TaxTMI 
TaxTMI 
2026 (5) TMI 548
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.... 2. Whether on the facts and circumstances of the case, Ld. CIT(A) has erred in not appreciating that Notification S.O. 2804(E) dated 03.11.2009 Govt. of India, Ministry of Environment and Forests, is only about utilization of receipts from fly ash sale and it does not infringe upon the taxation of income from sale of fly ash. Further, the above Notification cannot prevail over the express provisions of the I.T. Act, 1961. Further, merely making a separate fund and transferring it in liabilities on balance sheet does not imply that revenue will not be income recognized. 3. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in not appreciating that receipts cannot be credited directly to any Provision on fund without routing it through the Profit and loss account. 4. Whether on the facts and circumstances of the case, Ld. CIT(A) has erred in not appreciating that the assessee had not shown as to what percentage of the fund created had been utilized for the prescribed purpose of notification S.O. 2804(E) dated 03.11.2009 of Ministry of Environment and Forests (100% or less) during the year. In case of any short fall in actual utiliza....
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....e. It was argued that the assessee cannot escape its tax liability merely by adopting an alternative accounting treatment, namely by crediting the receipts to a separate fund in the balance sheet instead of routing the same through the Profit & Loss account. 7.3 It was submitted that the contention of the assessee that such receipts constitute a "liability" is fundamentally misconceived. According to the Ld. DR, there is no diversion of income by overriding title. The income unequivocally accrues to the assessee at the point of sale of fly ash, and any subsequent earmarking or allocation of such receipts does not alter their inherent character as income. 7.4 The Ld. DR further contended that the alleged restrictions on utilization of funds, purportedly arising from Government notifications, do not result in diversion of income at source. At best, such restrictions may govern the application of income post-accrual, which is legally irrelevant for determining taxability under the Act. 7.5 It was also argued that the assessee retains full dominion and control over the funds in question, and has, in fact, incurred expenditure therefrom. This, according to the Ld. DR, clearly d....
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....ion has been deleted without proper appreciation of facts and applicable legal principles, warranting interference by this Tribunal. 8. Per contra, Ld. AR strongly relied upon the order of the Ld. CIT(A). It was submitted that the receipts from the sale of fly ash were credited to a "Dry Ash Fund" in compliance with the Government of India notification mandating their utilisation for specified purposes, and therefore, such receipts cannot be treated as income. 8.1 It was further submitted that the amounts were not at the free disposal of the assessee and were subject to statutory restrictions, thereby assuming the character of liability. Reliance was placed on judicial precedent, including the Tribunal's decision in NTPC Vidyut Vyapar Nigam Ltd. 8.2 The Ld. AR assailing the addition made by the Assessing Officer and supporting the order of the Ld. CIT(A) submitted that the entire addition on account of the sale of fly ash has been made on a complete misappreciation of facts as well as the settled legal position. 8.3 It was submitted that the Assessing Officer has proceeded on the assumption that since fly ash is a by-product of the business, the sale proceeds automa....
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....cation governing the utilization of fly ash proceeds. Once the statutory mandate requires the assessee to credit the receipts to a specific fund and utilise the same for designated purposes, the character of the receipt cannot be treated as income in the hands of the assessee. 8.9 Supporting the findings of the Ld. CIT(A), the Ld. AR submitted that the first appellate authority has rightly appreciated the factual and legal position and has correctly held that such receipts are in the nature of liability and not income. The Ld. CIT(A) has also rightly relied upon the decision of the Hon'ble ITAT in the case of NTPC Vidyut Vyapar Nigam Ltd., where on identical facts, it has been held that such receipts are not taxable. 9. We have heard the rival submissions and perused the material available on record, including the assessment order and the order passed by the Ld. CIT(A). The issue arising for our consideration, though lying in a narrow compass, raises an important question regarding the true character and taxability of the receipts in question. 9.1 In order to determine the true nature and character of the receipts arising on account of the sale of fly ash amounting to Rs.3....
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....d. Income must first accrue or arise to the assessee before it can be applied. In the present case, once the fly ash is sold, the consideration received there from undeniably accrues to the assessee at the point of sale. There is no material on record to indicate that there exists any diversion of income at source by virtue of an overriding title. The payments are admittedly made by the purchasers directly to the assessee and not to any third party or statutory authority, thereby clearly establishing that the income first accrues to the assessee. 9.5 The so called restriction on the utilization of such receipts, as canvassed by the assessee, does not lead to the conclusion that there is a diversion of income by overriding title. At best, it represents an application of income after accrual. It is trite law that application of income, irrespective of whether it is voluntary or mandated, does not affect its taxability. Similarly, the contention that the impugned amount represents a liability is devoid of merit, inasmuch as no enforceable obligation to pay a definite sum to a third party has been demonstrated. The funds remain under the dominion and control of the assessee and are ....