ITAT Upholds Sales-Tax Subsidy as Capital Receipt; TP Grounds Dismissed After MAP

DCIT Vs John Deere India Pvt. Ltd. (ITAT Pune Bench)

Sales-Tax Subsidy Keeps Its Capital Colour—Past ITAT Orders Trump Revenue’s Repaint Job; TP Grounds Fade Away After MAP

Summary:

Two disputes, one Revenue appeal

The Revenue challenged the CIT(A)’s order in the case of John Deere India Pvt. Ltd. for AY 2012-13. Although thirteen grounds were raised, the controversy essentially involved two issues: the taxability of sales-tax incentives of Rs.36,47,53,030 & certain transfer-pricing adjustments u/s 92CA.

The assessee was engaged in the manufacture of tractors, agricultural equipment & spare parts. It claimed the sales-tax subsidy received under the Maharashtra Government’s incentive scheme as an exempt capital receipt. The AO treated the subsidy as a revenue receipt & added it to the assessee’s total income.

The CIT(A), following earlier orders of the Pune ITAT in the assessee’s own case, deleted the addition. The Revenue therefore carried the dispute to the Tribunal, while separately challenging the CIT(A)’s conclusions concerning selection of comparables, functional analysis, segmental data & allocation of expenses in the transfer-pricing proceedings.

Revenue says subsidy followed production

The Revenue contended that the sales-tax benefit became available only after the industrial unit had been established in a backward area & commenced production. According to it, the incentive therefore operated to improve the profitability of the existing business rather than assist in establishing or completing the project.

It was argued that the subsidy was neither directly provided for acquiring a capital asset nor earmarked for repayment of loans taken to establish the industrial unit. Hence, the amount represented an operational benefit arising after commencement of business & ought to be taxed as a revenue receipt.

The Revenue invoked the Supreme Court ruling in Sahney Steel & Press Works Ltd. v. CIT, 228 ITR 253, contending that incentives granted to assist an assessee in carrying on its business after production had commenced bore a revenue character.

The same subsidy had already passed the judicial test

The assessee pointed out that the very issue had been decided by the Pune ITAT in its favour in earlier assessment years. The CIT(A) had merely followed those binding factual precedents while treating the sales-tax subsidy as a capital receipt.

Significantly, even the AO recorded in the assessment order that the issue had been decided in favour of the assessee by the Tribunal in preceding years. There was no assertion that the incentive scheme, purpose of payment, relevant facts or business circumstances had undergone any material change during the year under appeal.

The assessee relied upon the Tribunal’s earlier orders in ITA Nos.2663 & 2775/PUN/2016, wherein the corresponding incentive amounts were held to have been rightly claimed as exempt. Reliance was also placed on the Pune ITAT decision in Advik Hi Tech Pvt. Ltd., ITA Nos.1156 & 1157/PUN/2023.

Consistency applies when facts refuse to change

The Tribunal noted that the AO himself acknowledged the earlier decisions in the assessee’s own case. The Revenue did not dispute either the existence of those orders or their applicability to the incentive received during the relevant year.

Once the same incentive under the same factual framework had been held to constitute a capital receipt, the Revenue could not seek a different result for another year without identifying any change in the scheme, underlying purpose or material circumstances.

Following the earlier coordinate Bench orders & applying the principle of consistency, the ITAT upheld the CIT(A)’s conclusion that the sales-tax subsidy retained its character as an exempt capital receipt. The addition of Rs.36,47,53,030 therefore remained deleted & Grounds Nos.(i) to (vi) raised by the Revenue were dismissed.

The ruling is also a reminder that the timing or mode of disbursement cannot be repeatedly reopened in isolation when the character of the same incentive has already been examined in the assessee’s own case. Judicial consistency is not merely administrative convenience; it protects certainty where the material facts remain identical.

Transfer-pricing dispute travels through MAP

The second set of grounds concerned transfer-pricing adjustments. The TPO had initially made an aggregate adjustment of Rs.19,73,03,325 u/s 92CA. In first appeal, the CIT(A) sustained an adjustment of Rs.9,73,17,082.

Meanwhile, the assessee’s Associated Enterprise had invoked the Mutual Agreement Procedure (MAP). The Competent Authorities of India & the USA resolved the transfer-pricing issues for AYs 2012-13 to 2015-16. After giving effect to the MAP resolution & the CIT(A)’s order, the balance adjustment for the year stood at Rs.3,39,60,337.

The assessee had independently challenged this surviving adjustment in ITA No.1165/PUN/2017. However, following the MAP resolution, it withdrew that appeal. The ITAT had permitted the withdrawal by its order dated 24.11.2025.

Once MAP settles the route, parallel grounds lose direction

In the Revenue’s present appeal, Grounds Nos.(vii) to (xiii) challenged the CIT(A)’s treatment of various transfer-pricing comparables. These included objections regarding exclusion of allegedly comparable companies, inclusion of supposedly non-comparable companies, absence of segmental data, exclusion of Asian Business Exhibition & Conferences Ltd., turnover differences & allocation of unallocable expenses based on segmental turnover.

