Fly Ash Sale Proceeds Taxable as Business Income, Not Liability Fund: ITAT

The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) has held that receipts generated from the sale of fly ash by a power generation company constitute taxable business income and cannot escape taxation merely because the amount was credited to a separate statutory fund. The bench of Laliet Kumar (Judicial Member) & Shri. Krinwant Sahay (Accountant Member) has observed that there was no diversion of income at source by overriding title because payments from purchasers were made directly to the assessee and not to any third party or statutory authority. The restrictions on utilization of the fund merely amounted to “application of income after accrual,” which does not affect taxability under settled legal principles. The ruling came in the case of Haryana Power Generation Corporation Limited, where the Revenue challenged the order of the Commissioner of Income Tax (Appeals) deleting additions made on account of fly ash sale receipts. The Tribunal allowed the Revenue’s appeals for Assessment Years 2014-15 and 2018-19. The dispute arose after the Assessing Officer reopened the assessment under Section 147 of the Income Tax Act on the ground that the assessee had not offered to tax the sale proceeds of fly ash. Instead of routing the receipts through the Profit and Loss Account, the company directly credited the amount to a “Fly Ash Fund” shown in the balance sheet. According to the department, the company earned approximately ₹38.68 crore from the sale of fly ash, a by-product generated during electricity production, and such receipts were intrinsically linked to the business operations of the assessee. The Assessing Officer therefore treated the amount as revenue income taxable under the Income Tax Act. Buy Now: Income Tax Judgments E-Compilation : April 2026 Before the Tribunal, the Revenue argued that the assessee could not avoid tax liability merely by adopting a different accounting treatment. It contended that there was no diversion of income by overriding title and that the income accrued to the assessee immediately upon sale of fly ash. The department further argued that restrictions on utilization of the fund merely governed application of income after accrual and did not alter its taxable character. The assessee, on the other hand, submitted that the Fly Ash Fund had been created pursuant to Notification S.O. 2804(E) dated 03.11.2009 issued by the Ministry of Environment and Forests, which required sale proceeds of fly ash to be utilized only for specified environmental and infrastructural purposes. It argued that the receipts were not freely available for business use and therefore assumed the character of a liability rather than income. Rejecting the assessee’s plea, the Tribunal observed that fly ash is generated directly from the process of power generation and therefore the receipts from its sale are intrinsically connected with the business activity of the company. The Bench noted that the consideration from sale of fly ash undeniably accrued to the assessee at the point of sale. The Bench further ruled that accounting treatment in books of accounts cannot override substantive provisions of the Income Tax Act. It observed that the funds remained under the dominion and control of the assessee and no enforceable obligation existed requiring payment of a definite sum to a third party. Therefore, the receipts could not be treated as a liability. The Tribunal restored the additions made by the Assessing Officer and held that the sale proceeds of fly ash represented an “independent and additional stream of revenue” arising from business operations and squarely falling within the ambit of taxable business income. The appeals filed by the Revenue were accordingly allowed. Case Details Case Title: ACIT Versus Haryana Power Generation Corporation Limited Citation: JURISHOUR-1162-ITA-2026(CHAN) Case No.: ITA No. 304 & 305 /Chd/ 2024 Date: 27/04/2026 Counsel For Appellant: Harish Nayyar, C.A Counsel For Respondent: Manav Bansal, CIT, DR Click Here To Read Order Read More: Telangana HC Grants Bail in NDPS Case Involving Alleged Marijuana Seizure at Hyderabad Airport

Fly Ash Sale Proceeds Taxable as Business Income, Not Liability Fund: ITAT

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