DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3(3), MUMBAI, MUMBAI V. WELSPUN LIVING LIMITED, MUMBAI

ITA 3697/MUM/2025

AI Insights

The case involves appeals by the Revenue against the orders of the learned Commissioner of Income Tax (Appeals)-51, Mumbai, for the assessment years 2013-14 and 2015-16. The primary issues pertained to the nature of sales tax incentives and TUF subsidies received by Welspun Living Limited, and the computation of disallowances under section 14A. The Tribunal consolidated the appeals due to the similarity in factual matrix and legal issues. The Tribunal's decision was influenced by precedents and judicial interpretations regarding the nature of subsidies and the application of section 14A.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 785744 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 26-05-2025
• Other Referred Cases: Sahney Steel & Press Works Limited vs. CIT, Vireet Investment Pvt. Ltd., CIT vs. Ponni Sugars & Chemicals, Reliance Industries Limited vs. ACIT, Welspun Steel Ltd. vs. DCIT, PCIT vs. M/s. Welspun Steel Ltd., CIT vs. Nitin Spinners Ltd., CIT vs. Gloster Jute Mills Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN KANTI DATTA
• Assessee Lawyers: HARSH KAPADIA
• Keywords: Set aside; Capital asset; Question of law; Depreciation; Capital receipt; Capital expenditure; Source of fund; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No.3696/MUM/2025 ITA No.3697/MUM/2025 (Assessment Year: 2013-14) (Assessment Year: 2015-16) Deputy Commissioner of Income Tax, Central Circle – 3(3), Room No.404, Kautilya Bhawan, Bandra Kurla Complex, Mumbai - 400051 ............... Appellant v/s Welspun Living Limited, B Wing, 9th Floor, Trade World, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel Mumbai – 400013 PAN: AAACW1259N ……………… Respondent Assessee by : Shri Harsh Kapadia Shri Ajay Nagpal Revenue by : Shri Arun Kanti Datta, CIT-DR Date of Hearing – 09/10/2025 Date of Order - 27/10/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The Revenue has filed the present appeals against the separate impugned orders of even date 26.03.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-51, Mumbai, [“learned CIT(A)”], for the assessment years 2013-14 and 2015-16. Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 2 2. Since both the appeals pertaining to the same assessee involving similar issues arising out of a similar factual matrix, these appeals were heard together as a matter of convenience and are being disposed of by way of this consolidated order. With the consent of the parties, the appeal for the assessment year 2013-14 is treated as a lead case, and the decision rendered therein shall apply mutatis mutandis to the other appeal. ITA No.3696/Mum/2025 Revenue’s Appeal (A.Y. 2013-14) 3. In this appeal, the Revenue has raised the following grounds: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the Supreme Court decision in the case of Sahney Steel & Press Works Limited vs. CIT [1997) 228 ITR 253 (SC) wherein it is held that subsidy is provided to assist the assessee in carrying on his trader business and it is revenue receipt. The sales tax incentives are based on purchase and sale of goods. The incentives are not in the nature of a lump sum amount paid by the Government. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in directing the AO to compute the disallowance by taking into account only those investments which have resulted into exempt income relying under judgement Hon'ble ITAT in the case of Vireet Investment Put. Ltd. (165 ITD 27) (Spl. Bench Delhi Tribunal). 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in considering the subsidy received in the form of Technology Upgradation Fund as a capital receipt, without appreciating the fact that the assessee has not proved that the application of the money received was for the purpose of acquiring a capital asset? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in ignoring the Supreme Court decision in the case of CIT Vs. Ponni Sugars & Chemicals us. CIT (2008) 174306 ITR 392 Taxman 87 (SC) wherein it is held that the character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in directing the Assessing Officer to delete the disallowance made under section 14A r.w. Rule 8D to the Book profit relying on decision of Hon'ble special Bench decision of Hon'ble ITAT, Delhi in the case of ACIT vs. Vireet Investments Pvt. Ltd./165 ITD 0027 Del SBI without appreciating the fact that the Department has filed further appeal in the case of Vireet Investments Pvt. Ltd. AMD that matter has not reached finality? ” Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 3 4. The issue arising in ground no.1, raised in Revenue’s appeal, pertains to the nature of the sales tax incentive received by the assessee. 