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TMI Blog2021 (9) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... before the CIT(A) who vide order dated 07.11.2017 in Appeal No. 323/2016-17 allowed the appeal of the assessee. Aggrieved by the order of CIT(A), Revenue is in appeal before us and has raised the following grounds of appeal: "1. Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 5,35,56,896/- made by the AO on account of profit from sale of steam despite the fact that in earlier years the company has accounted for income on sale of steam bit in this year company has supplied steam to SSL free of cost. 2. The appellant craves leave to add, alter or amend any of the ground(s) of appeal before or during the course of the hearing of the appeal." 4. During the course of assessment proceedings, AO noticed that assessee has shown production of steam of 2,26,936 ton, which was supplied, to SSL free of cost instead of Rs. 75/- per ton being sold in earlier years. Assessee was asked to explain as to why no income has been accounted on the account of sale of steam supplied to SBEC Sugar Ltd. and why rate of steam sold to SSL should not be taken at Rs. 236/- per ton as per earlier years. It was inter alia submitted that assessee had received intimation from SSL informin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso find that identical issue arose in assessee's own case in A.Y. 2014-15. In Revenue's appeal, the Co-ordinate Bench of Tribunal vide order dated 19.03.2021 and by following the order of the Tribunal in ITA No. 3440/Del/2011 for A.Y. 2007-08 had dismissed the appeal of the Revenue thereby deciding the issue in favour of the assessee. The relevant observations of the Tribunal are as under: "3. Only one issue is involved in the appeal of the revenue relates to contention of the assessee against estimating notional receipt by the AO towards the supply of power of Rs. 5.32 Cr. as against the real income Nil. 4. At the outset, it was brought to our notice that this issue has been covered by the orders of the Co-ordinate Benches of ITAT for many assessment years. 5. For the sake of ready reference, the relevant portion of the order of the ITAT dated 07.03.2012 in ITA No. 3440/Del/2011 for the assessment year 2007-08 is reproduced as under: "2. Adverting first to ground nos. 1 to 3 in the appeal, facts in brief, as per relevant orders are that the return declaring income of Rs. 35,19,791/- after claiming deduction of Rs. 1,49,09,636/- u/s. 80-IA of the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to or was admittedly received by the appellant. It is noted that similar additions were made in AY 2006-07, AY 2005-06, AY 04-05 and AY 03-04 in the case of appellant which were disputed in appeal and were decided by CIT(A) by order dated 23/03/2009, 26/02/2008, 12/04/07 and 10/10/06 respectively. The issue was discussed in detail at para 2.1 to 2.12 in the appeal for AY 04-05 (from page 2 to page 7) and the addition made was deleted. For ready reference the relevant paras of the said order are reproduced as under: Extract from the order of the CIT(A) in Appeal No. 211/06-07 dated 12-04-2007) "2.1 Ground No. 2 is against addition Rs. 9,93,41,508/- being the sale value of steam supplied to SSL worked by the AD @ of Rs. 236/- per ton. The appellant had shown sale proceeds in respect of supply of power to UPSEB and SSL aggregating to Rs. 11,59,51,575/- However no sale proceeds in respect of exhaust steam supplied to SSL were shown in the accounts. The AO noted that in the earlier years the appellant had sold exhaust steam to SSL @ Rs. 236 & Rs. 75 per ton for varying periods. During this year however the steam was supplied free of cost. The AO therefore proposed to treat the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revision was not genuine and was prospective and not retrospective. Thus the fact that the rate of steam was Rs. 75 per metric ton as per second arrangement letter dated 20/6/01 was accepted and not subject matter of dispute. In AY 2000-01 the department has never doubted the genuineness of this agreement. The only dispute was regarding retrospective applicability of this arrangement since the arrangement was entered after the close of the previous year vide letter dated 20/6/01. In this regard we would like to bring to your notice that question sought to be referred by the department to the Hon. Delhi High court in AY 2000-01 reads as under: "Because retrospective proviso of arrangement by which rates per unit were revised by subsequent letter dated 20/6/01 cannot exempt the income already accrued upto 31/3/2000." Further as submitted in our letter dated 3/2/06 only real income could be taxed. SSL has stopped paying for charges of exhaust steam with effect from Oct. 2001. Thus no receipt should be estimated and taxed on account of steam in the present assessment year. The proposed estimated income of steam computed @ Rs. 236 per tone is unjustified and against the principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SL supplies bagasse (sugarcane remains after extraction of juice) and water to the appellant company free of cost. The bagasse is used as fuel and burnt to produce steam from water. The steam is used to produce electricity using steam turbines by appellant company. The electricity generated is supplied to SSL and surplus, if any, to UPSEB. The exhaust steam after running the turbines is also supplied to SSL. Initially it was agreed between