Income Tax Appellate Tribunal - Delhi
Ntpc Vidyut Vyapar Nigam Ltd., New Delhi vs Pcit-06, New Delhi on 31 July, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member
Sh. Yogesh Kumar US, Judicial Member
ITA No. 145/Del/2020 : Asstt. Year: 2015-16
NTPC Vidyut Vyapar Nigam Ltd., Vs. PCIT-06,
Core-7, Scope Complex, Institutional New Delhi-110002
Area, Lodhi Road, New Delhi-110003
(APPELLANT) (RESPONDENT)
PAN No. AABCN7433J
Assessee by : Sh. Ved Jain, Adv.
Revenue by : Ms. Sarita Kumari, CIT DR
Date of Hearing: 06.06.2023 Date of Pronouncement: 31.07.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the as sessee against the order of ld. PCIT-6 , New Delhi dated 18.11.2019.
2. For the sake of ready re ference and completeness , the entire order o f the ld. PCIT passed u/s 263 is reproduced as under:
"2. The assessment record of assessee was calle d for and on examination of the same; it was noticed that in the Note-18 (Revenue and Operation) o f the audited Balance Shee t, the assessee has sho wn Sale of 'Fly Ash / Fly Ash Product' am ounting to Rs . 87,42,34,784/- and trans ferred the total amount to the Fly Ash Utilizatio n Fund witho ut conside ring the same as inco me. A perus al of B ala nce Sheet shows that assessee is maintaining a F ly Ash Utilizatio n Fund ( Note-4 of audited B/Sheet), w hic h had a Net Fly Ash Utilization F und' of Rs. 3,89,16,24,122/- as on 31.03.2015 2 ITA No. 145/Del/2020 NTPC Vidyut Vyapar Nigam Ltd.
including the abo ve re ferre d sale amount of Rs.87,42,34,784/-, but the said net fund of R . 3,89,16,24,122/- was transferred to NTPC Ltd.
3. I n the yea r under consideration, the assessee has e arned reve nue of Rs. 87,42,34,784/- from the sale of fly ash, ceno sphere and the assessee inc ur red expenditure o f Rs. 45,26,29,998/- on account of fly as h produc ts. Hence an amount of Rs. 42,16,04,786/- has remaine d under assessed.
4. The Assessing o ffice r failed to v erify these fac ts in his assessment orde r dated 23.12.2017 passed u/s 143(3) of I.T. Act, 1961 for A .Y. 2015-16. By not conside ring the matter during assessment proceedings a nd by not adding back Rs . 42,16,04,786/- on account of net receipt on fly ash and cenosphere to the income, the scrutiny assessment order apparently has become erroneous in so far as it is pr ejudic ial to the interes t o f re venue, in terms of explanation 2 of section 263 of the Income Tax Act, 1961, whic h is reiterated an unde r:
"Explanatio n 2: F or the purposes of this section, it is declared that order pa ssed by the Assessing Officer shall be deemed to be erroneous in so as it is prej udicial to the interests of the revenue , if in the o pinion o f the Principal Commissione r o r Commissioner (a) the order is pas sed without making inquiries or verificatio n whic h should have bee n made; (b) the orde r is passed allow ing any relief witho ut inquiring into the cla im; (c) the order has not been made in accordance with any or der, direction or instruc tio n issued by the Board under section 119: o f (d) the order has no t been passed in accordance wi th a ny decision which is prejudic ial to the assessee, rende red by the jurisdic tio nal High Court or Supreme Court in the case o f the assessee or any o ther pe rson."3 ITA No. 145/Del/2020
NTPC Vidyut Vyapar Nigam Ltd.
