DEPUTY COMMISSIONER OF INCOME TAX, Jaipur V. RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LTD., Jaipur

ITA 1013/JPR/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6154 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROLI AGARWAL CIT DHK
• Keywords: Depreciation; Advance ruling
• Section: 43B; 143(3); 115JB; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1013/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2008-09 D.C.I.T., CIRCLE-6, JAIPUR. CUKE VS. M/S RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LTD., VIDYUT BHAWAN, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR 7436 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SMT. ROLI AGARWAL (CIT) LQUOKBZ DH RKJH[K @ DATE OF HEARING : 02/05/2018 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 08/05/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M.: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 29/09/2017 PASSED BY THE LD CIT(A), BIKANER FOR A.Y. 2008-09, WHEREIN THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: (I) WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 4594/- MADE BY THE AO FOR DEPOSITING THE EMPLOYEES CONTRIBUTION T O PF & ESI BEYOND THE PRESCRIBED TIME LIMIT PROVIDED IN RESPECTIVE ACTS. (II) WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT EMPLOYEE S CONTRIBUTION TO PF & ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 2 ESI ARE GOVERNED BY THE PROVISION OF SECTION 43B AN D NOT BY SECTION 36(1)(VA) R.W.S. 2(24)(X) OF THE I.T. ACT. (III) WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIO N OF RS. 1,76,88,00,000/- MADE ON ACCOUNT OF ADVANCE REC EIVED AGAINST DEPRECIATION DEFERRED. 2. REGARDING GROUNDS NO. 1 AND 2 OF THE REVENUES A PPEAL, FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. JAIPUR VIDYUT VITRAN NIGAM LTD. 98 DTR 105 (RAJ) AND ORS, T HE LD. CIT(A) HAS GIVEN HIS FINDINGS WHICH ARE AS UNDER: 3.4 FROM THE ABOVE DECISIONS, IT IS CLEAR THAT PAY MENT OR CONTRIBUTION MADE TO THE PROVIDENT FUND AUTHORITY ANY TIME BEFOR E FILING OF THE RETURN FOR THE YEAR IN WHICH THE LIABILITY TO PAY ACCRUED IS AN ALLOWABLE EXPENDITURE. LIKEWISE, IN THE PRESENT CASE, THE EMPL OYEES CONTRIBUTION WAS DEPOSITED BY THE APPELLANT BEFORE DUE DATE FOR F ILING OF RETURN OF INCOME, THEREFORE, IN VIEW OFF THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD (SUPRA) A ND DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AIMI L LTD & ORS (SUPRA), THE PAYMENTS MADE BEFORE DUE DATE FOR FILING OF RET URN OF INCOME ARE ALLOWABLE. THE AO IS DIRECTED TO VERIFY THE DATES OF PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PF AND ESI AND DELETE THE ADDIT ION MADE ON THIS ACCOUNT IF THE PAYMENTS HAVE BEEN MADE BEFORE THE D UE DATE OF FILING OF RETURN OF INCOME BY THE APPELLANT. CONSIDERING THE FACTUAL AND LEGAL POSITION AS DISCUSSED ABOVE, THE AO IS DIRECTED TO VERIFY AND ALLOW AS PER LAW. THIS GROUND OF APPEAL IS ALLOWED. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND WE DO NOT THINK THAT THERE I S ANY INFIRMITY IN THE ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 3 ORDER OF THE LD. CIT(A) WHO, FOLLOWING THE DECISIONS OF THE HONBLE RAJASTHAN HIGH COURT REFERRED SUPRA, HAS DI RECTED THE AO TO VERIFY THE DATES OF PAYMENT OF EMPLOYEES CONTRIBUTION AND DELETE THE SAME, IF THE PAYMENTS HAVE BEEN MADE BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. IN THE RESULT, THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 4. REGARDING GROUND NO. (III) OF THE REVENUES APPE AL, BRIEFLY STATED FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT IN SCHEDULE 16: REVENUE FROM SALE OF POWER OF THE ASSESSEES COMPANY AUDITED FINANCIAL ST ATEMENTS, THE ASSESSEE COMPANY HAS REDUCED A SUM OF RS. 176.88 CR ORES FROM THE REVENUE FROM SALE OF POWER. THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE AS TO WHY THE SAID AMOUNT OF RS. 176.88 CRORES SHOWN AS ADVANCE AGAINST DEPRECIATION DEFERRED BE NOT ADDED TO THE TOTAL INC OME. IN RESPONSE, THE ASSESSEE COMPANY SUBMITTED THAT IT IS ENGAGED IN GE NERATION OF POWER AND SUPPLYING IT TO VARIOUS DISTRIBUTION COMPANIES AT THE TARIFF NOTIFIED BY THE RAJASTHAN STATE ELECTRICITY REGULATORY COMMISSI ON (RERC). THE TARIFF RATE IS FIXED ON THE BASIS OF THE EXPENSES INCURRED BY THE ASSESSEE COMPANY WHICH INCLUDES THE INTEREST COST AND ELEMENT OF DEPRECIATION AND ADVANCE AGAINST DEPRECIATION (AAD), BESIDES OTHER C OSTS. IT WAS SUBMITTED THAT THE ADVANCE AGAINST DEPRECIATION IS CONSIDERED WHILE DETERMINING TARIFF TO GENERATE THE CASH FLOWS IN THE HANDS OF T HE ASSESSEE COMPANY FOR REPAYMENT OF LOAN RAISED FOR INSTALLATION OF POWER P LANT. THIS ADVANCE COLLECTION OF TARIFF THROUGH THE MECHANISM OF AAD I S REQUIRED TO BE UTILIZED FOR REPAYMENT OF LOAN AND IT IS REDUCED FROM THE RE VENUE I.E. FROM SALE OF POWER REFLECTED IN THE BALANCE SHEET IN SCHEDULE 2A AS DEFERRED REVENUE ON ACCOUNT OF AAD. THIS AMOUNT IS TO BE SUBSEQUENTLY TRANSFERRED TO THE SALE WHEN THE DEPRECIATION CHARGED IN THE BOOKS IS M ORE THAN THE ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 4 DEPRECIATION RATE FIXED FOR TARIFF PURPOSE. FURTHER THE ASSESSEE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF NATIONAL HYDRO ELECTRIC POWER CORPORATION LTD. VS CIT 320 ITR 374 AND SUBMITTED THAT IN THE SAID DECISION, THE HON'BLE SUPREME COURT WITH RE FERENCE TO ADJUSTMENT OF BOOK PROFIT U/S 115JB HAS HELD THAT T HE AMOUNT OF AAD RECEIVED THROUGH TARIFF IS AN OBLIGATION TO BE ADJU STED IN FUTURE SO AS TO REDUCE THE TARIFF IN THE FUTURE YEARS. IT IS A TIMI NG DIFFERENCE. IT IS ONLY THE INCOME RECEIVED IN ADVANCE. IT WAS ACCORDINGLY SUBMI TTED THAT THE HON'BLE SUPREME COURT HAS HELD THAT THE AMOUNT OF AAD IS IN COME RECEIVED IN ADVANCE, THE SAME CANNOT BE INCLUDED IN THE YEAR IN WHICH THE AMOUNT IS RECEIVED. IT CAN BE CONSIDERED IN THE INCOME OF FUT URE YEARS WHEN SUCH AAD IS TRANSFERRED TO INCOME. FURTHER, RELIANCE WAS PLACED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CORAL ELECTRONICS PVT. LTD. 274 ITR 336 (MAD). 5. THE REPLY SO FILED BY THE ASSESSEE WAS HOWEVER NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. THE ASSESSING OFFICER OBSERVED AS UNDER: THE REPLY FURNISHED BY THE A/R OF THE ASSESSEE HAS BEEN CONSIDERED. TO UNDERSTAND THE ISSUE IN DEBATE MECHANISM AND STRUCT URE OF POWER COMPANIES NEEDS TO BE UNDERSTOOD. UNDER THE POWER SECTOR TRAN SFER REFORMS SCHEME 2000, RAJASTHAN STATE ELECTRICITY BOARD WAS DEMERGED INTO FIVE COMPANIES NAMELY RRVPN, RRVUN, JWNL, AWNL & JDWNL. THE ASSESS EE COMPANY WAS ONE OF THE RESULTANT COMPANIES ENGAGED IN THE GENER ATION OF POWER. THE PRESENT POWER SCENARIO IS RESULT OF UNDERSTANDING B ETWEEN ASSESSEE COMPANY, OTHER RESULTANT COMPANIES, STATE GOVERNMENT AND WOR LD BANK. ACCORDINGLY, SELLING PRICE OF POWER GENERATED BY THE ASSESSEE CO MPANY IS DETERMINED BY CONSIDERING THE ENTIRE COST INCLUDING INTEREST AND DEPRECIATION. THE ASSESSEE COMPANY HAS BORROWED FUNDS FOR INSTALLATION OF POWE R PLANTS WHICH IS REPAYABLE ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 5 NORMALLY WITHIN TEN YEARS WHEREAS DEPRECIATION IS C HARGED OVER THE USEFUL LIFE OF THE PLANT. SELLING PRICE OF POWER IS DETERM INED BY RAJASTHAN ELECTRIC REGULATORY CORPORATION (RERC) BY WAY OF TARIFF. TERM S AND CONDITIONS OF FIXATION OF TARIFF BY RERC PROVIDE ALLOWANCE OF ADVANCE AGAIN ST DEPRECIATION OVER AND ABOVE NORMAL DEPRECIATION. ADVANCE AGAINST DEPRECAT ION IS NOTHING BUT DIFFERENCE BETWEEN THE RATE OF DEPRECIATION AND AMO UNT OF REPAYMENT OF LOAN. THE ASSESSEE HAS REDUCED THE SAID AMOUNT OF ADVANCE AGAINST DEPRECIATION(AAD) FROM THE REVENUE OF THE CURRENT Y EAR BY STATING THAT THE SAME WILL BE REVERSED IN SUBSEQUENT YEAR AND CREDIT ED TO INCOME (ACCORDING TO THE ASSESSEE COMPANY THIS ARRANGEMENT HAS BEEN MADE AS PER THE TERMS AND CONDITIONS OF AGREEMENT WITH RERC). ON GOING THE TER MS AND CONDITION OF TARIFF IT IS NOTICED THAT IT NO WHERE PROVIDES THAT THE AD VANCE AGAINST DEPRECIATION SO ALLOWED TO CORPORATION WILL BE ADJUSTED AGAINST THE SUBSEQUENT YEAR TARIFF. AS PER THE SCHEME IT APPEARS THAT ADVANCE AGAINST D EPRECIATION ALLOWED BY WAY OF TARIFF BY RERC IS ONLY TO IMPROVE THE CASH FLOW O F THE COMPANY AND IT IS NOT ADJUSTABLE IN SUBSEQUENT YEAR'S TARIFF AS PER THE T ERMS AND CONDITIONS OF DETERMINATION OF TARIFF. THUS THE AMOUNT SO RECEIVE D IS CURRENT YEAR REVENUE AND NOT THE REVENUE FOR SUBSEQUENT YEAR. THE SELLING PRICE OF POWER IS DETERMINED BY RERC AND IT IS NEITHER REFUNDABLE NOR ADJUSTABLE AGAINST THE FUTURE REVENUE. THE AMOU NT WAS RECEIVED IN TERMS OF INVOICE RAISED BY ASSESSEE AND THE PAYER I.E. DISCO MS (JVVNL, JDVVNL, AVVNL) HAVE CLAIMED THE SAID AMOUNT AS POWER PURCHASE EXPE NSES OF CURRENT YEAR THE SAID AMOUNT IS INITIALLY BOOKED AS REVENUE