5. The brief facts of the case pertaining to this issue as emanating from the record are: For the year under consideration, the assessee filed its return of income on 29.11.2013, declaring a loss of Rs.94,28,01,983 under the normal provisions and offering MAT income at Rs.19,48,85,842 under section 115-JB of the Act. In its computation of income, the assessee claimed a deduction of sales tax exemption of Rs.93,37,07,149. Accordingly, during the assessment proceedings, the assessee was asked to submit complete details of such backward area incentives. Further, the assessee was also asked to submit documentary evidence for the receipt of the above incentives and benefits, including a relevant copy of the scheme under which such incentives/benefits were obtained. The assessee was also asked to substantiate the documentary evidence as to how the above receipts are capital receipts and also asked to show cause why the above receipts claimed to be capital receipts should not be taxed as revenue receipts, as the receipts are revenue in nature and have arisen because of the day-to-day running of the business. In response, the assessee submitted that it made Capex Investments by setting up a new industrial unit at Anjar, Kutch District, after the devastating earthquake on 26.01.2001. It was further submitted that in order to redevelop and rehabilitate the said area, both the Central and State Governments announced VAT and Excise Kutch Incentive Schemes. The assessee submitted that due to its Capex Investments in the said area, it was qualified to enjoy the said incentive schemes. Accordingly, in its books of Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 4 account, both VAT and Excise Kutch Incentives were shown under sales and other services. The assessee also placed reliance upon certain judicial pronouncements wherein it has been held that where the subsidy has been received for the development of industries in backward areas, the same constitutes capital receipts. 6. The Assessing Officer (“AO”), vide order dated 31.03.2016 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the sales tax incentive received by the assessee is directly linked to the assessee’s business operation, i.e., purchase, production and sales of goods, making them revenue in nature. Further, the AO held that the sales tax incentives received by the assessee are based on the purchase and sale of goods, and these incentives are not in the nature of a lump sum amount paid by the Government. Accordingly, following the decision of the Hon’ble Supreme Court in Sahani Steel & Press Works Limited vs. CIT, reported in 228 ITR 253 (SC), the AO held that by no stretch of imagination the sales tax incentive received by the assessee partakes the nature of a capital receipt inasmuch as per the scheme of government, the assessee is ab initio exempted from collection or payment of sales tax. Thus, it was held that the assessee received the benefit in the course of carrying on its trade or business. Since the sales tax benefit was wholly and exclusively related to purchasing and trading, manufacturing and selling of the goods, the AO held that the receipt in question is revenue in nature. Accordingly, the sales tax incentive amounting to Rs.93,37,07,149 received by the assessee was treated as a revenue receipt and added to the total income of the assessee. Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 5 7. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue, following the decision of the Tribunal in the assessee’s own case for the assessment year 2008-09. Being aggrieved, the Revenue is in appeal before us. 8. We have considered the submissions of both sides and perused the material available on record. We find that the Co-ordinate Bench of the Tribunal in assessee’s own case in Welspun India Ltd. vs. DCIT, in ITA No.5376/Mum/2015 and others, for the assessment years 2008-09 to 2011- 12 vide order dated 11.01.2019 observed as follows: - “We are in agreement with the aforesaid decision of the tribunal dated 18.12.2015 in the case of Welspun Steel Ltd(supra) as the said incentives by way of excise duty refund and sales tax incentives were given to encourage setting up of new industrial unit in Kutch District to redevelop the Kutch District in the wake of devastating earthquake 26.01.2001 albeit the said incentives are given post commencement of manufacturing and the said subsidy shall be capital in nature as it is for promoting setting up of new industry in Kutch District which was devastated by earthquake even if the subsidy is given post commencement of commercial production by way of refund of Central Excise and Exemption of Sales Tax which is not material keeping in view purposive test and the fact that the said incentives were given to encourage making capital investments in Kutch District in setting up new industry to redevelop the Kutch District post devastating earthquakes on 26.01.2001. We also note that Special Bench decision of the Mumbai-tribunal in the case of Reliance Industries Limited(supra) was upheld by Hon'ble Bombay High Court in CIT v. Reliance Industries Limited (2011) 339 ITR 632 (Bom.) by holding that no substantial question of law would arises as the object of the subsidy was to set up a new unit in a backward area to generate employment but aforesaid decision of Hon'ble Bombay High court has been set aside by Hon'ble Supreme Court in Civil Appeal Number 7769 of 2011 ( arising out of SLP (C) No. 9860 of 2010) dated 09.09.2011 and the matter is remitted back to Hon'\"ble Bombay High court to decide the question of law framed thereon in accordance with law. This revives the Special Bench decision of the tribunal in the case of Reliance Industries Limited(supra), which has already held that subsidy which is given for setting up or expansion of industry in a backward area, will be capital in nature, irrespective of modality or source of funds through or from which it is given. Thus, following the ratio of decision of co-ordinate Benches of the tribunal in the case of Welspun Steel Ltd(supra), we hold that Central Excise benefit and Sales Tax incentive received by the assessee during the impugned assessment year under consideration, are capital receipts not exigible to income-tax and further we hold that the same shall not be deducted from cost of assets for computing depreciation. The ground number 1 and 2 Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 6 raised by the Revenue in its memo of appeal filed with the tribunal are dismissed. We order accordingly.” 