In v iew of the facts of the ins tant case and provisio ns of the Income Tax Act, 1961, as discussed abo ve, a detail show caus e notice da ted 20.9.2019, u/s 263 of the Income Tax Act was issued to the assessee, directed them to show cause as to why the provisio n of section 263 of the Income Tax Act shall not be invoked for A.Y. 2015-16 and the order passed u/s 143/3) o f the Act should no t be revise d and the case should not be set aside to the Assessing Office r, for ide ntification of taxable income on a/c o f sale of fly ash and cenos phe re, after examination o f all the mate rial facts. The said notice was duly se rved on the a ssessee.
Subm ission on behalf of the Assessee:
The assessee company filed their re ply to the show c ause notice on 01.10.2019. The relevant gist of the submission is as follows-
"NVVN is a public sector company, a 100% subs idiary of NTPC Ltd, engaged in the business of trading of Energy and fly ash and it's related produc ts .
For the year unde r cons ide ration N VVN duly filed it's revised re tur n of income of 15.6.2016 declaring profit of Rs. 98,84,52,500/- Thereafter, the c ase was selecte d under CASS for co mplete sc rutiny where in the income of the NVVN was assessed u/s 143(3) at Rs. 1,36,14,76,500/- as against the returned income of Rs. 98,84,52,500/- and a demand of Rs. 25,49,58,670/- was raised on NVVN vide order u/s 143( 3) and notice of demand u/s 156 dated 23.12.2017.
Against above Assessment Orde r, NVVN filed an appeal w ith CI T (Appeals)-06, which was decide d in NVVN's favour and the additio ns made by Assessing Offi cer was deleted vide CIT ( Appeals)- 06's order dated 23.04.2019.4 ITA No. 145/Del/2020
NTPC Vidyut Vyapar Nigam Ltd.
To NVVN's surprise, your good self has now invoked the provision of section 263 o f the Act and proposed a further additio n of Rs . 42,16,04,786/- presuming the original assessment to be prejudicial to the interes t of the revenue on account of sale o f fly ash and cenosphe re.
It is per tinent to mention that a notification date d 3rd November, 2009 has been issued by the Ministry o f Environment and Fores ts (MOEF) on utilization o f fly ash. The said no ti fic ation is very specific so far trans fer o f proceeds o f the fly ash is conce rne d. For which it may be relevant to refer to par a 6 of the said no tification w hic h reads as under:-
"(6) The amount collected from sale of fly ash and fly ash based products by coal and/or lignite base d the rmal po wer stations o r their subsidiary or s ister concer n units, as appli cable sho uld be ke pt in a separate account head a nd shall be utilized only fo r develo pment of infras tr ucture or facilitie s, promotion and facilitation activities for use of fly ash until 100 perce nt fly ash utilization level is ac hie ved;
thereafter as long as 100% fly a sh utiliza tion leve ls are maintained, the thermal po wer station would be free to utilize the amount collec ted for othe r development pro grammes also and in case , there is a reduction in the fly ash utilization le vels in the subsequent year(s) , the use of financial return from fly ash shall get res tricte d to develo pment of infrastructure or facilities and promotio n or fac ilita tion activities for fly ash utilization until 100 percent fly ash utilization le vel is again achieved and maintaine d."
From the above i t is clear that the amount collecte d from sale of fly ash and fly as h based products by coal and/o r lignite based the rmal power s ta tio ns or their subsidiary or sister concern unit is required to be ke pt in a separ ate account and it may be utilized only for develo pment of infrastructure or fac ilities, promotio n and facilita tio n 5 ITA No. 145/Del/2020 NTPC Vidyut Vyapar Nigam Ltd.
activities fo r use of fly a sh until 100 percent fly ash utilization level is achie ved.
It is submitted that as long as 100 perce nt fly ash utilization is not achie ved, the assessee is bound to utilize the s aid amount for afores aid develo pment programmes and is no t free to use as pe r its disc retio n. It is o nly afte r achieve ment of 100% utilization level o f fly as h, when, the thermal power statio n wo uld be fre e to utilize the amount collected for other developm ent progr ammes also and in case there is a reduction in the fly ash utilization le vels in subsequent years , the use of financial return from fly ash will again get restricte d to development of infrastructure or facilitie s and promotio n or facilitatio n activ ities for fly ash utilization until 100 percent fly ash utilization le vel is again achie ved and maintaine d.
