TaxTMI 
TaxTMI 
2026 (6) TMI 92
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....ars 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 P&K 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 prof....
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....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 governin....
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....ed 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 deliberat....
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....ar 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, pro....
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....012-13 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 fo....
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....egal 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 d....
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....m 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 & 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 & 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....
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....ow 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....