the two companies that the appellant company would receive conversion charges from SSL for converting bagasse and water into electric power and exhaust steam which will be supplied to SSL. For this purpose a Conversion Contract dated 10/12/98 was executed. According to this Conversion Contract following payments were to be received by the appellant from SSL as conversion charges: * A fixed fee of Rs. 19.75/- million per month during the production season. * Variable charges in proportion to the quantities of electricity and steam supplied: Rs. 0.521 per unit of electricity energy, i.e. electricity Rs. 40 per ton of thermal energy, i.e. steam 2.4 The fixed fee of Rs. 19.75 million per month included 50% of income received from sale of surp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsate are also supplied free of any Charge. * The steam that is supplied is exhaust steam, which has no value and cannot otherwise be used or sold. On the other hand, the baggase supplied to SIAL free of any charge is easily saleable by SSL, for which it does not get any compensation. No reduction/adjustments are also on that account in the charges for electric power that are being paid by SSL. 2.6 In view of this SSL stopped paying anything for exhaust steam from Oct. 2001. Since there was a lot of uncertainty regarding realization of any amount for steam supplied from Oct. 01, the appellant did not raise any invoice to recognize revenue for the same. The appellant relied on Accounting Standard 9 (AS 9) issued by ICAI on revenue recognition. It is now mandatory to follow such standards as accounting practice. The relevant clause is 10 to 12 of AS 9 were reproduced in the submissions It was therefore stated that the appellant was fully justified in not recognizing any sale proceeds of steam applied to SSL. The main contention was that only real income can be taxed under IT Act. Notional income on estimated basis cannot be brought to tax. In support of this legal contention also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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. However, 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 AY 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 liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there cannot be said to be any accrual of income for supply of steam. The basis for this arrangement is also clear since it is a kind of barter system where bagasse and water is supplied by SSL to appellant company free of charges while the appellant supplies electricity and steam to SSL. The appellant's income is from sale of surplus power to UPSEB. Even if theoretically the price of steam is computed at Rs. 236/- per ton (which however was never agreed and acted upon between the two parties) it is almost equivalent to the cost of bagasse worked out at the market price. Therefore in this kind of transaction there is no profit or loss in money terms to any of the company. However transaction of exchange of bagasse & water for power & steam is for mutual benefit and convenience. 2.11 Even if we look at things from a different perspective, 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/s. 80IA also. Hence no allegation of tax planning can be attributed in this transaction, which appears to be wholly for business considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of sugar production plant of SSL as well as power generation unit of the appellant was infact part of same project owned by one company. The power generation unit was separated to get investment from French company Air-Liquide, which agreed to join as JV (Joint Venture) partner. Therefore the transaction of exchange of bagasse & water with power & steam is in fact between two limbs of same project. If the whole project was owned by one company (as in fact it was initially) only the net profit of the entire project had been taxable. As can be seen in the last paragraph reproduced above from the letter of SSL, the appellant company proposed to be made the subsidiary of SSL (and in fact has already become so). Looked from this angle, 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 & n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid findings of the ld. CIT(A). At the outset, the ld. AR on behalf of the assessee while inviting our attention to the impugned order contended that since the ld. CIT(A) have decided the issues on the basis of orders of the ITAT in the preceding years, no interference is warranted. The ld. DR, on the other hand, did not oppose these submissions of the ld. AR while contending that matter is pending before the Hon'ble High Court. 5 We have heard both the parties and gone through the facts of the case. As is apparent from the aforesaid findings of the ld. CIT(A) on each of the three issues, he merely followed the decisions of the ITAT in the preceding assessment years and decided in favour of the assessee. The ld. DR did not place before us any contrary decision nor any other material in order to controvert the findings of the ld. CIT(A) so as to enable us to take a different view in the matter. In these circumstances, we have no alternative but to reject ground nos. 1 to 3 in the appeal." 6. Since, the matter stands squarely covered by order orders of the appellate authorities as well as the Tribunal for the past six years, we hereby dismiss the appeal of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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