The Delhi High Court has overturned the income tax addition of Rs. 42.16 Crore against NTPC Vidyut Vyapar Nigam Ltd., a subsidiary of NTPC, regarding the sale of fly ash and cenosphere.
NTPC Vidyut Vyapar Nigam Ltd., a wholly owned subsidiary of NTPC, is engaged in trading energy and fly ash. For FY 2015-16, the company filed a revised income return showing a profit of Rs. 98.84 crore. After scrutiny, the income was assessed at Rs. 136.14 crore, raising a demand of Rs. 25.49 crore. The company used the proceeds from fly ash sales for infrastructure development, crediting it to a separate account. However, the Principal Chief Commissioner of Income Tax invoked Section 263 and added Rs. 42.16 crore for the sale of fly ash and cenosphere.
The Assessee claimed that all proceeds from the sale of fly ash were deposited into a utilization fund and transferred to NTPC, with no income earned. However, the department argued that the Assessee had used the sale proceeds to cover various expenses, indicating it had earned income. The Principal Chief Commissioner of Income Tax (PCIT) reviewed the records and concluded that the Assessee’s income from the sale of fly ash was not included in its taxable income.
The bench of Justice Vibhu Bakhru and Justice Tejas Karia observed, “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.”
The court upheld the ITAT's decision that the Assessee had not earned income from the sale of fly ash provided by NTPC. Referring to a similar case (Commissioner of Income-Tax v. New Horizon Sugar Mills Pvt. Ltd.), the Madras High Court had ruled that amounts set aside for specific purposes, like the Molasses Storage Reserve Fund, should be excluded from the total income. The Supreme Court also dismissed the appeal in that case, allowing the Revenue to withdraw the appeals.
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