BY THE A SSESSEE COMPANY AND LATER ON FOR THE PURPOSE OF DETERMINING PROFIT FOR THE YEAR SAME IS REDUCED AND SHOWN AS LIABILITY. THE ASSESSEE COMPANY HAS REDUCED THE AMO UNT BY STATING THAT THE EXCESS DEPRECIATION CHARGED IN TARIFF IS TO BE REVE RSED IN SUBSEQUENT YEAR. IN VIEW OF THE ABOVE DISCUSSION THE CONTENTION OF T HE ASSESSEE IS NOT ACCEPTABLE ON ACCOUNT OF THE FOLLOWING REASONS: - ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 6 (I) THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL HYDRO ELECTRIC POWER CORPORA TION LTD. 320 ITR 374 WHICH IS NOT RELEVANT IN THE PRESENT CASE. THE HON' BLE APEX COURT HAS DEALT THE ISSUE RELATING TO ADJUSTMENT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB. IN THIS CASE INCOME IS COMPUTED U NDER THE NORMAL PROVISIONS OF COMPUTATION AS PER INCOME TAX ACT, 19 61 NOT THE BOOK PROFIT U/S 115JB AS PER THE COMPANY'S ACT. IN THIS CASE HO N'BLE APEX COURT HAS DEALT WITH THE ISSUE RELATING TO RESERVES AND NOT W ITH THE ISSUE OF REVENUE OF THE CURRENT YEAR OR SUBSEQUENT YEAR. HENCE, THE FAC TS OF THE CASE DEALT BY THE APEX COURT ARE ENTIRELY DIFFERENT FROM THE FACT S OF THE ASSESSEE COMPANY. (II) OPINION OF ICAI HAS ALSO BEEN CONSIDERED. ICAI HAS OPINED THAT WHERE REVENUE OR PART THEREOF RECEIVED / RECEIVABLE, DURI NG THE PARTICULAR PERIOD, IS TO BE ADJUSTED IN FUTURE, TO THAT EXTENT THE REVENU E RECEIVED/RECEIVABLE IS NOT CONSIDERED AS EARNED, BUT IS TREATED AS REVENUE RECEIVED IN ADVANCE. THE ASSESSEE HAS NOT PROVIDED ANY MATERIAL WHICH SU GGESTS HOW THE ADVANCE AGAINST DEPRECIATION (AAD) WOULD BE REVERSE D IN SUBSEQUENT YEARS. THUS, THE OPINION OF ICAI IS NOT ACCEPTABLE. THE SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY AUTHORITY FOR ADVANCE RULING (AAR ) IN AAR NO.550 OF 2001 REPORTED AT 193 CTR 594 BY HOLDING THAT REDUCT ION OF AAD FROM THE SALES WAS NOTHING BUT A RESULT WHICH HAS TO BE ADDE D BACK. (III) TERMS AND CONDITION FOR DETERMINATION OF TARI FF ISSUED BY RERC HAS ALSO BEEN CONSIDERED WHICH PROVIDES FOR THE PROVISION RE LATING TO IMPROVEMENT OF CASH FLOW OF THE COMPANY HOWEVER IT DOES NOT PROVID E THE MECHANISM HOW THE AAD ALLOWED IN A YEAR WILL BE REVERSED IN SUBSE QUENT YEARS. IN THESE GUIDELINES THERE IS NO PROVISION WHICH DEALS WITH A DJUSTMENT OF AAD IN SUBSEQUENT YEARS TARIFF. THUS, THERE IS NO SPECIFIC PROVISION WHICH DEALS ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 7 ADJUSTMENT OF AAD IN SUBSEQUENT YEAR TARIFF HENCE A AD IS NOTHING BUT REVENUE OF THE YEAR UNDER CONSIDERATION. (IV) THE WHOLE ISSUE ALSO NEEDS TO BE SEEN IN A TOT ALITY WHERE ALL THESE INDIVIDUAL ENTITIES (POWER COMPANIES) HAVE SIGNED ONE UMBRELLA AGREEMENT, UNDER THESE CIRCUMSTANCES IT IS DIFFICULT TO FATHOM HOW O NE ENTITY (JVVNL, JDVVNL, AVVNL) CLAIMS AMOUNT AS AN EXPENSE WHILE AN INTERLI NKED ENTITY, THE ASSESSEE COMPANY, IN THE SAME CHAIN OF OPERATION DO ES NOT CLAIM IT AS ITS REVENUE. FURTHER, ON PERUSAL OF THE UMBRELLA AGREEM ENT IT IS SEEN THAT THE AGREEMENT ALLOWS FOR A FINANCIAL STABILITY TO BE PR OVIDED TO THESE POWER COMPANIES USING DIFFERENT TOOLS. HOWEVER, THE CONVE NIENCE OF THESE FINANCIAL TOOLS CANNOT BE USED AS AN ARGUMENT TO BYPASS TAXAT ION WHICH WOULD BE APPLICABLE ON THESE INDIVIDUAL ENTITIES. AT EACH ST AGE OF DISCUSSION BOTH WRITTEN AND ORAL THE ASSESSEE COMPANY HAS MADE AN E FFORT TO IMPRESS UPON AS TO WHY A PARTICULAR SET OFF FINANCIAL TRANSACTIO NS WERE USED BY THEM. THIS OFFICE IS NOT MAKING ANY OPINION ON THE MODALITY UN DER TAKEN BY DIFFERENT ENTITIES IN THIS UMBRELLA GROUP FOR ARRIVING AT A F INANCIAL STRUCTURE WITH RESPECT TO THE PROJECT. THIS ORDER ONLY INTERPRETS THE APPLICABLE TAXATION TAKING INTO ACCOUNT THE LIABILITY ARISING OUT OF TH E ACTION UNDER TAKEN BY THE ENTITY IN QUESTION I.E. THE ASSESSEE COMPANY. THE A SSESSEE COMPANY HAS REDUCED THE AAD AMOUNT FROM ITS REVENUE AND SHOWN R EDUCED INCOME. THE DISCOMS (JVVNL, JDVVNL, AVVNL) WHO ARE PAYING THE P OWER PURCHASE CHARGES ARE CLAIMING THE ENTIRE AMOUNT INCLUDING AA D AS EXPENDITURE. THUS, ASSESSEE COMPANY IN ITS HAND IS TREATING THE AAD AM OUNT AS ADVANCE REVENUE WHEREAS THE POWER PURCHASING COMPANY IS CLA IMING THE AAD AS CURRENT YEAR'S EXPENSES. THUS THE TREATMENT OF SAME ITEM HAS BEEN DONE IN TWO DIFFERENT WAYS WHICH CANNOT BE ALLOWED AS PER T HE ACCOUNTING PRINCIPLES. BASED ON THE ABOVE REASONS THE CONTENTION OF THE A SSESSEE