the business of manufacturing chemicals, dyes and fertilizers including bio-fertilizers. During the relevant years, the assessee received fertilizer subsidy under the Nutrient Based Subsidy Policy framed by the Government of India for P861C fertilizers. At the time of filing its return of income, the assessee had offered the said subsidy as revenue receipt. Subsequently, upon examination of the true nature, object and purpose of the subsidy scheme and in light of judicial pronouncements laying down the “purpose test” for determining the character of subsidy, the assessee moved rectification applications under section 154 contending that the subsidy was in the nature of capital receipt not chargeable to tax. The assessee’s case throughout has been that the subsidy was not meant to reimburse day-to-day operational cost or supplement business profits, but was intended to promote investment, modernization, balanced fertilization, competitiveness and long-term growth of indigenous fertilizer industry, and therefore the receipt bore the character of capital receipt.
Assessment Year 2012-13
3. We shall first take up the assessee’s appeal for assessment year 2012-13. The said appeal has been filed by the assessee against the impugned order dated 15.03.2024 passed by the learned Commissioner of Income Tax (Appeals)-51, Mumbai, arising out of the order passed under section 154 of the Act. The assessee has challenged the action of the learned CIT(A) in holding that the rectification application filed by the assessee on 01.03.2019 was barred by limitation under section 154(7) by reckoning the period of four years from the original assessment order passed under section 143(3), instead of reckoning the same from the reassessment order passed under section 143(3) r.w.s. 147 dated 30.12.2018. The assessee is further aggrieved by the finding of the learned CIT(A) that once the reassessment dispute was settled under the Direct Tax Vivad Se Vishwas Act, 2020, the reassessment order itself became non est and could not be treated as an operative order for the purpose of section 154. The assessee has also challenged the denial of its claim that fertilizer subsidy received under the Nutrient Based Subsidy Scheme was liable to be treated as capital receipt.
4. Briefly stated, in assessment year 2012-13, the original assessment was completed under section 143(3). Thereafter reassessment proceedings were initiated under section 147 and reassessment order under section 143(3) r.w.s. 147 came to be passed on 30.12.2018. Subsequently, the assessee filed rectification application dated 01.03.2019 under section 154 against both the original assessment order and the reassessment order. In the said rectification petition, the assessee raised, inter alia, the claim relating to grant of MAT credit and also the claim that fertilizer subsidy received under the Nutrient Based Subsidy Policy was capital receipt not chargeable to tax. The Assessing Officer, while passing order under section 154 dated 03.04.2019, accepted the assessee’s claim regarding MAT credit and granted consequential relief. However, insofar as the claim regarding fertilizer subsidy being capital receipt was concerned, the same was rejected essentially on the ground that the assessee had not made such claim in the original return of income and, therefore, such claim could not be entertained in rectification proceedings.
5. Against the reassessment order dated 30.12.2018, the assessee had also opted for settlement under the Direct Tax Vivad Se Vishwas Act, 2020 and Forms No. 3 and 5 came to be issued. The learned CIT(A), while deciding the appeal arising out of the section 154 order, proceeded on the reasoning that once the reassessment proceedings stood settled under the DTVSV Scheme, the reassessment order ceased to exist or became non est and, therefore, limitation under section 154(7) could not be reckoned from the reassessment order. According to the learned CIT(A), limitation had to be reckoned from the original assessment order and, since the rectification application was filed beyond four years from the end of the financial year in which the original assessment order was passed, the rectification application itself was barred by limitation.
6. Before us, the learned counsel for the assessee submitted that the entire approach of the learned CIT(A) is contrary to the scheme of the DTVSV Act and the settled principles governing section 154. It was submitted that the Direct Tax Vivad Se Vishwas Act is merely a beneficial mechanism for settlement of contentious issues pending in appeal and reduction of litigation. It does not obliterate, extinguish or render non est the assessment order itself. What gets settled under the scheme is the dispute in appeal, and not the legal existence of the assessment or reassessment order. It was further submitted that DTVSV is not akin to settlement under Chapter XIX-A of the Act, where the statute itself provides special finality to orders passed by the Settlement Commission. In the absence of any statutory provision under the DTVSV Act declaring that the assessment order itself stands annulled or effaced from the record, the reassessment order dated 30.12.2018 continued to remain an operative order under the Act. Therefore, limitation under section 154 had necessarily to be reckoned from the reassessment order, being the latest operative order.
