ITAT rules on tax treatment of notional income from steam sale

The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 5,32,43,724/- on account of the sale of steam. The ITAT reiterated that only real income, not notional income, could be taxed. As no real income accrued from the steam sale due to non-payment by SSL, the addition was unjustified. Consequently, the issue of disallowing proportionate expenses related to steam production became moot. The ITAT affirmed the CIT(A)'s order, emphasizing the lack of contrary evidence from the revenue to challenge the decision.

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Issues Involved:
1. Deletion of the addition of Rs. 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 Rs. 5,32,43,724/- on Account of Sale of Steam:
The primary issue in the appeal is whether the addition of Rs. 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 Rs. 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 Rs. 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.

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