The Tribunal examined the working placed on record & noted the effect of the MAP resolution, the CIT(A)’s order & the assessee’s withdrawal of its connected appeal concerning the surviving adjustment. In these circumstances, the Revenue’s grounds relating to the transfer-pricing issues were held to be not maintainable & were dismissed.

Thus, the Revenue lost on both fronts. The sales-tax subsidy of Rs.36.47 crore remained a capital receipt by judicial consistency, while the transfer-pricing grounds became unsustainable following the MAP resolution & withdrawal of the connected appeal. A subsidy already judicially painted capital cannot be recoloured annually-and a TP dispute settled through MAP should not return through a side door.

Cases Discussed

• Sahney Steel & Press Works Ltd. v. CIT, 228 ITR 253 (SC)
• Advik Hi Tech Pvt. Ltd., ITA Nos.1156 & 1157/PUN/2023 (Pune ITAT)
• Earlier ITAT orders in assessee’s own case, ITA Nos.2663 & 2775/PUN/2016

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE BENCH

This is an appeal filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-13, Pune [Ld.CIT(A)] for Assessment Year 2012-13 on 10.02.2017.

2. The Revenue has raised the following grounds of appeal :

“(i) Whether on the facts and in circumstances of the case, the Ld. CIT(A) has grossly erred in deleting the addition made on account of Sales tax subsidy.

(ii) Whether on the facts and in the circumstances of the case, Ld. CIT(A) has grossly erred in deleting the addition of Rs. 36,47,53,030/- holding as Capital Receipt, whereas the AO assessed the same as revenue in nature.

(iii) Whether on the facts and in the circumstances of the case, Ld. CIT(A) has grossly erred in treating the Sales Tax incentive of Rs. 33,45,80,074/-received by the assessee from SICOM as capital receipts wherein the AO taxed the said receipts as revenue in nature being incentive given by the State Govt. for increasing the profitability of the assessee.

(iv) Whether on the facts and in the circumstances of the case Ld. CIT(A) has grossly erred in not appreciating the fact that the incentive given in the form of exemption from Sales Tax was only eligible to the assessee after setting up of the unit in backward area and after commencement of production in order to increase the profitability of assessee company to run the business more profitable hence the receipts in the hands of the assessee was revenue in nature.

(v) Whether on the facts and in the circumstances of the case, Ld. CIT(A) has grossly erred in holding that the Sales Tax incentive receipts to the appellant in the 1993 package scheme of incentives announced by the Govt. of Maharashtra as Capital Receipt, where there was neither the incentive was given to acquire a capital asset nor to set up or complete any project or payment of loan taken for setting up for the industry/unit.

(vi) Whether on the facts and in the circumstances of the case, Ld. CIT(A) has grossly erred in not applying the dictum of Hon’ble Apex Court in the case of Sahney Steel & Press Works Ltd. vs CIT 228 ITR 220(SC) which was squarely applicable in the assessee case.

(vii) Whether the CIT(A) was right in law and on facts in excluding functionally comparable companies.

(viii) Whether the CIT(A) was right in law and on facts in including companies which are not functionally comparable.

(ix) Whether the CIT(A) was right in law and on facts in excluding functionally comparable companies on the ground of non availability of segmental data, when the entire range of activity of the comparable was in the field of software services.

(x) Whether the CIT(A) was right in law and on facts in excluding companies which are considered as functionally comparable by the assessee himself.

(xi) Whether the Ld. CIT(A) erred by directing to exclude Asian Business Exhibition & Conferences Limited as being functionally different.

(xii) Whether Ld. CIT(A) was correct in excluding the comparable without analyzing FAR of the company only on the ground of higher turnover and having higher assets.

(xiii) Whether the Ld. CIT(A) has erred in directing the AO to allocate unallocable expenses to each segment in proportion to segmental turnover to total turnover as such allocation is unscientific and not based on actual figures.”

Submission of Ld. AR:

3. Ld. AR submitted that there are mainly two grounds raised by the Revenue, one regarding Transfer Pricing Adjustments and another regarding Sales tax Incentives.

3.1 The AO in the assessment Order treated Sales tax Incentives as Revenue Receipts, where as Ld.CIT(A) has allowed the assessee’s appeal on this issue following earlier ITAT order’s in assessee’s own case. Ld.AR read out the relevant paragraphs 2.1.4 of the Ld. CIT(A)’s order. Ld. AR submitted that the issue is decided by ITAT Pune in assessee’s own case in favour of assessee. Ld. AR also relied on ITAT Pune’s decision in the case of Advik Hi Tech Pvt Ltd 1156 & 1157 /PUN/2023.