The notific atio n has been issue d by Government of India, Ministry of Environment and F orests (MoEF) under Environment (Protection) Act, 1986 by v irtue o f the powe rs vested in it unde r section 3( 1) & 3(2)(v) o f the Environment (Protection) Act, 1986 re ad wi th cla use
(d) of sub- rule ( 3) of rule 5 o f the Environment (Pro tectio n) Rules , 1986. These powers are to be e xercised fo r the purpos e of pro tecting and impro ving the quality of the environment and preve nting controlling and abating e nvironmental po llutio n. Further, if the Central Go ver nment is satisfied that it is necessary or expedient to do so, it is empow ered to dete rmine the policy and give directions to all. Accor dingly, wide and vast powers ha ve been given by the Legis lature to the Central Go ver nment to gove rn a s pecified matter i.e., protec tion and improvement of environment, whose functioning is monitored by the Centra l Gove rnm ent.
The powers ves ted with the Centr al Government is by the Legislature for determining policy by the experts to provide for the protec tio n and improvement of environment and for matters co nnected with it. This is a consc ious and deliberate decision o f the Le gislature and, 6 ITA No. 145/Del/2020 NTPC Vidyut Vyapar Nigam Ltd.
thus , when in c lear and articulate language they have specifically enumerate d in The Environment ( Protectio n) Act, then the over riding mandate of the se ction cannot be ignored. Accor dingly, based on the provisio ns of the said Act and the pr udential no rms issued by it from time to time in exercise o f the power ves ted in it no adve rse infe rence should be drawn in the na me of the NVVN .
In view o f the said no tification, it can be concluded that so far proceeds of the fl y ash are co ncerned it gets transfe rre d by overriding effect. Therefore sale proceeds are no t chargeable to Income tax as the same do not belo ng to NVVN because it has to be used for the purposes specifie d thereunder . The purposes specifie d are not being owned by NVVN and the fund will be used in making contr ibution to develo pment of infrastructure or facilities and promotio n or fac ilitation activ ities fo r fly ash utilization or such other fac ility no t o wned by it.
Moreover the amount co llected is a liability being collected as a trus tee in its behalf and there will be no tax liability. Ac cordingly, being a statutory obligatio n under over riding effec t, the amount collec ted from sale of fly ash and cenosphe re after setting o ff cos t related to it w.e.f. 03.11.2009, are being kept by NVVN in a sepa rate account named 'Fly Ash Utilization Fund' which is to be spent o n the specific purposes as directed by the Ministry of Enviro nment and Forests vide its notificatio n da ted 03.11.2009 issued under Environment Prote ction) Act, 1986 In v iew o f the above submissio n, it is ver y much evident that the amount received by NVVN on acco unt o f sa le of fly ash is not its income and incom e tax is payable o n income earned by any pe rson as per pro vis ions of Income Tax. However, as the amount received by NVVN in itself does not represents income, there fo re, no income tax is applic able on the same. Accordingly, it is reque sted to kindly 7 ITA No. 145/Del/2020 NTPC Vidyut Vyapar Nigam Ltd.
drop the proceeding w/s 263 o f the Act and no adver se inference be drawn in this regard.
Determination:
I have care fully conside red and e xamined the cas e records a nd assessment o rder of the AO u/s 143(3) dated 23.12 2017. Reply o f the assessee company is examined a nd is no t acceptable on merit, in view of the disc ussion made in the following para:
The Note-4 of the audited Balance Sheet refe rs to the Gazette noti fic ation date d 3 November, 2009, issued by the Minis try of Environment and Forest (MoEF), Govt. of India. In the sa id noti fic ation it was mentioned that the amounts collecte d from sale of fly as h and fly ash based products shall be kept in a se parate account hea d and be utilized only for development of infrastructure or fac ilities, promotion and facilitation activities for use of fly ash.