IS NOT ACCEPTABLE AND THE TREATMENT OF REVENUE FROM SALE O F POWER TO DISCOMS ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 8 AMOUNTING TO RS. 176,88,00,000/- AS ADVANCE AGAINST DEPRECIATION DEFERRED BY THE ASSESSEE IS DISALLOWED. THUS, ADDIT ION OF RS.176,88,00,000/- IS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 6 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAS ALLOWED THE NECESSARY RELIEF TO THE AS SESSEE COMPANY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF NATIONAL HYDRO ELECTRIC POWER CORPORATION LTD. VS. CIT (SUPRA) AS WELL AS THE DECISION OF THE COORDINATE BENCH IN THE CASE OF ACIT VS NHPC LIMITED 67 SOT 130 , WHICH WAS RENDERED IN THE CONTEXT OF COMPUTATION OF TAXABLE INCOME UNDER THE NORMAL PROV ISIONS OF THE ACT. THE RELEVANT FINDING OF THE LD. CIT(A) IS CONTAINED A T PARA 2.7 OF HIS ORDER, WHICH IS REPRODUCED AS UNDER: 2.7 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSION MADE. IT IS SEEN THAT THE ASSESSEE HAS REDUCED THE CURRENT YEAR REVENUE WITH THE ADVANCE AGAINST DEPRECIATION. THIS STANDS REVERSED IN THE SUBSEQUENT YEAR. THE EXPERT ADVISORY COMMITTEE OF ICAI HAS GIVE N ITS OPINION ON THE ACCOUNTING TREATMENT OF AAD RECOVERED THROUGH T HE TARIFF. IT IS OPINED THAT WHERE REVENUE OR A PART THEREOF RECEIVE D/ RECEIVABLE DURING A PARTICULAR PERIOD IS TO BE ADJUSTED IN FUTURE, TO THAT EXTENT THE REVENUE RECEIVED/ RECEIVABLE IS NOT CONSIDERED AS EARNED, B UT IS TREATED AS REVENUE RECEIVED IN ADVANCE. THUS, THAT PART OF TAR IFF WHICH ARISES BECAUSE OF INCLUSION OF ADVANCE AGAINST DEPRECIATIO N SHOULD BE TREATED AS REVENUE RECEIVED IN ADVANCE SINCE THE SAID ADVAN CE WILL BE ADJUSTED IN LATER YEARS AGAINST THE DEPRECIATION. FURTHER TH E HONBLE SUPREME IN CASE OF NATIONAL HYDRO ELECTRIC POWER CORPORATION LT D. VS.CIT 320 ITR 374 HAVE HELD THAT ADVANCE AGAINST DEPRECIATION IS AN AMOUNT THAT THAT IS UNDER OBLIGATION, RIGHT FROM ITS INCEPTION TO BE ADJUSTED AGAINST THE FUTURE DEPRECIATION SO AS TO REDUCE THE TARIFF IN F UTURE YEARS. IT IS A TIMING DIFFERENCE. IT IS ONLY THE INCOME RECEIVED I N ADVANCE. SIMILARLY ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 9 ITAT DELHI BENCH IN CASE OF ACIT VS. NHPC LIMITED 6 7 SOT 130 BY FOLLOWING THE DECISION OF THE SUPREME COURT REFERRE D SUPRA, HELD THAT THE ASSESSEE CANNOT USE THE ADVANCE AGAINST DEPRECI ATION FOR ANY OTHER PURPOSE, WHICH IS POSSIBLE IN CASE OF RESERVE, EXCE PT TO ADJUST SAME AGAINST FUTURE DEPRECIATION SO AS TO REDUCE THE TAR IFF IN FUTURE YEARS AND ADVANCE AGAINST DEPRECIATION CANNOT BE ADDED UNDER COMPUTATION OF NORMAL INCOME. CONSIDERING ALL THESE FACTS AND RESP ECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT AND ITAT DELH I BENCH THE ADDITION OF RS. 1,76,88,00,000/- MADE BY THE ASSESS ING OFFICER IS DELETED. 7. NOW THE REVENUE IS IN APPEAL BEFORE US. DURING TH E COURSE OF HEARING, THE LD DR HAS REITERATED THE FINDINGS OF T HE ASSESSING OFFICER AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. IT WAS SUBMITTED BY THE LD DR THAT THE DECISION OF THE HONBLE SUPREME COURT WA S RENDERED IN THE CONTEXT OF SECTION 115JB OF THE ACT WHEREAS THE ISSU E IN THE PRESENT APPEAL IS TAXABILITY OF AAD UNDER THE NORMAL PROVIS IONS OF THE ACT. 8. PER CONTRA, THE LD. AR OF THE ASSESSEE HAS SUBMI TTED THAT THE MATTER IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL HYDRO ELECTRIC POWER CORPORATION LT D. VS. CIT (SUPRA) AS WELL AS THE SUBSEQUENT DECISION OF THE COORDINATE BE NCH IN CASE OF NHPC (SUPRA), WHICH HAS RIGHTLY BEEN FOLLOWED BY THE LD. C IT(A). ACCORDINGLY, HE SUPPORTED THE FINDINGS OF THE LD CIT(A). FURTHER, TH E LD AR HAS REITERATED THE CONTENTIONS RAISED BEFORE THE LD CIT(A) WHICH ARE AS UNDER: 1. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER. THE SALE RATE OF POWER IS RE GULATED AND DETERMINED BY RAJASTHAN STATE ELECTRICITY REGULATORY COMMISSION (RERC). RERC FIX THE TARIFF RATE ON THE BASIS OF COST INCURRED BY THE AS SESSEE. POWER PLANTS ARE INSTALLED BY THE ASSESSEE CO. BY RAISING THE LOAN F UND. THE LIFE OF POWER ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 10 PLANT IS ESTIMATED AROUND 20 YEARS WHEREAS REPAYMEN T OF LOAN IS REQUIRED TO BE MADE IN 10 YEARS. THUS, TO GENERATE THE CASH FLOW FOR REPAYMENT OF LOAN WITHIN THE TIME, RERC WHILE FIXING THE TARIFF RATE, APART FROM THE NORMAL DEPRECIATION ALSO ALLOW THE ADVANCE AGAINST