2021 (3) TMI 936 - AT - Income Tax

Accrual of income - production and sale of steam without any consideration - transaction between holding and subsidiary company - estimating notional receipt by the AO towards the supply of power as against the real income Nil. - HELD THAT - As decided in M/S SBEC BIOENERGY LTD. DELHI 2012 (3) TMI 665 - ITAT DELHI Sale price is the income of seller liability being purchase price to the purchaser. It can be treated as income accrued in the hands of the seller (and liability crystallized in the hands of the purchaser) only if the relevant contract is accepted by both the parties to contract. There is no doubt that the steam was supplied by the SSL as it was done in earlier years. Earlier the income (being sale value of steam) was credited in the accounts at the rate agreed and confirmed by the SSL. In fact the rate was retrospectively rendered such reduction was agreed to by both the parties. On this basis itself the ITAT in A Y 00-01 allowed reduction of income from sale of steam. The point to be noted is that the income from any contract (sale) can be said to accrue as per agreed terms of such contract. If there is any dispute by ether party the accrual of income (of expenditure in the hands of other party) will be subject to the outcome of such dispute accordingly contingent. Normally the income in such cases can be said to accrue in the year in which the dispute is resolved other party acknowledges the debt. Even in such cases some party may choose to recognize its income or liability as accrued accordingly to facts circumstances whereby it is certain to be able to enforce the terms of the contract. However the appellant did not recognize any revenue from sale of steam in current year according to AS-9 since SSL had categorically refused to make any payment for supply of steam. Therefore non-recognition of any accrual of income from supply of steam does not appear to be unjustified. As the income of one company will be a deductible expenditure for the other and between the two there is no tax gain from this transaction. The income in the case of appellant is eligible to 100% deduction u/ s80 lA also. Hence no allegation of tax planning can be attributed in this transaction which appears to be wholly for business considerations. The transaction is between the holding and subsidiary company. Therefore in my opinion the action of the appellant company in not charging for steam supplied to SSL is quite justified on fact and cannot be said to be deliberate or motivated. Moreover even if an assessee gives (sells) his goods free of cost to other there is no provision in the IT Act to tax its sale value as income on presumptive basis. Legally Speaking since no income has accrued neither any payment has actually been received by the appellant company making addition in respect of estimated price of steam amounts to taxing of notional income which is not permissible. In view of this addition is deleted. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of the addition of ?5,32,43,724/- made by the AO on account of sale of steam.
2. Disallowance of proportionate expenses related to the production and sale of steam without any consideration.

Issue-wise Detailed Analysis:

1. Deletion of the Addition of ?5,32,43,724/- on Account of Sale of Steam:
The primary issue in the appeal is whether the addition of ?5,32,43,724/- made by the Assessing Officer (AO) on account of the sale of steam should be deleted. The AO had estimated notional receipts for the supply of steam to SBEC Sugar Ltd. (SSL) at ?236 per tonne, based on earlier years, despite the assessee not showing any income from this supply. The assessee argued that no real income accrued as SSL stopped paying for the steam since October 2001 and supplied bagasse and water free of charge, which justified no adjustment for the steam supplied.

The CIT(A) deleted the addition, following the decisions of the ITAT in preceding years, which consistently held that only real income could be taxed, and not notional income. The CIT(A) noted that similar additions made in earlier years were deleted by the ITAT, and the facts and agreements remained unchanged. The ITAT had previously ruled that the income from the sale of steam could not be taxed on a notional basis, as the real income was nil due to SSL's refusal to pay for the steam.

2. Disallowance of Proportionate Expenses Related to the Production and Sale of Steam:
The alternative issue raised by the revenue was that the CIT(A) should have disallowed proportionate expenses related to the production and sale of steam. However, this issue became infructuous as the primary addition itself was deleted. The CIT(A) and ITAT, in previous years, had consistently held that since no real income accrued from the sale of steam, there was no basis for disallowing any related expenses.

Conclusion:
The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s order that deleted the addition of ?5,32,43,724/- on account of the sale of steam. The ITAT followed its own decisions from previous years, which consistently ruled that only real income could be taxed, and not notional income. Since the addition was deleted, the alternative issue regarding the disallowance of proportionate expenses was also dismissed. The ITAT emphasized that the revenue did not provide any contrary decisions or material to challenge the CIT(A)'s findings. Consequently, the appeal of the revenue was dismissed, and the CIT(A)'s order was upheld.