7. The assessee further submitted that the rectification petition was not only filed within four years from the reassessment order but was also entertained by the Assessing Officer himself, who partly allowed the same by granting MAT credit. Thus, it was not open to the learned CIT(A) to hold that the very same rectification petition was barred by limitation. Reliance was placed on the judgment of the Hon’ble Andhra Pradesh High Court in Rastriya Ispat Nigam Ltd. vs. ACIT, 377 ITR 420, affirmed by dismissal of SLP by the Hon’ble Supreme Court, wherein it has been held that once reassessment order is passed, the original assessment order merges into the reassessment order and limitation under section 154 has to be reckoned from the reassessment order. Reliance was also placed on the judgment of the Hon’ble Calcutta High Court in EIH Ltd. vs. CIT, 64 taxmann.com 392, following Hind Wire Industries Ltd. vs. CIT, 212 ITR 639, wherein it has been held that where an order is amended, the amended order becomes the operative order and limitation under section 154 runs from such amended order.
8. The learned Departmental Representative, on the other hand, supported the order of the learned CIT(A) and submitted that since the reassessment proceedings had been settled under the DTVSV Scheme, the reassessment order could not be taken as the basis for limitation under section 154.
9. We have carefully considered the rival submissions and perused the material placed before us. In our considered opinion, the finding of the learned CIT(A) that the reassessment order dated 30.12.2018 became non est merely because the dispute arising therefrom was settled under the DTVSV Scheme is legally unsustainable. The Direct Tax Vivad Se Vishwas Act, 2020 was enacted as a remedial and beneficial legislation for reducing pending direct tax litigation by enabling settlement of disputed tax. It is an optional dispute resolution mechanism. The scheme does not provide that once a declarant settles disputed tax, the assessment order itself stands extinguished or erased from legal existence. What is settled is the tax dispute covered by the declaration. The assessment order, except to the extent the dispute is settled and given finality under the scheme, continues to remain an order passed under the Income Tax Act. There is no provision in the DTVSV Act which creates a fiction that the assessment order itself becomes void, non est or incapable of being looked into for all collateral and incidental purposes. To hold otherwise would be to import into the statute a consequence which the legislature has deliberately not provided.
10. The distinction is important. Settlement of a dispute is not the same as obliteration of the order giving rise to the dispute. DTVSV does not rewrite the assessment order, nor does it replace the assessment order by a new adjudicatory order. It merely brings quietus to the contentious issue opted for settlement by payment of the determined amount under the scheme. The learned CIT(A), therefore, fell into an error in treating the reassessment order as if it had vanished from the statute book after settlement under DTVSV. The assessment order remained a historical and legal fact and continued to exist for all purposes not inconsistent with the settlement. Consequently, if any rectifiable mistake apparent from record survives and is otherwise within the scope of section 154, the same cannot be shut out merely by saying that the reassessment order stood settled under DTVSV.
11. The issue of limitation under section 154(7), once the aforesaid misconception is cleared, presents no difficulty. Section 154 permits rectification of any mistake apparent from record in “any order” passed by an income-tax authority. The expression “any order” is of wide amplitude and includes an assessment order, reassessment order, amended order and consequential order. The doctrine of merger and the principle of operative order have been lucidly explained by the Hon’ble Andhra Pradesh High Court in Rastriya Ispat Nigam Ltd. vs. ACIT, where the Court held that once reassessment order is passed under section 147, the original assessment order does not survive independently in the field and limitation for rectification has to be reckoned from the reassessment order. The Hon’ble Calcutta High Court in EIH Ltd. vs. CIT has similarly held that where an order is amended to give effect to appellate directions, the amended order becomes the operative order and limitation under section 154 runs from the amended order and not from the original order. The principle is simple yet significant: two operative assessment orders cannot simultaneously occupy the same field. Once the later order governs the field, limitation must run from that order.
