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TMI Blog2025 (1) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ef is that assessee was engaged in the business of manufacturing fertilizers, dyes and chemicals. The assessee filed return of income declaring total income of Rs. 8,69,61,460/- under normal provisions and book profit of Rs. 7,26,24,640/- u/s 115B of the Act. The case was subject to scrutiny assessment and assessment order u/s 143(3) of the Act was passed on 23.03.2016 without making any additions. Subsequently, the case was reopened by issuing of notice u/s 148 of the Act on 26.03.2018 on the basis of survey action carried out u/s 133A of the Act at the office premises of the assessee. During the course of reassessment, the assessing officer observed that assessee was not engaged in manufacturing of bio-fertilizers and despite the same assessee has claimed deduction of Rs. 1,96,87,351/- u/s 80JJA of the Act. Therefore, the AO disallowed the entire deduction claimed u/s 80JJA of the Act as referred above. The assessee filed rectification application vide letter dated 27.02.2019 after relying on the decision of Hon'ble Supreme Court regarding allowability of subsidy as capital receipt. The assessing officer has rejected the application filed by the assessee u/s 154 of the Act. 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provide encouragement and support, which would create benefits of enduring nature, for the Industry as a whole in certain sectors of economy and ultimately benefit the fertilizer users i.e the farmers. Thus, it is seen that, the 'purpose' of the introduction of the scheme was to encourage and industrial growth of the fertilizer industry as a whole and thus it fulfils the purpose test as laid down by the Apex Court. 11.15 In view of the objectives of the scheme as above, I find that the appellant's case is covered by the above judicial precedents and also by the principle laid down by the Apex Court in the case of Ponni Sugars & Chemicals Ltd, Shree Balaji Alloys and Chaphalkar Brothers (supra). In all the decisions it has been held that 'purpose' of the incentive will decide the nature of the incentive. The said criteria have been fulfilled in the case of the appellant. The AO has himself stated in his order that the 'purpose test' has been fulfilled and the subsidy received is in the nature of a capital receipt. Thus, respectfully following the principle laid down by the Apex Court, decision of Hon'ble High Courts and Mumbai ITAT, the said subsidy is to be treated as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt should also be excluded from computing the Book Profit u/s 115JB of the Income-tax. This additional ground of appeal is thus allowed 11.17 Further, recently Hon'ble Mumbai Tribunal (ITA No. 7008/Mum/2019, dated 09.08.2021) in the appellant's own case has also dismissed the departmental ground of appeal and upheld my predecessor's order by stating that, the fertilizer subsidy received under NBS policy was to be treated as capital receipt and not chargeable to tax as the objectives laid down in the policy fulfil the purpose test principle laid by the Apex Court. The relevant part of the order is reproduced as under: 15. .... . However, we notice that the purpose of introduction of NBS scheme and modification of various Govt. schemes over the period is due to the fact that (refer impact of concession scheme) the growth of fertilizer industry was stagnated with virtually no investments over the years in urea sector, this industry had no incentive to invest on modernization and for increasing efficiency. The industry had no incentive to focus on farmers leading to poor farm extension services. The policy was introduced to reduce the burden on subsidy outgo in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant part of High Court order is reproduced as under, - "8. As far as the question with regard to Focus Marketing Scheme was concerned, apparently the Central Government gave the subsidy to enhance indian export potential in the international market. It was not granted to meet the cost of expenditure to meet the competition of the Indian textile market. The ITAT took note of judgment in Ponni Sugars & Chemicals Ltd. (supra) and held that the amount was not an export incentive, but rather capital receipt and therefore, not taxable. This Court is of the opinion that there is no infirmity with the reason." 11.19 Respectfully following the said decisions, it is held that fertilizer subsidy received by the appellant fulfils the purpose test ratio laid down by Apex Court and thus the same should be treated as capital receipt should also be excluded from computing the income. 11.20 The appellant has also contended that said subsidy being capital receipt is not chargeable to tax under Income-tax Act should also not to be included in computing the Book Profit u/s 115JB of the Income-tax. In this regard, the appellant submitted that, as per the Article 265 of the Constitution of India s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NBS Policy during the year under consideration is not an income and should be treated as capital receipt, and hence should not be included in computing total income chargeable to tax. Further, these receipts also shall be excluded in computing Book Profit under section 115JB. Accordingly, the grounds of appeal are allowed." 5. During the course of appellate proceedings before us, the ld. Counsel also submitted that identical issue on similar fact in the case of the assessee for A.Y. 2015-16 has been adjudicated by the ITAT, Mumbai vide ITA No. 7008/M/2019 dated 09.08.2021 in favour of the assessee. The relevant extract of the decision is as under: "15. Considered the rival submissions and perused the material on record in the light of the decisions relied upon by the parties. We notice that the learned Departmental Representative tried to submit before us that the subsidy given to the manufacturers under NBS Scheme was to give concession to the farmers and reduce the MRP in order to bring down the manufacturing cost. Whole scheme was M/s. Shree Pushkar Chemicals and Fertilizers Ltd. designed to increase the fertilizer production and utilization among the farmers by making avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are inclined to accept the adoption of purpose test by the learned CIT(A) in this case and the subsidy can be classified as capital in nature. In our considered opinion, a receipt that is held to be a capital in nature and not chargeable to tax under the normal provisions of the Act. Hence the same lies outside the purview of Act. When a receipt is not in the nature of income, it cannot form part of taxable profit. Consequently, in view of the aforesaid discussion as enumerated by the learned CIT(A) in detail, in our opinion, the order of the learned CIT(A) on the M/s. Shree Pushkar Chemicals and Fertilizers Ltd. issue in dispute is well reasoned and we do not find any legal infirmity in the order passed by him which is hereby upheld. Thus, the ground of the appeal no.2, raised by the Revenue is also dismissed." 6. In the light of the above facts and findings it is clear that this is a recurring issue in the case of the assessee which has already been adjudicated by the ITAT in favour of the assessee as discussed supra in this order therefore following the decision of the ITAT and other judicial findings as elaborated in the findings of ld. CIT(A) we do not find any merit in this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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