2023 (11) TMI 1384 - AT - Income Tax

Revision u/s 263 - taxability of income from sale of fly ash and cenosphere - CIT(A) held that assessment order passed u/s 143(3) is erroneous so far as it is prejudicial to the interest of the Revenue owing to the failure of the AO on account of the income from sale of fly ash and cenosphere - HELD THAT - By respectfully following the order of the Co-ordinate Bench of the Tribunal in assessee s own case for AY 2015-16 2023 (7) TMI 1571 - ITAT DELHI and in the absence of any change of the circumstances we hold that no addition is called for on account of income from fly ash and cenosphere as 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 are 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 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 addition is called for on this account Accordingly the impugned order passed u/s 263 by the PCIT is hereby set aside. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

• Whether the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act was legally valid and justified, particularly whether the PCIT was correct in holding the assessment order passed by the Assessing Officer (AO) as erroneous and prejudicial to the interest of the Revenue.
• Whether the PCIT had jurisdiction to invoke revisionary powers under Section 263 when the issues raised were already considered by the AO during the assessment proceedings under Section 143(3).
• Whether the PCIT erred in substituting the AO's option or judgment with that of the PCIT in the revision proceedings.
• Whether the PCIT's order under Section 263 was sustainable in the absence of specific findings on how the AO's order was erroneous and prejudicial to the Revenue.
• Whether income from sale of fly ash and cenosphere should be included in the taxable income of the assessee or whether such income is exempt or non-chargeable to tax, thereby negating any prejudice to Revenue.
• Whether the fly ash sales proceeds, which were credited to a separate Fly Ash Utilization Fund as per the Ministry of Environment and Forests (MoEF) notification dated 03.11.2009, form part of the taxable income of the assessee or are to be excluded from income for tax purposes.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of PCIT's Order under Section 263

Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the Principal Commissioner or Commissioner to revise an assessment order if it is found to be erroneous and prejudicial to the interest of the Revenue. However, the scope of this power is limited and cannot be exercised merely because the PCIT disagrees with the AO's appreciation of facts or exercise of discretion. The revisionary power is not to substitute the AO's judgment but to correct a manifest error causing prejudice to Revenue.

Court's Interpretation and Reasoning: The Tribunal examined whether the PCIT's invocation of Section 263 was justified. It noted that the PCIT failed to demonstrate any specific error or prejudice caused by the AO's order. The issues raised by the PCIT were already considered by the AO during the scrutiny assessment under Section 143(3). The Tribunal emphasized that mere difference in opinion or reassessment of facts does not warrant exercise of revisionary powers under Section 263.

Key Evidence and Findings: The AO had conducted a detailed scrutiny and had applied his mind to the issue of income from sale of fly ash and cenosphere. The PCIT did not bring forth any new material or evidence to establish that the AO's order was erroneous or prejudicial.

Application of Law to Facts: The Tribunal held that since the AO's order was passed after due consideration and no manifest error was established, the PCIT's order under Section 263 was not sustainable.

Treatment of Competing Arguments: The assessee argued that the PCIT's order was an impermissible substitution of the AO's discretion, while the Revenue contended that the AO failed to include income from fly ash sales, causing prejudice. The Tribunal favored the assessee, relying on the principle that Section 263 cannot be invoked to reappraise facts or substitute the AO's judgment.

Conclusion: The PCIT's order under Section 263 was held to be invalid and set aside.

Issue 2: Jurisdiction of PCIT under Section 263 When Issues Were Considered by AO

Relevant Legal Framework and Precedents: Jurisdiction under Section 263 cannot be assumed if the AO has considered the issue and passed an order after applying his mind. The revisionary power is not an appellate power to re-examine the correctness of the AO's order.

Court's Interpretation and Reasoning: The Tribunal observed that the issues regarding income from fly ash and cenosphere were fully examined by the AO during assessment proceedings. The PCIT could not assume jurisdiction merely because he disagreed with the AO's conclusions.

Key Evidence and Findings: The assessment order under Section 143(3) dated 26/12/2016 clearly showed that the AO had considered the relevant facts and evidence.

Application of Law to Facts: Since the AO's order was not erroneous or prejudicial, the PCIT had no jurisdiction to revise the order under Section 263.

Treatment of Competing Arguments: The Revenue's contention that the PCIT had jurisdiction was rejected on the ground that the AO had properly considered the issue.