DEPRECIATION TOWARDS COST. THE AMOUNT SO COLLECTED THROUGH THE I NCREASED TARIFF RATES BECAUSE OF ALLOWANCE OF AAD IS UTILIZED FOR REPAYME NT OF LOAN. WHEN THE AMOUNT OF LOAN BECOMES LOWER THAN THE AMOUNT OF NOR MAL DEPRECIATION, THE DIFFERENCE IS INCLUDED IN THE INCOME OF THAT YE AR. THEREFORE, THE AAD COLLECTED DURING THE YEAR IS REDUCED FROM THE REVEN UE OF THE CURRENT YEAR AND IS INCLUDED IN THE REVENUE OF THE SUBSEQUENT YE ARS TO WHICH IT PERTAINS. RELEVANT EXTRACT OF THE TERMS & CONDITIONS FOR DETE RMINATION OF TARIFF BY RERC SO FAR AS AAD IS CONCERNED (PB 9-10) READS AS UNDER:- (2) ADVANCE AGAINST DEPRECIATION (AAD) SHALL BE PER MITTED IN ADDITION TO ALLOWABLE DEPRECIATION, IN THE MANNER G IVEN HEREUNDER: AAD= LOAN REPAYMENT AMOUNT AS PER REGULATION 18 SU BJECT TO A CEILING OF 1/10 TH OF LOAN AMOUNT AS PER REGULATION 14 MINUS DEPRECIATION AS PER SCHEDULE PROVIDED THAT ADVANCE AGAINST DEPRECIATION SHALL B E PERMITTED ONLY IF THE CUMULATIVE REPAYMENT UP TO A PARTICULAR YEAR EXCEEDS THE CUMULATIVE DEPRECIATION UP TO THAT YEAR, CONSIDERIN G CUMULATIVE REPAYMENT AS REDUCED BY THE ACCUMULATED DEPRECIATIO N TRANSFERRED TO LICENSEE UNDER TRANSFER SCHEME. PROVIDED FURTHER THAT AAD IN A YEAR SHALL BE RESTR ICTED TO THE EXTENT OF DIFFERENCE BETWEEN CUMULATIVE REPAYMENT AND CUMU LATIVE DEPRECIATION UP TO THAT YEAR. PROVIDED ALSO THAT IN CASE A TRANSITIONAL LOAN IN SECURED TO MEET WHOLLY OR PARTLY THE DIFFERENCE BETWEEN THE LOAN RE PAYMENT AND ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 11 DEPRECIATION CHARGES, THEN THE INTEREST LIABILITY O F SUCH TRANSITIONAL LOANS WILL BE CONSIDERED AND THE REMAINING DIFFEREN CE, IF ANY, BETWEEN LOAN REPAYMENT LIABILITY (INCLUDING THAT OF TRANSITIONAL LOAN) AND THE DEPRECIATION SHALL ONLY BE CONSIDERED TOWAR DS AAD. THUS, BY ALLOWING AAD, THE TARIFF RATE IS INCREASE D. THIS INCREASED AMOUNT RECEIVED ON ACCOUNT OF TARIFF FIXATION IS NO T THE INCOME FOR THE YEAR AND THEREFORE IT IS ACCOUNTED FOR IN THE BOOKS AS DEFERRED REVENUE. THE AMOUNT OF DEFERRED REVENUE IS CONSIDERED IN REV ENUE IN THE YEAR WHEN THE AMOUNT OF OUTSTANDING LOAN BECOMES LOWER T HAN THE ACCUMULATED DEPRECIATION. THUS, THE AAD FORMING PAR T OF TARIFF IS ONLY TO FACILITATE REPAYMENT OF LOAN AND NOTHING ELSE AND S AME WILL BE FORMING PART OF REVENUE IN SUBSEQUENT YEARS TO WHICH THIS R EVENUE PERTAINS. ONLY BECAUSE IN THE TERMS AND CONDITIONS FOR DETERM INATION OF TARIFF NOTHING IS SPECIFIED ABOUT ADJUSTMENT OF AAD IN SUB SEQUENT YEAR TARIFF, NO ADVERSE INFERENCE CAN BE DRAWN. 2. THE ASSESSEE HAS SHOWN DEFERRED REVENUE ON ACCOU NT OF ADVANCE AGAINST DEPRECIATION AS ON 31.03.2008 AT RS.3,34,68 ,00,000/- (PB 21). IT INCLUDES AAD OF RS. 1,76,88,00,000/- FOR THE YEA R WHICH IS REDUCED FROM THE REVENUE OF THE CURRENT YEAR (PB 24). THE AMOUNT OF REVENUE SO DEFERRED HAS BEEN INCLUDED IN THE REVENUE OF THE SUBSEQUENT YEAR. THE SAME IS EVIDENT FROM THE P&L A/C OF FY 2011-12 WHEREIN THE AMOUNT OF RS.50,93,159/- BY WAY OF ADVANCE AGAINST DEPRECIATION DEFERRED HAS BEEN ADDED TO THE REVENUE FROM SALE OF POWER (PB 30) AND REDUCED FROM DEFERRED REVENUE ON ACCOUNT OF AAD (PB 29). SIMILAR ADDITION TO THE REVENUE ACCOUNT IS BEEN MADE IN FY 2012-13 WHICH ARE UNDER FINALIZATION. THUS, THE OBSERVATION OF THE AO THAT ASSESSEE HAS NOT PROVIDED ANY MATERIAL WHICH SUGGESTS THAT HOW T HE AAD WOULD BE REVERSED IN THE SUBSEQUENT YEAR AND THEREFORE THE O PINION OF THE ICAI IS ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 12 NOT ACCEPTABLE IS WITHOUT APPRECIATING THE NATURE O F RECEIPT PECULIAR TO THE ELECTRICITY COMPANIES. 3. THE EXPERT ADVISORY COMMITTEE OF ICAI HAS ALSO GI VEN ITS OPINION ON THE ACCOUNTING TREATMENT OF AAD RECOVERED THROUGH THE T ARIFF (PB 15-20). IT IS OPINED THAT WHERE REVENUE OR A PART THEREOF RECE IVED/ RECEIVABLE DURING A PARTICULAR PERIOD IS TO BE ADJUSTED IN FUT URE, TO THAT EXTENT THE REVENUE RECEIVED/ RECEIVABLE IS NOT CONSIDERED AS E ARNED, BUT IS TREATED AS REVENUE RECEIVED IN ADVANCE. THUS, THAT PART OF TARIFF WHICH ARISES BECAUSE OF INCLUSION OF ADVANCE AGAINST DEPRECIATIO N SHOULD BE TREATED AS REVENUE RECEIVED IN ADVANCE SINCE THE SAID ADVAN CE WILL BE ADJUSTED IN LATER YEARS AGAINST THE DEPRECIATION. IT MAY BE NOTED THAT IN THE ABSENCE OF ANY SPECIFIC PROVISION FOR TREATMENT OF RECEIPT OF AAD IN THE INCOME TAX ACT THE TREATMENT AS PER THE COMMERCIAL ACCOUNTING HAS TO BE ADOPTED FOR DETERMINATION OF THE INCOME AS HELD BY SUPREME COURT IN CASE OF BADRI DAS DAGA VS. CIT 34 ITR 10. FURTHER, IN SUBSEQUENT YEAR WHEN SUCH DEFERRED REVENUE HAS BEEN INCLUDED I N THE INCOME) BY THE ASSESSEE, THE SAME HAS BEEN TAXED BY THE DEPART MENT RESULTING INTO DOUBLE ADDITION. THEREFORE, THE ADDITION MADE BY TH E AO IS UNJUSTIFIED. 