9. Thus, from the perusal of the decision of the Co-ordinate Bench of the Tribunal in the assessee’s own case cited supra, it is evident that the Co- ordinate Bench, following its earlier decision in the case of M/s. Welspun Steel Ltd. vs. DCIT, in ITA No.3760/Mum/2011 held that the excise duty refund and sales tax incentive were given to encourage the setting up of a new industrial unit in Kutch District in the wake of the devastating earthquake, which is capital in nature as it promotes the setting up of new industry in Kutch District. We find that while deciding the Revenue’s appeal against the aforesaid decision of the Tribunal in M/s. Welspun Steel Ltd.(supra), the Hon’ble Jurisdictional High Court in PCIT vs. M/s. Welspun Steel Ltd., in ITA No.1743/2016, vide judgment dated 26.02.2019, dismissed the grounds raised by the Revenue on this issue by observing as follows: - “6. Having heard the learned Counsel for the parties on this question, we notice that, the Government of Gujarat Sales Tax Incentive Scheme was envisaged to promote large scale investments in the Kutch District since on account of devastating earth-quake, development of the district had suffered. The Scheme envisaged that, the same was confined only with the Kutch District. Similar, being the purpose and philosophy of the Government of India, while granting excise duty exemption, we may not separately take note of the back-ground thereof. In view of these facts, the question arises is - whether the Tribunal was justified in holding that Sales Tax and Excise duty exemption enjoyed by the assessee under the said subsidy scheme, was not taxable as revenue receipt. Such and similar issue has came up before different High Courts and Supreme Court on the numerous occasions. Reference to all those judgments would be un-necessary. However, the principle that has evolved is that, not the nomenclature of the subsidy or the fact that, the computation of the subsidy benefit is in terms of tax payable, would not be conclusive. What is to be examined in each case is the purpose for granting such subsidy. We may refer to the decision of the Supreme Court in case of CIT vs. Chaphalkar Brothers reported in 400 ITR 279. It was a case arising out of judgment of this Court in which, the dispute between assessee and the Revenue was with respect to subsidy granted to the multiplex cinema operators in the form of entertainment tax waiver. The subsidy was granted in view of the fact that, industry was highly capital intensive. The Revenue argued that, the subsidy was revenue in nature. This Court after referring to several decisions of the Supreme Court including Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 7 the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392 and Sahney Steel and Press Works Ltd., reported in 228 ITR 253 held that, subsidy had not been granted for construction but only after setting up of a new industry which was in the nature of assistance given for the purpose of carrying on business. 7. On further appeal by the Revenue, Supreme Court confirmed the decision of this Court. It was noted that, Maharashtra Government's subsidy was not in form of an exemption from payment of entertainment duty to multiplex theater complex. The scheme was introduced to start new cinema houses in the State. The Supreme Court observed that, in such circumstance, the purpose tests for grant of subsidy should be applied. It was concluded as under:- “Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugars, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a complete family entertainment centre, more popularly known as multiplex theatre complex, has emerged. Those complexes offer various entertainment facilitate for the entire family as a whole. I was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that Government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to multiplex theatre complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct multiplex theatre complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centres. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one — there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugars and Sahney Steel.\" 8. In the present appeal also, as noted, the subsidy was granted under schemes framed by the State and the Central Government, to be given to the assesses who set up new industry in Kutch District. The scheme was envisaged to encourage investment which would in turn, provide fresh employment opportunity in the district which had suffered due to devastating earthquake. The computation of subsidy may be on the basis of sales tax or excise duty. Nevertheless, the purpose test would ensure that, the subsidy was capital in nature.” 