Conclusion: The PCIT lacked jurisdiction to invoke Section 263 in the present circumstances.

Issue 3: Treatment of Income from Sale of Fly Ash and Cenosphere

Relevant Legal Framework and Precedents: The Ministry of Environment and Forests (MoEF) Notification dated 03.11.2009 mandates that amounts collected from sale of fly ash and fly ash-based products by coal/lignite-based thermal power stations or their subsidiaries be credited to a separate Fly Ash Utilization Fund. This fund is to be utilized solely for development of infrastructure or facilities, promotion, and facilitation activities for fly ash utilization until 100% utilization is achieved.

Court's Interpretation and Reasoning: The Tribunal examined the nature of the business and the accounting treatment of fly ash sales proceeds. It noted that the assessee, a wholly owned subsidiary of NTPC Limited, sold fly ash and cenosphere which were provided free of cost by the holding company. The entire sale proceeds were credited to a separate Fly Ash Utilization Fund as per the MoEF notification, and the fund was utilized only for permissible activities related to fly ash utilization.

Key Evidence and Findings: The Tribunal reviewed the detailed financial statements and notes showing the creation and utilization of the Fly Ash Utilization Fund, including amounts transferred from sales, interest earned, expenses charged to the fund, and the transfer of the fund to the holding company. The evidence demonstrated compliance with the MoEF notification.

Application of Law to Facts: Since the sale proceeds were not treated as income of the assessee for general purposes but were earmarked and utilized in accordance with statutory directions, the Tribunal held that such amounts do not constitute taxable income of the assessee. Consequently, no addition on account of income from sale of fly ash and cenosphere was warranted.

Treatment of Competing Arguments: The Revenue argued that the sale proceeds should be included as income and taxed accordingly. The Tribunal rejected this, emphasizing the statutory mandate and the accounting treatment consistent with the notification.

Conclusion: Income from sale of fly ash and cenosphere was held to be non-taxable in the hands of the assessee.

Issue 4: Consistency with Earlier Decisions of the Tribunal

Relevant Legal Framework and Precedents: The principle of consistency and precedent within coordinate benches of the Tribunal is important to ensure uniformity in tax administration.

Court's Interpretation and Reasoning: The Tribunal noted that a coordinate bench had earlier decided the identical issue in the assessee's own case for Assessment Year 2015-16, setting aside the PCIT's order under Section 263 and holding that no addition was called for on account of fly ash sales proceeds.

Key Evidence and Findings: The Tribunal relied on the detailed findings and reasoning of the coordinate bench, which had considered the nature of the business, the statutory notification, and the accounting treatment in detail.

Application of Law to Facts: Given no change in circumstances, the Tribunal followed the coordinate bench's decision in the present appeal.

Treatment of Competing Arguments: The Revenue did not dispute the existence or applicability of the earlier decision but relied on the PCIT's order. The Tribunal gave precedence to the coordinate bench ruling.

Conclusion: The Tribunal upheld the principle of consistency and followed the coordinate bench's decision, setting aside the PCIT's order.

3. SIGNIFICANT HOLDINGS

The Tribunal established the following core principles and final determinations:

• "The revisionary power under Section 263 of the Income Tax Act cannot be exercised merely because the Principal Commissioner of Income Tax disagrees with the Assessing Officer's appreciation of facts or exercise of discretion. The power is limited to correcting orders which are erroneous and prejudicial to the interest of the Revenue."
• "Where the Assessing Officer has considered the issues after applying his mind in the assessment proceedings, the Principal Commissioner cannot assume jurisdiction under Section 263 to re-examine or substitute the AO's order."
• "Amounts collected from sale of fly ash and fly ash-based products by coal or lignite-based thermal power stations or their subsidiaries, which are credited to a separate Fly Ash Utilization Fund and utilized in accordance with the Ministry of Environment and Forests notification dated 03.11.2009, do not constitute taxable income of the assessee."
• "In the absence of any change in circumstances, the Tribunal shall follow the principle of consistency and adhere to the coordinate bench's decision on identical issues."

Accordingly, the Tribunal set aside the impugned order passed by the Principal Commissioner of Income Tax under Section 263 and allowed the appeal filed by the assessee, holding that no addition was warranted on account of income from sale of fly ash and cenosphere.