On examina tio n of the gazette notification dated 3 r d N ovember, 2009 issued by MoEF, it is seen that the said no tifi cation is only about utilization of rece ipts from fly ash sale and it does no t infringe upon the taxation is sue related to income from sale of fly ash. Furthe r, the above gazette notification cannot prevai l ove r the express provisio ns o f the Income Tax Act, 1961. F urther, m erely making a separate fund and transferring it in liabilities on Balance Sheet, does not necess ita te an income not to be recogni zed and to have no tax implication on it.
45,26,29,998/- on a/c of said products. He nce, an amount o f R s. 42,16,04,786/- (Rs. 87,42,34,784/- minus Rs. 45,26,29,995/-) earne d as income from sale o f fly ash, cenos phere which w as no t shown as taxable income. The AO, while framing the assessment order , s hould hav e properly ve rified the issue and the net amount as mentioned above should have bee n brought within the tax net."8 ITA No. 145/Del/2020
NTPC Vidyut Vyapar Nigam Ltd.
3. In view of the above, the ld. PCIT held tha t the assessment order passed by the ACIT is e rroneous and prejudicial to the interest of the revenue and hence directed the AO to make proper ver ification o f the issue.
4. Aggrieve d, the order of the ld. PCIT, the assessee filed appeal before us.
5. Heard the arguments of both the parties and peruse d the material available on record.
6. It is important to understand that the nature of business and source of income o f the assessee which is as under:
NTPC V idyut V yapar N igam Ltd.
(A wholly o wned subsidiary o f NT PC) NVVN'S NATURE OF BUSINESS AN D SOURCES OF INCOME NTPC V idyut Vyapar N igam Limited (NVVN) was incorporated on 1 Novembe r 2002 as a Governme nt Company and the Certificate for Comme ncement o f Business wa s rece ived on 26th Nove mber 2002.
Since , there is a gap in betwee n demand and supply of e lec tricity, a new concept of trading of po wer starte d in the market to bridge this gap. It be came an impo rtant too l for utilizing the s hort/ medium term s urpluses of the existing capacity mo re efficiently and bec ame an independe nt activity in the power secto r. S ince there is progress ive strengthening of the regiona l and inter- regio nal transmiss io n grids, it further made the trading o f power as a n impo rtant ac tivity. The Electricity Act, 2003 also reco gnized trading in powe r as a dis tinct business activity.9 ITA No. 145/Del/2020
NTPC Vidyut Vyapar Nigam Ltd.
Unde r this scenar io NTPC Limited (A Go vernment of India Enterpr ise) , to re ap the benefits of the vast po tential o f power trading in the co untry, formed NTPC V idyut Vyapar Nigam Limite d (NVVN), as who lly owned subsidiary. NVVN is the only Governme nt Company in the business of power trading in the country today NTPC , with stations spread across the country, is the largest power generator of India Trading of power by its who lly owned subs idiary shall pave the w ay for impro ving capacity utilizatio n and thereby reduc ing the over all cost o f power. In this direction, the Company vis ualizes to evo lve itse lf as a facilita tor for deve lo ping a fle xible power market.
As per the Pres ide ntial directive dated 22.12.2009 iss ued by M inistry of Po wer (MoP) , Government of India (GoI), NVVN was appo inted the Nodal Age ncy under Phase-I of Jawahar lal Ne hru Natio nal So lar Miss ion (JNNSM) to enter into Po wer Purchase Agree ments (PPAs) for upto 1,000 MW w ith So lar Powe r Deve lope rs (SPDs) and the sale afte r bundling of an equivale nt MW capacity from the NTPC's coal power stations . During the year NVVN bought so lar power fro m SPDs and bundled it with the rmal powe r of NTPC and sold it to vario us Discoms .