4. THE SUPREME COURT IN CASE OF NATIONAL HYDRO ELECT RIC POWER CORPORATION LTD. VS. CIT 320 ITR 374 (PB 11-14) HELD THAT AAD IS AN AMOUNT THAT IS UNDER OBLIGATION, RIGHT FROM ITS INCEPTION TO BE AD JUSTED AGAINST THE FUTURE DEPRECIATION SO AS TO REDUCE THE TARIFF IN F UTURE YEARS. IT IS A TIMING DIFFERENCE. IT IS ONLY THE INCOME RECEIVED I N ADVANCE. THUS, WHEN THE SUPREME COURT HAS HELD THAT THE AMOUNT OF AAD I S INCOME RECEIVED IN ADVANCE, THE SAME CANNOT BE INCLUDED IN THE YEAR IN WHICH THE AMOUNT IS RECEIVED. IT IS ONLY THE INCOME OF THE FU TURE YEARS. THEREFORE, ONLY FOR THE REASON THAT THIS DECISION IS GIVEN WIT H REFERENCE TO CALCULATION OF BOOK PROFIT U/S 115JB, THE PRINCIPLE LAID DOWN IN THIS DECISION CANNOT BE IGNORED. ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 13 5. THE AO HAS REFERRED TO THE DECISION OF THE AAR R EPORTED IN 193 CTR 594. THIS DECISION HAS BEEN OVERRULED BY THE SUPREM E COURT IN THE DECISION REFERRED ABOVE. THEREFORE, WHEN THE DECISI ON RELIED BY THE AO HAS BEEN OVERRULED BY THE SUPREME COURT, THE AAD CA NNOT BE INCLUDED IN THE INCOME OF THE YEAR. 6. ONE OF THE OBSERVATION RAISED BY AO IS THAT THE COMPANIES PURCHASING THE ELECTRICITY HAVE /CLAIMED THE SAME AS EXPENSES IN THE YEAR OF PURCHASE (INCLUDING THE AAD) AND THEREFORE THE AAD RECEIVED BY THE ASSESSEE IS ALSO TO BE ASSESSED IN THE INCOME OF TH E YEAR. IT MAY BE POINTED OUT THAT TREATMENT OF EXPENDITURE IN THE BO OKS OF OTHER PARTIES WOULD NOT BE DETERMINATIVE OF THE TREATMENT OF THE INCOME IN THE HANDS OF THE ASSESSEE. FOR INSTANCE, IN CASE OF DEALER OF CAR THE CAR SOLD BY HIM IS A REVENUE RECEIPT BUT WHEN IT IS PURCHASED B Y THE OTHER AS A FIXED ASSET IT WOULD NOT BE AN EXPENDITURE IN THE H ANDS OF THE PURCHASER. THEREFORE, ONLY BECAUSE THE OTHER PARTY HAS CLAIMED THE EXPENDITURE, IT NECESSARILY WOULD NOT BECOME THE IN COME OF THE ASSESSEE OF THAT YEAR. 9. IN ORDER TO APPRECIATE THE RIVAL CONTENTIONS, FI RSTLY, WE REFER THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF NH PC VS. CIT (SUPRA). IN THE FACTS BEFORE THE HON'BLE SUPREME COURT, THE ASSESSEE COMPANY WAS A PUBLIC SECTOR ENTERPRISE ENGAGED IN GENERATION OF ELECTRICITY AND SELLING THE SAME TO STATE ELECTRICITY BOARD(S), DIS COMS ETC. AT TARIFF RATES NOTIFIED BY CERC. THE TARIFF CONSISTS OF DEPRECIATIO N, AAD, INTEREST ON LOANS, INTEREST ON WORKING CAPITAL, OPERATION AND M AINTENANCE EXPENSES, RETURN ON EQUITY. AS PER THE GOVERNMENT OF INDIA PO LICY, NOTIFIED ON 26 TH MAY, 1997, THE GOVT. OF INDIA INTRODUCED A MECHANIS M TO GENERATE ADDITIONAL CASH FLOW BY ALLOWING GENERATING COMPANIES TO COLLECT AAD BY WAY OF TARIFF CHARGE. IT WAS DECIDED THAT THE YEAR IN WHICH NORMAL ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 14 DEPRECIATION FELL SHORT OF ORIGINAL SCHEDULED LOAN REPAYMENT INSTALLMENT (CAPPED AT 1/12 TH OF THE ORIGINAL LOAN) SUCH SHORTFALL WOULD BE COLLECTED AS ADVANCE AGAINST FUTURE DEPRECIATION. I N OTHER WORDS, ONCE THE LOAN STOOD REPAID, THE ADVANCE SO COLLECTED WOULD GE T REDUCE FROM THE NORMAL DEPRECIATION OF THE LATER YEARS, AS SUCH RED UCED DEPRECIATION WOULD BE INCLUDED IN THE TARIFF, IN TURN LOWERING THE TARIFF. IN THAT FACTUAL BACKGROUND, THE QUESTION FOR CONSIDERATION BEFORE T HE HON'BLE SUPREME COURT WAS HOW TO ACCOUNT FOR SUCH AN ADVANCE IN THE HANDS OF ASSESSEE AND FURTHER WHETHER THE REDUCTION OF AAD FROM SALES WAS NOTHING BUT A RESERVE WHICH HAS TO BE ADDED BACK ON THE BASIS OF C LAUSE (B) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT AND THE R ELEVANT FINDINGS OF THE HON'BLE SUPREME COURT ARE CONTAINED AT PARA 11 AND 12 OF ITS ORDER, WHICH IS REPRODUCED AS UNDER: 11. SINCE THE AMOUNT OF AAD IS REDUCED FROM SALES , THERE IS NO DEBIT IN THE PROFIT AND LOSS ACCOUNT, THE AMOUNT DID NOT ENTER T HE STREAM OF INCOME FOR THE PURPOSES OF DETERMINATION OF NET PROFIT AT ALL, HENCE CLAUSE (B) OF EXPLANATION 1 WAS NOT APPLICABLE. FURTHER, 'RESERVE' AS CONTEMPLATED BY CLAUSE (B) OF EXPLANATION 1 TO SECTION 115JB OF THE 1961 ACT IS