10. Therefore, respectfully following the aforesaid decision, we do not find any infirmity in the findings of the learned CIT(A) in treating the sales tax Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 8 incentive received by the assessee as a capital receipt. Accordingly, ground no.1 raised in Revenue’s appeal is dismissed. 11. The issue arising in ground no.2, raised in Revenue’s appeal, pertains to the computation of disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962 (“the Rules”) by only taking into account those investments which have resulted in exempt income. 12. The brief facts of the case pertaining to this issue are that during the year under consideration, the assessee received exempt income by way of dividend of Rs.4,24,68,530. During the assessment proceedings, it was observed that the assessee had made an investment in shares amounting to Rs.376.94 crore as on 31/03/2013. Since such investment in shares of companies resulted in dividend income, which is exempt from capital gain, against which no expenditure is permitted, the assessee was asked to show cause as to why the disallowance under section 14A, read with Rule 8D of the Rules, was not computed. After considering the submissions of the assessee, the AO, vide assessment order, held that the investment decision for making the investment in shares amounting to Rs.376.94 crore was made at the board level and the assessee could not establish that the entire investment had been made out of its own funds. Further, the AO held that such investment in a private limited company requires day-to-day monitoring as well as appraisal of various factors, including business strategies and day-to-day operations. Accordingly, the AO computed the disallowance of Rs.1,30,63,321 under section 14A read with Rule 8D of the Rules and added the same to the total income of the assessee. Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 9 13. The learned CIT(A), vide impugned order, after taking into consideration the fact that the assessee had its own funds amounting to Rs.10,603.67 million, whereas the investment in shares was only to the tune of Rs.3591.57 million, held that the assessee had sufficient own funds for making the investments. Accordingly, the learned CIT(A) deleted the disallowance of Rs.15,09,627 made under Rule 8D(2)(ii) of the Rules. Further, the learned CIT(A) following the decision of the Special Bench of the Tribunal in Assistant Commissioner of Income-tax vs. Vireet Investment (P .) Ltd. [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB), directed the AO only to consider the investments that have actually yield exempt income during the relevant financial year for computing the disallowance under Rule 8D(2)(iii) of the Rules and exclude the investments that have not generated exempt income. Being aggrieved by the latter directions, the Revenue is in appeal before us. 14. During the hearing, the learned Departmental Representative (“learned DR”), apart from challenging the issue raised in this ground, also orally challenged the deletion of disallowance made under Rule 8D(2)(ii) of the Rules. 15. We have considered the submissions of both sides and perused the material available on record. In the year under consideration, the assessee received an exempt income of Rs.4,24,68,530. The AO, by invoking the provisions of section 14A read with Rule 8D of the Rules, made a disallowance of Rs.1,30,62,321. From the perusal of the balance sheet of the assessee for the year ending 31/03/2013, forming part of the paper book on page 57, we find that the assessee had shareholder funds amounting to Rs.1000.27 million Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 10 and reserves and surplus amounting to Rs.9603.40 million. It is an undisputed fact that during the year under consideration, the assessee made an investment in shares amounting to Rs.376.94 crore. Therefore, we do not find any infirmity in the findings of the learned CIT(A) in deleting the disallowance made under Rule 8D(2)(ii) of the Rules by placing reliance upon the decision of the Hon’ble Jurisdictional High Court in CIT vs. Reliance Utilities & Power Ltd., reported in [2009] 313 ITR 340 (Bom.) and CIT vs. HDFC Bank Ltd., reported in [2014] 366 ITR 505 (Bom.). 16. Insofar as the direction of the learned CIT(A) as regards the disallowance made under Rule 8D(2)(iii) of the Rules, we find that the Special Bench of the Tribunal in Vireet Investment (P .) Ltd. (supra), held that only those investments are to be considered for computing average value of investment which yielded exempt income during year. Therefore, respectfully following the aforesaid decision passed by the Special Bench of the Tribunal, we do not find any infirmity in the findings of the learned CIT(A) on this issue, which has followed the said decision. Accordingly, the findings of the learned CIT(A) on this issue are upheld. As a result, ground no.2 raised in Revenue’s appeal is dismissed. 17. The issue arising in grounds no.3 and 4, raised in Revenue’s appeal, pertains to the taxability of Technology Upgradation Fund (“TUF”) subsidy received by the assessee. 