NTPC generates electr icity thro ugh coal gas , naphtha etc. While us ing coa l fo r e lectr ic ity generatio n, fly as h is pro duced in large quantities its disposal in an environment frie ndly manner c auses major wor ry fo r N TPC. So, it entrusted this job also to NVVN. NVVN made beginning in its utilization a nd started marketing/trading of fly ash from the financia l yea r 2006-07 onwards. Howe ver, as per MoEF notific ation dated 03.11.2009 the earning from F ly Ash tr ading has been credite d by NVVN to a separate F ly Ash Utilization Fund and hence does not fo rm part of NVVN's income.
10 ITA No. 145/Del/2020NTPC Vidyut Vyapar Nigam Ltd.
7. Further, we have gone through the page no. 14 of the paper book de picting the details of fly ash utilization fund which is as under:
NTPC VIDYUT VYAPAR NIGAM LTD.
4. Fly As h Utilization Fund ( Am oun t i n R s.) As at 31.03.2015 3 1 .0 3 . 2 0 1 4 A y p e r l a s t fi n a nc i a l s t a t e m e nt s 3 , 2 6 , 2 3 , 0 1 ,6 3 1 2 , 3 4 , 9 3 , 3 4 ,6 7 7 A d d : T r a ns f e r fr o m s a l e s ( N o t e 1 8 ) 8 7 ,4 2 , 3 4 ,7 8 4 1 , 2 2 , 5 5 , 1 3 ,2 2 4 A d d : T r a n s fe r f r o m o t h e r I n c o m e ( N o t e 1 9 ) 2 0 ,7 7 , 1 7 ,7 0 5 -
(Net of tax) T r a ns f e r fr o m r e s e r ve a nd s u r p l us (No te - 1 7 ,0 1 , 1 8 ,7 8 5
3)(Net of tax) L e ss : U t i l i ze d d u r i ng t he ye a r Capital expenditure (Note 10) - 4 9 ,1 5 , 0 8 7 Cost of fly ash/a sh products (Note 21) 2,23,11,593 2,89,05,770 Em p l o y e e b e ne f i t s e x p e ns e ( N o t e 2 2 ) 4,02,19,471 5,73,27,339 A d m i ni s t r a t i o n & o t he r e x p e n s e s ( N o t e 2 4 ) 4,28,91,315 5,13,13,853 Fly ash ut i l i z a t i o n e xp e ns e s i n c ur r e d by 3 4 ,7 2 , 0 7 ,6 1 9 3 4 ,0 2 , 0 3 ,0 0 7 ho l d i ng c o m p a n y 4 5 ,2 6 , 2 9 ,9 9 8 4 8 ,2 6 , 6 5 ,0 5 6 N e t F l y a s h u t i l i z a t i o n f u nd 3 , 8 9 , 1 6 , 2 4 ,1 2 2 3 , 2 6 , 2 3 , 0 1 ,6 3 1 L e ss : Fly Ash Fund T r a n s fe r r e d to NTPC 3 , 8 9 , 1 6 , 2 4 ,1 2 2 -
Limited Total - 3 , 2 5 , 2 3 , 0 1 ,6 3 1
a. The Company sells fly ash and cenosphere give n fre e of co st by its holding compa ny NTPC L imite d. As per the gazette no tificatio n date d 3rd November 2009 issued by Ministr y of Environme nt and Fores ts (MoEF), Governme nt of India, the amounts collecte d from sale of fly ash and fly ash based products shall be kept in a se parate account head and be utilized only for de velopment of infrastructure or fac ilitie s, promotion and facilitation activities for use of fly ash until 100% fly ash utiliza tion le vel is achieve d. In compliance with the said notification, the company has create d a fly ash utilization fund 11 ITA No. 145/Del/2020 NTPC Vidyut Vyapar Nigam Ltd.