12. Applying the aforesaid principle to the present case, once reassessment order under section 143(3) r.w.s. 147 was passed on 30.12.2018, the limitation under section 154(7) had to be reckoned from the end of the financial year in which the reassessment order was passed. The rectification application dated 01.03.2019 was, therefore, clearly within limitation. This conclusion is further fortified by the conduct of the Assessing Officer himself. The Assessing Officer entertained the rectification application and granted relief in respect of MAT credit. Having partly acted upon the rectification application, it would be wholly inconsistent to hold that the same application was non-maintainable or time-barred. A rectification petition cannot be valid for one relief and barred for another when limitation and maintainability are examined with reference to the same application and the same operative order.
13. We also deem it necessary to advert to the scope of section 154, because the controversy has been clouded by the objection that the assessee had not filed a revised return. Section 154 is intended to correct mistakes apparent from record so that the correct tax liability is determined in accordance with law. It is not confined merely to arithmetical or clerical mistakes. A mistake of law apparent from record, including one arising in light of a binding judicial declaration, can also be rectified, provided the foundational facts are already on record and no long-drawn factual enquiry is required. There is a clear and well-recognised distinction between a fresh claim requiring investigation into new facts and a legal claim arising from admitted facts already available on record. The present case falls in the latter category. The subsidy received by the assessee, the scheme under which it was received, the accounting treatment and the relevant facts were already part of the record. What was required was only the correct legal characterization of the receipt in light of the settled “purpose test”. Therefore, rejection of the claim merely because no revised return had been filed cannot be sustained, particularly at the appellate stage and in rectification proceedings arising from admitted facts.
14. The reliance placed by the Revenue on Goetze (India) Ltd. cannot alter this position. The said decision restricts the power of the Assessing Officer to entertain a fresh claim otherwise than by revised return in regular assessment proceedings. It does not curtail the powers of appellate authorities, nor does it permit the Department to levy tax contrary to law where all facts are available on record and the claim is purely legal. Tax administration is not an exercise in procedural forfeiture. The Revenue is entitled to collect tax only in accordance with law, and if a receipt is not taxable in law, the mere omission of the assessee to claim such treatment in the original return cannot convert a non-taxable capital receipt into taxable income.
15. On merits also, the issue regarding fertilizer subsidy stands covered in favour of the assessee by the decisions of the Tribunal in assessee’s own case and by the settled legal principles laid down by the Hon’ble Supreme Court. The subsidy under the Nutrient Based Subsidy Scheme was introduced to promote modernization, encourage investment, ensure balanced fertilization, increase competitiveness and strengthen indigenous fertilizer industry. The subsidy was not a mere operational assistance to supplement profits or reimburse day-to-day expenditure. Applying the purpose test laid down in Ponni Sugars 86 Chemicals Ltd., Sahney Steel 86 Press Works Ltd., Shree Balaji Alloys and Chaphalkar Brothers, the subsidy partakes the character of capital receipt. Thus, the assessee’s rectification application for assessment year 2012-13 was both within limitation and otherwise maintainable, and the claim regarding subsidy being capital receipt was liable to be allowed.
16. Accordingly, we hold that the learned CIT(A) was not justified in dismissing the assessee’s appeal for assessment year 2012-13 by holding that the rectification application was barred by limitation or that the reassessment order had become non est after DTVSV settlement. The impugned order for assessment year 2012-13 is set aside and the Assessing Officer is directed to allow the assessee’s claim in accordance with law and grant consequential relief. The assessee’s appeal for assessment year 2012-13 is allowed.
Assessment Year 2014-15
17. We shall now take up the Revenue’s appeal for assessment year 2014-15. This appeal arises from the order of the learned CIT(A), whereby the learned CIT(A) has allowed the assessee’s claim that fertilizer subsidy received under the Nutrient Based Subsidy Policy is capital receipt not chargeable to tax and has further directed exclusion of the said subsidy while computing book profit under section 115JB. The Revenue is aggrieved by the said relief granted by the learned CIT(A).
18. The facts for assessment year 2014-15 are that the assessee had received fertilizer subsidy under the Nutrient Based Subsidy Policy amounting to Rs.9,54,03,636/-. The assessee had initially credited the said subsidy to the Profit and Loss Account and offered the same to tax as revenue receipt. The assessment under section 143(3) was completed on 22.11.2016. Thereafter reassessment order under section 143(3) r.w.s. 147 came to be passed on 31.12.2018. The assessee thereafter filed rectification application dated 27.02.2019 under section 154 contending that the fertilizer subsidy had wrongly been treated as revenue receipt though, in law, the subsidy constituted capital receipt not chargeable to tax. Along with the rectification application, the assessee placed reliance on the Nutrient Based Subsidy Scheme, Government notifications and judicial precedents including Ponni Sugars 86 Chemicals Ltd., Sahney Steel 86 Press Works Ltd., Chaphalkar Brothers and Shree Balaji Alloys.
19. The Assessing Officer, while passing the rectification order dated 22.03.2019, examined the nature of the subsidy and the purpose of the NBS Policy in some detail. The Assessing Officer recorded that the scheme was introduced by the Government of India for P861C fertilizers and that the object of the scheme was to encourage balanced fertilization, improve efficiency, incentivize indigenous production, promote modernization, bring competitiveness and attract fresh investment in fertilizer industry. The Assessing Officer also adverted to the judicial principle that the character of subsidy is to be decided by applying the purpose test. Significantly, the Assessing Officer did not dispute that the NBS subsidy fulfilled the purpose test. In substance, the Assessing Officer accepted that the object of the subsidy was not merely to supplement the assessee’s trading receipts but to promote long-term development and modernization of fertilizer industry. However, despite such findings on merits, the Assessing Officer rejected the rectification application only on the ground that the assessee had not claimed such treatment in the original return nor filed a revised return, and therefore the claim could not be entertained in view of Goetze (India) Ltd.
20. Before the learned CIT(A), the assessee submitted that the Assessing Officer had rejected the claim on a purely technical ground despite accepting the legal character of the subsidy. The assessee contended that the subsidy under the NBS Policy was capital in nature because the scheme was introduced in the backdrop of stagnation and lack of investment in fertilizer industry. It was explained that the earlier concession regime had failed to bring about balanced fertilization and had not encouraged modernization or fresh investment. The NBS Policy was therefore introduced to promote efficiency, modernization, innovation, investment and competitiveness in indigenous fertilizer industry and to ensure balanced use of nutrients in agriculture. The assessee further submitted that the subsidy was not meant to reimburse cost of production or augment profits, but was an incentive for achieving larger economic and industrial objectives.
21. The learned CIT(A), after examining the subsidy scheme, the rectification order and the judicial precedents, recorded elaborate findings in favour of the assessee. The learned CIT(A) noted that under the NBS Scheme, the Government had fixed subsidy on nutrient content basis and the scheme was introduced to promote balanced fertilization, encourage product innovation, bring efficiency in production and distribution, encourage investment and improve competitiveness of the fertilizer sector. The learned CIT(A) observed that the scheme was intended to address structural concerns in fertilizer industry and was not merely a reimbursement mechanism for day-to-day expenses. The learned CIT(A) further held that the purpose of the subsidy was determinative of its character and, applying the test laid down by the Hon’ble Supreme Court, the subsidy was capital in nature.
22. The learned CIT(A) also dealt with the objection based on non-filing of revised return. The learned CIT(A) held that the appellate authority is empowered to consider a legal claim arising from facts already on record. The learned CIT(A) observed that Goetze (India) Ltd. does not bar appellate authorities from entertaining such claims. It was also noticed that the Assessing Officer himself had examined the NBS Scheme and accepted the nature and purpose of subsidy on merits. Therefore, once the issue was purely legal and all material facts were available on record, the assessee could not be denied lawful relief merely because the claim was not made in the original return.
23. Before us, the learned Departmental Representative relied upon the rectification order passed by the Assessing Officer and submitted that the assessee could not have raised such a claim under section 154 because the issue required examination and because no revised return had been filed. The learned counsel for the assessee, on the other hand, supported the order of the learned CIT(A) and submitted that the issue is now fully covered by the decision of the coordinate Bench of the Tribunal in assessee’s own case in ITA No.7008/Mum/2019 dated 09.08.2021, wherein identical subsidy received under the same NBS Policy was held to be capital receipt. He further submitted that in assessment year 2014-15 the Assessing Officer himself had accepted the purpose test on merits and rejected relief only on a technical ground, which has rightly been reversed by the learned CIT(A).
24. We have considered the rival submissions and perused the orders of the authorities below. The controversy in Revenue’s appeal for assessment year 2014-15, when stripped of unnecessary complications, turns on two questions: first, whether the subsidy received under the NBS Policy is capital or revenue in nature; and second, whether the assessee could claim such treatment in rectification/appellate proceedings when all facts were already on record. On both counts, we find the order of the learned CIT(A) to be well-reasoned and in conformity with law.
25. The legal principle governing characterization of subsidies is well-settled. The Hon’ble Supreme Court in Sahney Steel 86 Press Works Ltd. laid down that where subsidy is given to assist the assessee in carrying on business more profitably, it would be revenue receipt; however, the subsequent and more refined exposition in Ponni Sugars 86 Chemicals Ltd. clarified that the decisive test is the purpose for which the subsidy is granted. The source of subsidy, form of payment, timing of receipt or manner of computation are not conclusive. The same principle has been reiterated in Shree Balaji Alloys and Chaphalkar Brothers. Thus, if the object of the subsidy is to promote industrialization, modernization, expansion, investment, competitiveness or enduring development of an industry, the subsidy assumes capital character.
26. Applying the aforesaid purpose test, the NBS Policy cannot be characterized as a mere revenue subsidy. The policy was introduced against the backdrop of serious concerns relating to imbalance in fertilizer use, stagnation in fertilizer industry, low investment, lack of modernization and absence of adequate competitiveness. The policy sought to encourage balanced fertilization by linking subsidy to nutrient content; to incentivize efficient production and distribution; to encourage product innovation; to attract fresh investment; to strengthen indigenous fertilizer industry; to improve competitiveness; and to promote long-term viability of the sector. These objects are not in the nature of ordinary trade assistance. They travel far beyond reimbursement of cost or supplementation of profits. They are directed towards structural development of the fertilizer industry and improvement of agricultural economy. The dominant purpose of the subsidy, therefore, is capital in nature.
27. It is also important to note that the Assessing Officer himself, in the rectification order, accepted in substance that the subsidy fulfilled the purpose test. Once the authority examining the matter records that the object of the scheme is modernization, investment, balanced fertilization and growth of indigenous fertilizer industry, the legal consequence follows inexorably. The receipt cannot thereafter be denied capital character merely because the subsidy may have been computed with reference to quantity or nutrient content or because it may have been received after commencement of business. As held by the Hon’ble Supreme Court, the modality, source, form and timing of subsidy are irrelevant where the dominant purpose is capital. What matters is the object of the scheme. Here, the object is plainly industrial growth and enduring development of the fertilizer sector.
28. We also find that the issue is covered by the decision of the co-ordinate Bench of the Tribunal in assessee’s own case in ITA No.7008/Mum/2019 dated 09.08.2021. In that order, the Tribunal considered the same NBS Policy and held that the subsidy received thereunder was capital receipt not chargeable to tax. The Tribunal noted that the policy was introduced to attract fresh investment, encourage modernization and innovation in fertilizer industry and promote balanced fertilization. In absence of any distinguishing facts for the present year, judicial discipline and consistency require us to follow the same view. The Revenue has not brought on record any material to show that the nature of subsidy, the policy framework or the factual circumstances in assessment year 2014-15 were different from those considered by the Tribunal in assessee’s own case.
29. The learned CIT(A) has also rightly drawn support from the judgment of the Hon’ble Rajasthan High Court in PCIT v. Nitin Spinners Ltd., wherein export incentives under the Focus Market Scheme were held to be capital receipts by applying the purpose test. The dismissal of the SLP by the Hon’ble Supreme Court further lends finality to the principle that incentives intended to promote competitiveness, export expansion, industrial growth or long-term development are capital in character. The same principle applies with greater force in the present case where the subsidy scheme itself is rooted in modernization and development of the fertilizer sector.
30. The objection that the assessee had not filed a revised return is also devoid of merit. The assessee’s claim did not require any fresh investigation. The receipt of subsidy, the scheme under which it was granted, the manner of accounting and the relevant government policy were all on record. The controversy was one of law: whether the admitted receipt, under an admitted scheme, was capital or revenue in nature. Such a legal claim can always be examined by appellate authorities and, where the mistake is apparent from record, can be rectified under section 154. Goetze (India) Ltd. does not bar such adjudication by appellate authorities and cannot be used as a shield to perpetuate taxation of a receipt which is not income in law.
31. Section 154, in our view, cannot be reduced to a mechanical provision limited only to arithmetic corrections. Where a mistake is manifest from the record in light of settled legal principles, and where no fresh facts are required to be discovered, rectification is permissible. The present case is a clear illustration. The Assessing Officer had the subsidy scheme, the amount of subsidy, the judicial precedents and the entire factual material before him. He even accepted the purpose test on merits. The denial of relief thereafter only on procedural ground defeats the object of section 154 and results in collection of tax without authority of law.
32. We also agree with the learned CIT(A) that once the subsidy is held to be capital receipt not chargeable to tax under the normal provisions, the same cannot be brought to tax while computing book profit under section 115JB. A capital receipt which is not income within the meaning of section 2(24) cannot be artificially converted into income through the machinery provision of MAT. The Hon’ble Supreme Court in Padmaraje R. Kadambande has recognized that capital receipts are outside the ambit of income unless specifically brought to tax. The Hon’ble Bombay High Court in CIT v. Harinagar Sugar Mills Ltd. has held that subsidy treated as capital receipt under normal provisions should also be excluded while computing book profits under section 115JB. The Mumbai Tribunal in Alok Industries Ltd. has taken the same view. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. If a receipt does not have the character of income, it cannot be taxed by resorting to a computational provision.
33. Thus, in assessment year 2014-15, we find that the learned CIT(A) has correctly appreciated the factual matrix, the purpose of the NBS Policy, the legal position governing subsidies, the scope of appellate powers and the treatment under section 115JB. The fertilizer subsidy received by the assessee under the Nutrient Based Subsidy Policy is capital receipt not chargeable to tax. The assessee was entitled to raise the claim in rectification/appellate proceedings because the claim was purely legal and all foundational facts were on record. The subsidy is also liable to be excluded while computing book profit under section 115JB. Accordingly, the order of the learned CIT(A) for assessment year 2014-15 is upheld and the appeal filed by the Revenue is dismissed.
34. To sum up, for assessment year 2012-13, the assessee’s rectification application was within limitation and maintainable; the DTVSV settlement did not render the reassessment order non est; and the assessee’s claim regarding fertilizer subsidy as capital receipt is allowable. For assessment year 2014-15, the learned CIT(A) rightly allowed the claim of the assessee and rightly directed exclusion of the subsidy both under normal provisions and section 115JB. Consequently, the assessee succeeds in assessment year 2012-13 and the Revenue fails in assessment year 2014-15.
35. In the result, the assessee’s appeal for assessment year 2012-13 is allowed and the Revenue’s appeal for assessment year 2014-15 is dismissed.
Order pronounced on 27th May, 2026.
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