18. The brief facts of the case pertaining to this issue are that during the assessment proceedings, the assessee filed a revised computation of total Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 11 income claiming interest subsidy of Rs.47,75,38,700 received from the Government of India under the TUF Scheme as capital receipts. As the issue pertaining to the earlier year, where the said benefit was not granted to the assessee and hence following the consistent approach, the AO, vide assessment order, treated the incentive claimed by the assessee, amounting to Rs.47,75,38,700, as a revenue receipt and added the same to the total income of the assessee. 19. The learned CIT(A), vide impugned order, following the decision of the Tribunal in the case of assessee’s sister concern in M/s AYM Syntex Ltd., in ITA No. 2341/Mum./2021, held that the subsidy of Rs.47,75,38,700 received from the Government of India under the TUF Scheme is a capital receipt. Being aggrieved, the Revenue is in appeal before us. 20. During the hearing, the learned DR vehemently relied upon the order passed by the AO. On the other hand, the learned AR relied on various decisions wherein the subsidy received from the Government of India under the TUF Scheme was held to be a capital receipt. 21. We have considered the submissions of both sides and perused the material available on record. We find that while examining the taxability of the amount received under the TUF Scheme, the Hon’ble Rajasthan High Court in PCIT vs Nitin Spinners Ltd, reported in [2020] 116 taxmann.com 26 (Raj.), held that such subsidy was towards capital stream, and therefore, is not taxable. The relevant findings of the Hon’ble Rajasthan High Court in Nitin Spinners Ltd. (supra) are reproduced as follows: - Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 12 “2. The assessee is a textile manufacturer. For the relevant year i.e. 2013- 2014, it received the Technology Upgradation Fund, pursuant to a scheme drawn by the Union Textile Ministry. The payment of invasion of amounts by deferred repayment of interest, as it were. Under para 8 of the Technology Upgradation Fund programme (the amounts which were released under an agreement dated 12-7-2005) the amounts were to be treated as non-interest bearing term loans by the Bank and the repayment was to be worked out excluding the subsidy amount and the subsidy to be adjusted against the term loan account of the beneficiary after a lock in period of three years. The agreement pertinently provided as follows: \"Para 8. to prevent mis-utilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated as a non interest bearing term loan by the Bank/Fis. The repayment schedule of the term loan however will be worked out excluding the subsidy amount and subsidy will be adjusted against the term loan account of the beneficiary after a lock in period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended to the loan amount.\" 3. The AO disallowed the amount and sought to tax it under the ground that the subsidy was a taxable income as it fell into Revenue stream. The CIT(A) granted partial relief; the ITAT allowed assessee's appeal and rejected the Revenue's appeal. 4. It is argued on behalf of the Revenue that the ITAT's approach is incorrect given that till production actually took place the receipts in the hands of the assessee had to be treated as revenue. 5. In its order, the ITAT took note of several previous Bench ruling as well as judgment of the Punjab and Haryana High Court in CIT v. Sham Lal Bansal [2011] 11 taxmann.com 396/200 Taxman 14 (Mag.) (Punj & Har.). In Shyam Lal Bansal (supra) the Punjab and Haryana High Court observed as follows: \"6. The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purchase of technology upgradation or to give capital subsidy on the investment in compatible machinery. In the present case, the assessee has taken term loans for technology upgradation and subsidy was released under agreement dated 12-7-2005 with Small Industry Development Bank of India. The relevant clause of the agreement under which the subsidy was given is as under:- \"Para8. to prevent mis-utilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated as a non interest bearing term loan by the Bank/Fis. The repayment schedule of the term loan however will be worked out excluding the subsidy amount and subsidy will be adjusted against the term loan account of the beneficiary after a lock in period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended to the loan amount.\" 7. In view of the above, the view taken in Sahney Steel & Press Works Ltd., could not be applied in the present case, as in said case the subsidy was given Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 13 for running the business. For determining whether subsidy payment was 'revenue receipt' or 'capital receipt', character of receipt in the hands of the assessee had to be determined with respect to the purpose for which subsidy is given by applying the purpose test, as held in Sahney Steel & Press Works Ltd. itself and reiterated in later judgment in CIT v. Ponni Sugars & Chemicals Ltd. & Ors . (2008) 306 ITR 392, referred to in the impugned order of the Tribunal.\" 6. This Court notices that the Punjab and Haryana High Court took into account the previous binding ruling of the Supreme Court in CIT v. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87/306 ITR 392 and Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253. In these circumstances, the Court is of the opinion that the amount was received as capital stream and therefore, not taxable. 