REQUIRED TO BE CARRIED THROUGH THE PROFIT AND LOSS ACCOUNT. AT THIS STAGE, IT MAY BE STATED THAT THERE ARE BROADLY TWO TYPES OF RESERVES , VIZ., THOSE THAT ARE ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT AND THOS E WHICH ARE NOT CARRIED VIA THE PROFIT AND LOSS ACCOUNT, FOR EXAMPL E, A CAPITAL RESERVE SUCH AS SHARE PREMIUM ACCOUNT. AAD IS NOT A RESERVE. IT IS NOT AN APPROPRIATION OF PROFITS. AAD IS NOT MEANT FOR AN U NCERTAIN PURPOSE. AAD IS AN AMOUNT THAT IS UNDER OBLIGATION, RIGHT FROM T HE INCEPTION, TO GET ADJUSTED IN THE FUTURE, HENCE, CANNOT BE DESIGNATED AS A RESERVE. AAD IS NOTHING BUT AN ADJUSTMENT BY REDUCING THE NORMAL DE PRECIATION INCLUDIBLE IN THE FUTURE YEARS IN SUCH A MANNER THAT AT THE EN D OF THE USEFUL LIFE OF THE PLANT (WHICH IS NORMALLY 30 YEARS) THE SAME WOU LD BE REDUCED TO NIL. ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 15 THEREFORE, THE ASSESSEE CANNOT USE THE AAD FOR ANY OTHER PURPOSE (WHICH IS POSSIBLE IN THE CASE OF A RESERVE) EXCEPT TO ADJUST THE SAME AGAINST FUTURE DEPRECIATION SO AS TO REDUCE THE TAR IFF IN THE FUTURE YEARS. AS STATED ABOVE, AT THE END OF THE LIFE OF THE PLAN T AAD WILL BE REDUCED TO NIL. IN FACT, SCHEDULE XII-A TO THE BALANCE-SHEET F OR THE FINANCIAL YEARS 2004-05 ONWARDS INDICATES RECOUPING. IN OUR VIEW, AAD IS 'INCOME RECEIVED IN ADVANCE'. IT IS A TIMING DIFFERENCE. IT REPRESENTS ADJUSTMENT IN FUTURE WHICH IS IN-BUILT IN THE MECHA NISM NOTIFIED ON MAY 26, 1997. THIS ADJUSTMENT MAY TAKE PLACE OVER A LONG PERIOD O F TIME. HENCE, WE ARE OF THE VIEW THAT AAD IS NOT A R ESERVE. 12. FOR THE AFORESTATED REASONS, WE HOLD THAT AAD IS A TIMING DIFFERENCE, IT IS NOT A RESERVE, IT IS NOT CARRIED THROUGH THE PROFIT AND LOSS ACCOUNT AND THAT IT IS ' INCOME RECEIVED IN ADVANCE' SUBJECT TO ADJUSTMENT IN FUTURE AND, THEREFORE, CLAUSE (B) OF EXPLANATION 1 TO SECTI ON 115JB IS NOT APPLICABLE. ACCORDINGLY, THE IMPUGNED RULING IS SET ASIDE AND THE CIVIL APPEAL FILED BY THE ASSESSEE STANDS ALLOWED WITH NO ORDER AS TO COSTS. 10. FURTHER, WE REFER TO THE DECISION OF THE COORDIN ATE BENCH IN THE CASE OF ACIT VS. NHPC (IN ITA NO. 3013 TO 3015/DEL/2010 ORDER DATED SEPTEMBER, 20, 2014) , THE ISSUE FOR CONSIDERATION BEFORE THE COORDINATE BENCH WAS WHETHER THE LD. CIT(A) WAS RIGHT I N LAW IN DELETING THE ADDITION OF RS. 1,40,58,00,000/- MADE BY THE AS SESSING OFFICER U/S 143(3) ON ACCOUNT OF ADVANCE AGAINST DEPRECATION IG NORING THE PROVISIONS OF SECTION 2(24) READ WITH SECTION 28 OF THE ACT. TH E COORDINATE BENCH RELYING ON THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF NHPC VS. CIT (SUPRA) HAS HELD THAT ADVANCE AGAINST DEPREC IATION CANNOT BE ADDED UNDER THE COMPUTATION OF THE NORMAL INCOME. TH E RELEVANT FINDINGS OF THE COORDINATE BENCH ARE CONTAINED AT PARA 5 OF ITS ORDER, WHICH IS REPRODUCED AS UNDER: ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 16 5. AFTER HEARING BOTH THE SIDES ON THE ISSUE AND CONSIDERING THE DECISIONS OF HON'BLE SUPREME COURT, WE DECIDE THE I SSUE AS UNDER. THE HON'BLE SUPREME COURT HAS GIVEN FINDING AFTER C ONSIDERING THE OBSERVATION OF THE AUTHORITY FOR ADVANCE RULING IN PARA 11 WHICH IS REPRODUCED AS UNDER : '11. SINCE THE AMOUNT OF 'ADVANCE AGAINST DEPRECIAT ION' (AAD) IS REDUCED FROM SALES, THERE IS NO DEBIT IN THE PROFIT AND LOSS ACCOUNT. THE AMOUNT DID NOT ENTER THE STREAM OF INCOME FOR THE P URPOSES OF DETERMINATION OF NET PROFIT AT ALL, HENCE CLAUSE (B ) OF EXPLANATION-I WAS NOT APPLICABLE. FURTHER, 'RESERVE' AS CONTEMPLATED BY CLAUSE (B) OF THE EXPLANATION-I TO SECTION 115JB OF THE 1961 ACT IS RE QUIRED TO BE CARRIED THROUGH THE PROFIT AND LOSS ACCOUNT. AT THIS STAGE IT MAY BE STATED THAT THERE ARE BROADLY TWO TYPES OF RESERVES, VIZ, THOSE THAT ARE ROUTED THROUGH PROFIT AND LOSS ACCOUNT AND THOSE WHICH ARE NOT CARRIED VIA PROFIT AND LOSS ACCOUNT, FOR EXAMPLE, A CAPITAL RES ERVE SUCH AS SHARE RESERVE. IT IS NOT APPROPRIATION OF PROFITS. AAD IS NOT MEANT FOR AN UNCERTAIN PURPOSE. AAD IS AN AMOUNT THAT IS UNDER O BLIGATION, RIGHT FROM THE INCEPTION, TO GET ADJUSTED IN THE FUTURE, HENCE, CANNOT BE DESIGNATED AS A RESERVE. AAD IS NOTHING BUT AN ADJU STMENT BY REDUCING THE NORMAL DEPRECIATION INCLUDIBLE IN THE FUTURE YE ARS IN SUCH A MANNER THAT AT THE END OF USEFUL LIFE OF THE PLANT (WHICH IS NORMALLY 30 YEARS) THE SAME WOULD BE REDUCED TO NIL. THEREFORE, THE AS SESSEE CANNOT