Probability or Improbability of Realisation to be considered in Realistic Manner: Gujarat HC [Read Judgment]

The Gujarat high court held that the probability or improbability of realization has to be considered in a realistic manner and there was no real accrual of income to the assessee in respect of the disputed enhanced charges for supply of electricity.

The petitioner was neither sold/transferred carbon receipts during the year under consideration and therefore, the same cannot be included in the income of the assessee in the year under consideration and by a detailed reasoned judgment and order the learned CIT(A) directed to delete the aforesaid addition of Rs.5,78,28,058/by observing that as there was no transfer/sale of the carbon receipts during the year under consideration and therefore, the same cannot be included in the year consideration.

The Division Bench comprising of Justice J.B. Paridwala and Bhargav D.Karia rendered the judgment on an appeal filed by Kalpataru Power Transmission Ltd.

The Court then considered the facts of the case and came to the conclusion in Godhra Electricity that no real income had accrued to the assessee in respect of the enhanced charges for a variety of reasons.

The three tests laid down by various decisions of this Court, namely,

1. Whether the income accrued to the assessee is real or hypothetical?
2. Whether there is a corresponding liability of the other party to pass on the benefits of duty-free import to the assessee even without any imports having been made?
3. Whether the probability or improbability of realization of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports)?

The court observed that in instant case it is evident that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case.