7. A similar view was taken by the Calcutta High Court in CIT v. Gloster Jute Mills Ltd . [2018] 96 taxmann.com 303/257 Taxman 512/[2019] 416 ITR 458.” 22. We find that the coordinate bench of the Tribunal in M/s AYM Syntex Ltd. (supra), by placing reliance upon the aforesaid decision of the Hon’ble Rajasthan High Court, held that the subsidy received is in the nature of a capital receipt. Since the learned CIT(A), following the aforesaid decision, has decided the issue in favour of the assessee, we do not find any infirmity in the same, and accordingly, the findings of the learned CIT(A) on this issue are upheld. As a result, the grounds no.3 and 4 raised in Revenue’s appeal are dismissed. 23. The issue arising in ground no.5, raised in Revenue’s appeal, pertains to computing the book profit under section 115-JB of the Act by making an addition on account of disallowance made under section 14A read with Rule 8D of the Rules. 24. Having considered the submissions of both sides and perused the material available on record, we find that this issue is no longer res integra and the Special Bench of the Tribunal in Vireet Investment (P .) Ltd. (supra) Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 14 held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated under section 14A read with Rule 8D of the Rules. Since the learned CIT(A), following the aforesaid decision, decided this issue in favour of the assessee, we do not find any infirmity in the same. Accordingly, the findings of the learned CIT(A) on this issue are upheld, and ground no.5 raised in Revenue’s appeal is dismissed. 25. In the result, the appeal by the Revenue for the assessment year 2013- 14 is dismissed. ITA No.3697/Mum/2025 Revenue’s Appeal (A.Y. 2015-16) 26. In this appeal, the Revenue has raised the following grounds: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in directing the AO to compute the disallowance by taking into account only those investments which have resulted into exempt income relying under judgment Hon’ble ITAT in the case of Vireet Investment Pvt. Ltd. (165 ITD 27) (Spl. Bench Delhi Tribunal). 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in considering the subsidy received in the form of Technology Upgradation Fund as a capital receipt, without appreciating the fact that the assessee has not proved that the application of the money received was for the purpose of acquiring a capital asset? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in directing the Assessing Officer to delete the disallowance made under section 14A r.w. Rule 8D to the Book profit relying on decision of Hon'ble special Bench decision of Hon'ble ITAT, Delhi in the case of ACIT vs. Vireet Investments Pvt. Ltd. (165 ITD 0027 Del SB] without appreciating the fact that the Department has filed further appeal in the case of Vireet Investments Pvt. Ltd. and that matter has not reached finality?” 27. Ground No. 1, raised in Revenue’s appeal, pertains to the computation of disallowance under section 14A read with Rule 8D of the Income Tax Rules, Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 15 1962 (“the Rules”) by only taking into account those investments which have resulted in exempt income. 28. Since a similar issue has already been decided in Revenue’s appeal for the assessment year 2013-14 in a similar factual matrix, our findings/conclusions as rendered therein shall apply mutatis mutandis to the present case. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) on this issue, and the same are upheld. As a result, ground no.1 raised in Revenue’s appeal is dismissed. 29. The issue arising in ground no.2, raised in Revenue’s appeal, pertains to the taxability of Technology Upgradation Fund (“TUF”) subsidy received by the assessee. 30. Since a similar issue has already been decided in Revenue’s appeal for the assessment year 2013-14 in a similar factual matrix, our findings/conclusions as rendered therein shall apply mutatis mutandis to the present case. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) on this issue, and the same are upheld. As a result, ground no.2 raised in Revenue’s appeal is dismissed. 31. The issue arising in ground no.3, raised in Revenue’s appeal, pertains to computing the book profit under section 115-JB of the Act by making an addition on account of disallowance made under section 14A read with Rule 8D of the Rules. Printed from counselvise.com ITAs No.3696 & 3697/Mum/2025 (A.Ys. 2013-14 & 2015-16) 16 32. Since a similar issue has already been decided in Revenue’s appeal for the assessment year 2013-14 in a similar factual matrix, our findings/conclusions as rendered therein shall apply mutatis mutandis to the present case. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) on this issue, and the same are upheld. As a result, ground no.3 raised in Revenue’s appeal is dismissed. 33. In the result, the appeal by the Revenue for the assessment year 2015- 16 is dismissed. 34. To sum up, both appeals by the Revenue are dismissed. Order pronounced in the open Court on 27/10/2025 Sd/- PRABHASH SHANKAR ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 27/10/2025 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai Printed from counselvise.com "