Subsidies received under Technology Upgradation Fund Scheme (TUFS) are capital receipts and not taxable as revenue income.

The Revenue appealed against orders of the Income Tax Appellate Tribunal (ITAT) involving M/S Nandan Denim Ltd.

In Tax Appeal 464/2026, the ITAT admitted an additional ground raised by the assessee for the first time via Cross-Objection regarding interest and power subsidies

In Tax Appeals 130 and 131/2026, the ITAT initially dismissed the assessee's claim regarding Technology Upgradation Fund Scheme (TUFS) subsidies, holding the issue did not arise from the assessment record

Upon Miscellaneous Applications (MA) by the assessee, the ITAT noted the subsidies were indeed reflected in the Profit and Loss Account/Annual Accounts

Consequently, the ITAT recalled its specific findings and remanded the matter to the Assessing Officer (AO) to determine if the receipts were capital or revenue in nature

1. Whether the ITAT erred in admitting additional grounds or a Miscellaneous Application to consider a claim (TUFS subsidy as capital receipt) not raised in the original return or before lower authorities?

2. Whether the ITAT was justified in remanding the matter to the Assessing Officer to examine the nature of TUFS interest subsidy?

The Court relied on the principle established by the Hon’ble Supreme Court in National Thermal Power Corporation (NTPC) Ltd. v. Commissioner of Income Tax, which grants the ITAT discretion to admit new grounds if they involve questions of law arising from facts already on the assessment record

It further noted judicial precedents from the Bombay High Court in Peter Vaz v. CIT, as well as decisions from the Supreme Court (Nitin Spinners Ltd.), Madras High Court (Best Corporation Ltd.), and Punjab & Haryana High Court (Sham Lal Bansal), which generally suggest that TUFS subsidies may be treated as capital receipts rather than revenue receipts

The Court observed that while the ITAT initially rejected the additional grounds, the assessee successfully demonstrated through Miscellaneous Applications that the TUFS subsidy details were part of the assessment record, specifically appearing in Note No. 36 and 23 of the Annual Accounts/Profit and Loss Account

The High Court found that the ITAT acted within its jurisdiction by admitting these grounds because the primary facts were already available in the taxpayer's financial statements

Since the Departmental Representative did not dispute the factual existence of these records or the relevance of the issue during the ITAT proceedings, the High Court held that no substantial question of law arose

The Court emphasized that remanding the matter to the AO is a procedurally fair step to ensure the tax liability is correctly assessed after a proper hearing

The Court upheld the ITAT’s direction to the Jurisdictional Assessing Officer to adjudicate the claim of TUFS subsidy as a capital receipt on its merits after providing the assessee an opportunity to be heard

The Court concluded that no substantial question of law was made out for interference