in its books of accounts to which the entire s ale proceeds of fly ash and ce nosphere for the year amounting to Rs .787,42,34,784/- (previous ye ar Rs.1,22,55,13,224/-) has been trans ferr ed.
b) Further, during the year, interest earned on the fund amounting to Rs.20,77,17,705/- (net of income tax) Gross Rs.31,46,76,117/) has been trans ferred from "Other Income" (Note 19) (pre vio us year Rs.17,01,18,786/- (net of income tax)] from "Reserve and surplus "(Note 3) .
c) During the fina ncial year 2013- 14 the holding com pany framed a policy guideline for utilization o f Ash Fund c reated from sale o f fly ash/ fly ash pro ducts, in refe rence to the above notification dated 03.11.2009, including emplo yee cost and other adminis tr ative expenditure incurr ed at its various coal base d generating stations/ offices. These e xpenses mainly pertain to the development of infras tr ucture or facilities, promotio n and facilitatio n activities so as to increase the utiliza tio n of fly ash. Therefore, during the current year company has charge d an amount of Rs.45,26,29,998/-(previous year Rs .48,26,65,056/-) to the fund as fly ash utilizatio n expenses, whic h inc ludes Rs.34,72,07,619/- (previo us year Rs .34,02,03,007/-) incurre d and certified by ho lding co mpany.
d) The Indirec t expenses incur red by the company amounti ng to Rs.4,27,52,797/- on account of employee benefits and administration & other expenses have bee n alloca ted in the ratio of gross margin on sale of power and fly ash & its products
e) As per the management decision (note date d 12.09.2014), all the activities re la ted to sale o f fly ash & closing balance of fly as h utilization fund has been transfe rred to NT PC Limited (ho lding company) w .e.f. 1 s t Jan 2015."
12 ITA No. 145/Del/2020NTPC Vidyut Vyapar Nigam Ltd.
8. We have also gone through the notification dated 03.11.2009, Ministry of Environment & Forest and utilization of fly ash. As per the notification "T he amount co llected from sale of fly as h and fly ash based products by coal and/o r lignite base d therma l power stations or their subsidiary or sis ter c oncern unit, as applic able sho uld be kept in a se parate account head and shall be utilized only for deve lopment of infrastructure or facilities, promotio n a nd fa cilitatio n activitie s fo r use of fly ash until 100 percent fly ash utilization level is achie ved; the reafter as long as 100% fly as h utilizatio n le vels are maintained, the thermal power station would be free to utilize the amount collected for other develo pment programmes also and in case , there is a reduction in the fly ash utilizatio n levels in the subsequent ye ars, the use of financ ial re tur n fr om fly ash shall get restricte d to develo pment o f infras tr ucture or facilities a nd promotion o r facilitation activities for fly ash utilizatio n until 100 pe rcent fly ash utilizatio n level is agai n achie ved and maintained."
9. On going through the entire facts, we find that the amount collected from sale of fly ash and fly ash based products by coal and/or lignite based thermal power stations or their subs idiary or sister concern units, as applicable should be kept in a separate account he ad and shall be utilized only for deve lopment 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 a s 100% fly ash utilization levels are maintained, the thermal power station would be free to utilize the amount collec ted for other deve lopment programmes also and in case, there is a reduction in the fly ash utilization levels in the subsequent year(s ), the use of financ ial return from fly ash shall get restricted to 13 ITA No. 145/Del/2020 NTPC Vidyut Vyapar Nigam Ltd.
deve lopment of infrastructure or facilities and promotion or facilitation ac tivities for fly ash utilizatio n until 100 percent fly ash utilization level is again achieved and maintained. In view of the notification of the Government and the fly ash fund transferred to NTPC Ltd., we hold that no additio n is called for on this account. Hence , the order of the ld. PCIT passed u/s 263 cannot be upheld.
10. In the re sult, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 31/07/202 3.
Sd/- Sd/-
(Yogesh Kumar US) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 31/07/2023
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR