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Delhi High Court
The Pr Commissioner Of Income Tax Iv New … vs Ntpc Vidyut Vyapar Nigam Ltd on 23 April, 2025
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 23.04.2025
+ ITA 260/2024
PR. COMMISSIONER OF INCOME
TAX-4, NEW DELHI ..... Appellant
Versus
NTPC VIDYUT VYAPAR NIGAM LTD. ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Shlok Chandra, senior standing counsel
with Ms Naincy Jain and Ms Madhavi Shukla,
Advocate
For the Respondent : Mr Ved Jain and Mr Nischay Kantoor,
Advocates.
CORAM
HON'BLE MR. JUSTICE VIBHU BAKHRU
HON'BLE MR. JUSTICE TEJAS KARIA
JUDGMENT
VIBHU BAKHRU, J.
1. The appellant [Revenue] has filed the present appeal impugning
an order dated 31.07.2023 [impugned order] passed by the learned
Income Tax Appellate Tribunal [ITAT] in ITA No.145/Del/2020 in
respect of assessment year [AY] 2015-16. The said appeal was preferred
by the respondent [Assessee] impugning an order dated 18.11.2019
passed by the Principal Commissioner of Income Tax [PCIT] under
Section 263 of the Income Tax Act, 1961 [Act].
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QUESTIONS OF LAW
2. In the aforesaid context, the Revenue has projected following
questions of law for consideration of this court:
“A. Whether on the facts, circumstances and law of the case,
the Hon’ble ITAT was justified in holding that no addition
of Rs.42,16,04,786/- is called for on account of sale of fly
ash and cenosphere?
B. Whether on the facts, circumstances and law of the case,
the Hon’ble ITAT was right in accepting the prevalence of
Gazette Notification issued by the Ministry of Environment
and Forest over the provision of the Income tax Act 1961?
C. Whether on the facts, circumstances and law of the case,
the Hon’ble ITAT was correct in ignoring the decision of
the Supreme Court in the case of Tuticorin Alkali
Chemicals vs. Commissioner of Income tax: 141 CTR 387
(SC) wherein it has been held “it is well settled that tax is
attracted at the point when the income is earned. Taxability
of income is not dependent upon its destination or the
manner of its utlilisation. It has to be seen whether at the
point of accrual, the amount is of revenue nature….”?”
FACTUAL CONTEXT
3. The respondent [Assessee] is a public sector company and a
wholly owned subsidiary of National Thermal Power Corporation
Limited [NTPC]. The Assessee is, inter alia, engaged in the business
of trading energy. During the relevant year, it was also engaged in
trading fly ash and related products.
4. The Assessee filed its revised return of income for the financial
year [FY] relevant to AY 2015-16 on 15.06.2016, declaring a profit of
₹98,84,52,500/-. The Assessee’s return was picked up for scrutiny and
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the assessment proceedings culminated in an order dated 23.12.2017
passed under Section 143(3) of the Act, whereby the Assessee’s income
was assessed at ₹1,36,14,76,500/- and a demand of ₹25,49,58,670/- was
raised.
5. The Assessee appealed the said decision before the
Commissioner of Income Tax (Appeals) [CIT(A)], which was allowed
by an order dated 18.11.2019 and the additions made by the AO to the
declared income, were deleted.
6. However, thereafter, the PCIT invoked the provisions of Section
263 of the Act and made a further addition of ₹42,16,04,786/- on
account of sale of fly ash and cenosphere.
7. The Assessee appealed the said decision before the learned ITAT,
which was allowed by the impugned order.
8. The Assessee was handed over fly ash, a product of the thermal
coal plants, generated by its holding company NTPC. The same was to
be utilised for specific purposes: utilization for development of
infrastructure, and promotion and facilitation activities for fly ash
utilization. The Assessee claimed that the proceeds collected from sale
of fly ash were credited to a separate earmarked account [fly ash
utilisation account] and the entire amount was used exclusively for the
purpose of utilization of the fly ash for development of infrastructure
and/ or for specified purposes. The expenses incurred by the Assessee
were debited to the said fly ash utilisation account and not to the
Assessee’s profit and loss account.
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9. The Assessee also explained that the said activities were
undertaken in view of the Notification dated 03.11.2009 issued by the
Ministry of Environment and Forests, Government of India, regarding
the utilization of fly ash.
10. The aforesaid Notification was issued under Sections 3 and 5 of
the Environment (Protection) Act, 1986. The Government of India,
Ministry of Environment and Forests had issued a notification dated
14.09.1999 restricting the excavation of top soil for manufacture of
bricks and promoting the utilization of fly ash in the manufacture of
building materials and in construction activity within a specified radius
of fifty kilometres from coal or lignite based thermal power plants. The
object of the same was to conserve the top soil and minimize
environment pollution.
11. The aforesaid notification requires all thermal plants to utilize the
fly ash generated from the power plants in specified manner. Article 2
of the said notification is set out below:
“2. Utilisation of ash by Thermal Power Plants.
All coal or lignite based thermal power plants shall utilise the
ash generated in the power plants as follows:-
(1) Every coal or lignite based thermal power plant shall
make available ash, for at least ten years from the date
of publication of this notification, without any payment
or any other consideration, for the purpose of
manufacturing ash-based products such as cement,
concrete blocks, bricks, panels or any other material or
for construction of roads, embankments, dams, dykes or
for any other construction activity.
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(2) Every coal or lignite based thermal power plant
commissioned subject to environmental clearance
conditions stipulating the submission of an action plan
for full utilisation of fly ash shall, within a period of nine
years from the publication of this notification, phase out
the dumping and disposal of fly ash on land in
accordance with the plan. Such an action plan shall
provide for thirty per cent of the fly ash utilisation,
within three years from the publication of this
notification with further increase in utilisation by atleast
ten per cent points every year progressively for the next
six years to enable utilisation of the entire fly ash
generated in the power plant atleast by the end of ninth
year. Progress in this regard shall be reviewed after five
years.
(3) Every coal or lignite based thermal power plant not
covered by para (2) above shall, within a period of
fifteen years from the date of publication of this
notification, phase out the utilization of fly ash in
accordance with an action plan to be drawn up by the
power plants. Such action plan shall provide for twenty
per cent of fly ash utilization within three years from the
date of publication of this notification, with further
increase in utilization every year progressively for the
next twelve years to enable utilisation of the entire fly
ash generated in the power plant.
(4) All action plans prepared by coal or lignite based
thermal power plants in accordance with sub-para (2)
and (3) of para 2 of this notification, shall be submitted
to the Central Pollution Control Board, concerned State
Pollution Control Board/Committee and concerned
regional office of the Ministry of Environment and
Forests within a period of six months from the date of
publication of this notification.
(5) The Central and State Government Agencies, the State
Electricity Boards, the National Thermal Power
Corporation and the management of the thermal power
plants shall facilitate in making available land,
electricity and water for manufacturing activities andSignature Not Verified
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provide access to the ash lifting area for promoting and
setting up of ash-based production units in the proximity
of the area where ash is generated by the power plant.
(6) Annual implementation report providing information
about the compliance of provisions in this notification
shall be submitted by the 30th day of April every year to
the Central Pollution Control Board, concerned State
Pollution Control Board/Committee and the concerned
Regional Office of the Ministry of Environment and
Forests by the coal or lignite based thermal power
plants.”
12. The said Notification dated 14.09.1999, as amended by a
Notification dated 27.08.2003, which expressly provided that all coal or
lignite based thermal power plants would be free to sell fly ash to user
agencies subject to certain conditions including that pond ash be made
available free of any charge on as is where is basis to manufacturers of
bricks, blocks or tiles, farmers and the Central and State road
construction agencies, Public Works Department, and to agencies
engaged in backfilling or stowing of mines. At least 20% of dry ESP
fly ash was required to be made available free of charge to units
manufacturing fly ash or clay-fly ash bricks, blocks and tiles. It further
provided that all coal or lignite based thermal power plants are required
to achieve a target of fly ash utilization as stipulated in the said
notification. The target of using at least 50% fly ash generation was
require to be achieved in the first year and the target of 100% utilization
of fly ash was require to be achieved within five years from the date of
notification.
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13. The said notification was further amended by a Notification
dated 03.11.2009. Paragraph 6 of the Notification dated 03.11.2009
reads as under:
“(6) The amount collected from sale of fly ash and fly ash
based products by coal and/or lignite based thermal power
stations or their subsidiary or sister concern units, as
applicable should be kept in a separate account head and
shall be utilized only for development of infrastructure or
facilities, promotion and facilitation activities for use of fly
ash until 100 percent fly ash utilization level is achieved;
thereafter as long as 100% fly ash utilization levels arc
maintained, the thermal power station would be free to
utilize the amount collected for other development
programmes also and in case, there is a reduction in the fly
ash utilization levels in the subsequent year(s), the use of
financial return from fly ash shall get restricted to
development of infrastructure or facilities and promotion or
facilitation activities for fly ash utilization until 100 percent
fly ash utilisation level is again achieved and maintained.”
ASSESSEE’S CASE
14. The Assessee claimed that it had deposited the entire sale
proceeds of fly ash, which was received from NTPC in a fly ash
utilization fund and had also furnished the same. It was Assessee’s
claim that the credit balance available of the fund was transferred to its
holding company (NTPC) at the end of the relevant financial year. In
the aforesaid context the Assessee claimed that it had not earned any
income.
REASONS & CONCLUSION
15. At the outset, it is relevant to refer to fly ash utilization fund as
set out in the impugned order. The same is reproduced below:
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“As at 31.03.2015 31.03.2014
Ay per last financial 3,26,23,01,631 2,34,93,34,677
statements
Add: Transfer from 87,42,34,784 1,22,55,13,224
sales (Note 18)
Add: Transfer from 20,77,17,705
other Income (Note 19)
(Net of tax)
Transfer from reserve – 17,01,18,785
and surplus (Note3)
(Net of tax)
Less: Utilized during
the year
Capital expenditure – 49,15,087
(Note 10)
Cost of fly ash/ash 2,23,11,593 2,89,05,770
products (Note 21)
Employee benefits 4,02,19,471 5,73,27,339
expense (Note 22)
Administration & other 4,28,91,315 5,13,13,853
expenses (Note 24)
Fly ash utilization 34,72,07,619 34,02,03,007
expenses incurred by
holding company
45,26,29,998 48,26,65,056
Net Fly ash utilization 3,89,16,24,122 3,26,23,01,631
fund
Less: Fly Ash Fund 3,89,16,24,122 –
Transferred to NTPC
Limited
Total - 3,25,23,01,631"
16. The said fund indicates that the balance of ₹3,89,16,24,120/-
which was available in the fund as on 31.03.2015 was transferred to
NTPC.
17. Mr Chandra, the learned counsel for the Revenue referred to the
aforementioned fly ash utilization fund and submitted that the Assessee
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had debited cost of fly ash products amounting to ₹2,23,11,593/-; cost
of employee benefits expense amounting to ₹4,02,19,471/- and
administration and other expenses amounting to ₹4,28,91,315/- to the
fund. He contended that the Assessee had, thus, recovered part of its
general expenses from the sale proceeds of fly ash and therefore, could
not claim that it had not earned any income. He contended that the sale
proceeds were required to be accounted for and such expenses which
were otherwise allowable under the Act were required to be debited for
determining the assessable income. He contended that the learned PCIT
had examined the record and concluded that the Assessee’s income
from sale of fly ash was not included in the total income chargeable to
tax.
18. Mr Jain, learned counsel appearing for the Assessee contended
that the Assessee had produced all relevant material to establish that it
had not included the expenses that were debited to the fly ash utilization
fund as a part of its general expenses and thus same were not claimed
as a deduction from the Assessee’s taxable income. It was reiterated
that the expenses debited to the fly ash utilization fund had been
credited in their respective heads, thus reducing the amount of expenses
that were claimed for the purpose of calculating the taxable income of
the Assessee. In the aforesaid context, this court had called upon the
Revenue to produce all relevant records that were furnished before the
concerned authorities. Mr Chandra had sought and was granted time to
produce the relevant records on more than one occasion, but the
Revenue did not file the said records. He finally reported that the said
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record was not available and all record that was available has been filed
with the present appeal.
19. However, the Assessee produced a printed copy of the schedules
to its final account, which clearly established that the expenses booked
by the Assessee in its nominal accounts, were reduced to the extent of
the expenses that were transferred to the fly ash utilization fund.
20. At this stage it is also relevant to note that there is no dispute as
to the following facts:
(a) that the fly ash was provided to the Assessee by NTPC for
utilizing the same as required by the notification issued by
the Central Government under the Environment (Protection)
Act, 1986;
(b) that part of the funds realized from sale of fly ash was in fact
used for specified activities and the Assessee derived no
benefit from any development activities undertaken from
the sale proceeds of fly ash;
(c) that the infrastructure or facilities that were developed did
not belong to the Assessee;
(d) that the Assessee had recovered the expenses that were
attributable for carrying on the activities for sale of fly ash
and for utilizing the same for specified purposes from the
fly ash utilization fund; and,Signature Not Verified
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(e) that the balance amount available in the fly ash utilization
fund was made over to NTPC.
21. It is clear from the above that there is no question of the Assessee
having earned any income. The fly ash did not belong to the Assessee,
but to its holding company – NTPC. The Assessee had only sold the
fly ash and utilized part of the funds as mandated and made over the
balance funds to NTPC.
22. In the given facts, we do not find any infirmity with the decision
of the learned ITAT that the Assessee had not earned any income on
account of sale of fly ash, which was provided by NTPC. In
Commissioner of Income-Tax v. New Horizon Sugar Mills Pvt. Ltd.:
(2000) 244 ITR 738, the Madras High Court had upheld the decision of
the learned ITAT holding that the amount set apart towards Molasses
Storage Reserve Fund is required to be excluded from the total income
of the assessee. The said decision was rendered bearing in mind the
Molasses Control (Amendment) Order dated 06.02.1972, which
required that the amount for construction of molasses storage tank was
to be kept separately. The assessee had no power to spend the said
amount, the same was required to be spent only in accordance with the
directions issued by the Government. The appeal preferred against the
said order was also dismissed by the Supreme Court, in view of the
orders passed in similar matter permitting the Revenue to withdraw the
appeals.
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23. In the facts of the present case as well, the Assessee was not free
to utilize the sale proceeds of fly ash as the same was required to be
used for specified purposes, which as stated above, did not result in the
Assessee acquiring any asset.
24. In view of the above, we find no infirmity with the decision of
the learned ITAT. No substantial questions of law arise for
consideration of this court. The appeal is, accordingly, dismissed.
VIBHU BAKHRU, J
TEJAS KARIA, J
APRIL 23, 2025
‘gsr’
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