3.2 Ld.AR submitted that the Assessee’s AE had filed MAP application. Competent Authorities of India and USA have resolved the issue regarding Transfer pricing adjustments for AY 2012-13, 2013-14, 2014-15 & 2015-16. Ld. AR invited our attention to page 277-279 of the paper book. Ld. AR submitted that Total Adjustments made u/s 92CA for the year was Rs.19,73,03,325/-. Ld. CIT(A) sustained the Addition of Rs.9,73,17,082/- out of the Total adjustments made by TPO. After giving effect to the MAP the balance adjustments will be Rs.3,39,60,337/-. Ld. AR further submitted that initially

Assessee had filed appeal against the adjustments of Rs.3,39,60,337/- as ITA No.1165/PUN/2017, but subsequently the assessee had withdrawn the said appeal in ITA No. 1165/PUN/2017. Ld. AR submitted that hence the revenue’s grounds regarding TP adjustments needs to be dismissed.

Submission of Ld. DR:

4. Ld. DR relied on the order of the AO. Ld. DR in earlier hearing had submitted that he will find out from the concerned Pr. Commissioner of Income tax whether Revenue will like to withdraw the grounds related Transfer Pricing adjustments.

Findings and Analysis:

5. We have heard both the parties and perused the records. The Ground Numbers (i) to (vi) raised by the revenue pertains to the issue whether the Sales Tax Incentive is Capital receipt or revenue receipt !

5.1 The Assessee company is engaged in manufacturing of Tractors , agricultural equipment’s and its spares. During the year the assessee has received Sales tax subsidy of Rs.36,47,53,030/-. The assessee claimed the said amount as exempt as capital Receipt. Assessing Officer (AO) treated the said amounts as revenue receipts and added to the Total Income. The relevant paragraphs of the Assessment Order are as under :

10. Addition on account of Capital Subsidy of Rs. 36,47,53,030/-:

10.1. Capital Subsidy of Rs. 36,47,53,030/- was claimed by the assessee during the year. John Deere India Private Limited has claimed sales tax and purchase tax subsidy granted by Govt. of Maharashtra of Rs.36,47,53,030/- as a capital receipt in A.Y. 2012-13.

Reasons for claiming the same as exempt is given in below note:

“During the assessment year under consideration, JDIPL has claimed sales tax and purchase tax subsidy granted by Govt. of Maharashtra of Rs. 36,47,53,030/- as capital receipt. JDIPL has set up a unit at Sanaswadi near Pune. The Govt. of Maharashtra had introduced Maharashtra’s “1993 Package Scheme of Incentives”. This scheme was introduced for giving incentive to the units for setting up units in backward areas. As per this scheme, the company was eligible for either sales tax and purchase tax exemption or deferment of the sales tax and purchase tax collected for a period of 15 years. We submit that the amount of capital subsidy is in the nature of capital receipt. We also submit that the stand of the company is accepted in its own case for the Assessment Years 2005-06 to A.Y. 2008-09 by Honorable Income Tax Appellate Tribunal, Pune and for Assessment Year 2010-11 by Honourable CIT(A). Copy of the Order of Tribunal, Pune and for Assessment Year 2010-11 by Honourable CIT(A). Copy of the Order of Honorable Income Tax Appellate Tribunal, Pune Bench is enclosed in Annexure 2.

10.2 The above submissions have been considered. The assessee has relied on the decision of Jurisdictional ITAT order for the A.Y. 2005-06 to A.Y. 2008-09 and CIT(A) order for the A.Y. 2010-11 in its own case. The assessee’s contention is not acceptable since Revenue has filed appeal before the Hon’ble Bombay High Court against order of the ITAT for the A.Y. 2008-09 and second appeal before the ITAT for the A.Y. 2010-11 which is still pending.

5.2 Ld. CIT(A) allowed the appeal of the assessee on the issue of Sales tax subsidy following the earlier years ITAT orders in assessee’s own case. It can be observed that the Assessing Officer himself in the Assessment Order has admitted that the issue has been decided by ITAT in assessee’s own case for earlier years in assessee’s favour. This fact has not been disputed by Revenue. We have perused the ITAT orders in ITA Nos. 2663 & 2775/PUN/2016 and noted that the ITAT in assessee’s own case had held the assessee has rightly claimed the impugned amounts as exempt. Accordingly, following the principle of consistency we uphold the order of Ld.CIT(A) on the issue of sales tax subsidy. Accordingly, the ground numbers (i) to (vi) raised by the revenue are dismissed.

6. Ground Numbers (vii) to (xiii) :

6.1 We have perused the working filed by the Assessee and noted that after giving effect to the MAP order and Order of Ld.CIT(A) the balance TP adjustments were Rs.3,39,60,337/-. The Assessee had filed an appeal against the said adjustments as ITA 1165/PUN/2017. The Assessee has withdrawn the appeal ITA 1165/PUN/2017. Copy of the ITAT order in ITA 1165/PUN/2017 dated 24/11/2025 has been filed by the assessee, allowing the assessee to withdraw the appeal. In these facts and circumstances of the case the revenue’s grounds (vii) to (xiii) are dismissed as not maintainable.

7. In the result, Revenue’s appeal is dismissed.

Order pronounced in the open Court on 31st August, 2026