USE THE AAD FOR ANY OTHER PURPOSE (WHICH IS POSSIBLE IN THE CASE OF A RESERVE) EXCEPT TO ADJUST THE SAME AGAINST FUTURE D EPRECIATION SO AS TO REDUCE THE TARIFF IN THE FUTURE YEARS. AS STATED AB OVE, AT THE END OF THE LIFE OF THE PLANT, AAD WILL BE REDUCED TO NIL. IN F ACT, SCHEDULE XII-A TO THE BALANCE SHEET FOR THE YEARS 2004-05 ONWARDS IND ICATES RECOUPING. IN OUR VIEW, AAD IS 'INCOME RECEIVED IN ADVANCE'. I T IS A TIMING DIFFERENCE. IT REPRESENTS ADJUSTMENT IN FUTURE WHIC H IS IN-BUILT IN THE ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 17 MECHANISM NOTIFIED ON 26.5.1997. THIS ADJUSTMENT MAY TAKE PLACE OVER A LONG PERIOD OF TIME. HENCE, WE ARE OF THE VIEW THAT AAD IS NOT A RESERVE.' IN THIS PARA, HON'BLE SUPREME COURT HAS HELD THAT A DVANCE AGAINST DEPRECIATION IS NOT MEANT FOR UNCERTAIN PURPOSES. A DVANCE AGAINST DEPRECIATION IS AN AMOUNT THAT IS UNDER OBLIGATION RIGHT FROM THE INCEPTION AS THE SAME SHALL BE ADJUSTED IN FUTURE, HENCE, CAN NOT BE DESIGNATED AS RESERVE. HON'BLE SUPREME COURT HAS ALSO HELD THAT A DVANCE AGAINST DEPRECIATION IS NOTHING BUT AN ADJUSTMENT BY REDUCI NG THE NORMAL DEPRECIATION INCLUDING IN THE FUTURE YEARS IN SUCH A MANNER THAT AT THE END OF THE USEFUL LIFE OF THE PLANT THE SAME SHALL BE R EDUCED TO NIL. THE HON'BLE SUPREME COURT HAS ALSO HELD THAT ASSESSEE CANNOT US E THE ADVANCE AGAINST DEPRECIATION FOR ANY OTHER PURPOSES EXCEPT TO ADJUS T THE SAME AGAINST FUTURE DEPRECIATION SO AS TO REDUCE THE TARIFF IN F UTURE YEARS. FOR THIS, THE RELEVANT OBSERVATION OF THE HON'BLE SUPREME COURT I S THAT THERE ARE BROADLY TWO TYPES OF RESERVES, VIZ., THOSE THAT ARE ROUTED THROUGH PROFIT AND LOSS ACCOUNT AND THOSE WHICH ARE NOT CARRIED VIDE PROFIT AND LOSS ACCOUNT, FOR EXAMPLE, A CAPITAL RESERVE SUCH AS SHARE PREMIUM AC COUNT, ADVANCE AGAINST DEPRECIATION IS NOT A RESERVE AND IT IS NOT APPROPRIATION OF PROFITS. THE ABOVE FINDINGS BY THE SUPREME COURT ARE CLEAR A ND DECIDE THE ISSUE. IT HAS BEEN HELD THAT AAD IS NOT APPROPRIATI ON OF PROFIT MEANING THEREBY AAD IS NOT TAKEN OUT OF PROFIT. THA T IT IS NOT A DEDUCTION OUT OF PROFIT. THE SUPREME COURT HAS FURT HER HELD THAT AAD IS AN AMOUNT THAT IS UNDER OBLIGATION, RIGHT FR OM THE INCEPTION. THUS IT IS A LIABILITY AND HENCE NOT INC OME. WHEN AN AMOUNT IS RECEIVED BY A PERSON FROM ANOTHER PERSON, IT CAN HAVE TWO NATURE. IT CAN BE INCOME. IF SO IT HAS TO BE TAKEN TO THE PROFIT AND LOSS ACCOUNT AND FROM PROFIT AND LOSS ACCOUNT IT GOES TO THE BALANCE SHEET AS RESERVE. ALTERNATIVELY IT IS A LIABILITY AND STRAIG HT AWAY GOES TO THE BALANCE SHEET UNDER THE HEAD 'LIABILITY' NOT UNDER THE HEAD 'RESERVE'. THE SUPREME ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 18 COURT HAS CATEGORICALLY HELD THAT IT IS AN AMOUNT THAT IS UNDER OBLIGATION RIGHT FROM THE INCEPTION. THE SUPREME COURT HAS FUR THER GONE TO ANALYSE THE NATURE OF 'RESERVE'. IT HAS HELD THAT THERE ARE TWO TYPES OF RESERVES. ONE WHICH IS CREATED OUT OF PROFIT AND ANOTHER WHIC H ARE CAPITAL RESERVE SUCH AS SHARE PREMIUM ACCOUNT. IT HAS HELD THAT AAD IS NOT A RESERVE CREATED OUT OF PROFIT SINCE AAD IS NOT INCOME BUT A LIABILITY. IF THE CONTENTION OF THE REVENUE AS IS BEING ARGUED IS TAK EN TO THE LOGICAL CONCLUSION, THEN AAD WILL BE INCOME AND HENCE PART OF PROFIT AND LOSS ACCOUNT. THE LIABILITY CREATED WILL BE A 'RESERVE' BY DEBIT TO THE PROFIT AND LOSS ACCOUNT. THE SUPREME COURT HAS CATEGORICALLY H ELD THAT AAD IS NOT A 'RESERVE'. ONCE AAD IS CONSIDERED AS INCOME AS IS B EING ALLEGED BY REVENUE THE OBVIOUS IMPLICATION WILL BE THAT SUCH I NCOME IN THE BALANCE SHEET IS A RESERVE. IT CAN'T BE THAT AAD IS AN INCO ME AND THEN IT VANISHES. INCOME HAS TO BE CARRIED TO THE BALANCE SHEET AND S UCH INCOME CARRIED TO BALANCE SHEET WILL FORM PART OF THE 'RESERVE'. SINC E 'AAD' HAS BEEN HELD BY SUPREME COURT IS NOT A RESERVE, THIS CONTENTION OF THE REVENUE CAN'T BE ACCEPTED. IT IS TO BE FURTHER NOTED THAT SUPREME COURT HAS NO T STOPPED BY JUST SAYING THAT AAD IS NOT A RESERVE. I T HAS GONE FURTHER TO DEFINE THE NATURE OF AAD AND HELD THAT I T IS A LIABILITY AND IS TO BE DISCHARGED IN FUTURE AS CAN BE SEEN FR OM THE FOLLOWING OBSERVATIONS: 'AAD IS NOT MEANT FOR AN UNCERTAIN PURPOSE. AAD IS AN AMOUNT THAT IS UNDER OBLIGATION, RIGHT FROM THE INCEPTION, TO GET ADJUSTED IN THE FUTURE, HENCE, CANNOT BE DESIGNATED AS A RESERVE. AAD IS NO THING BUT AN ADJUSTMENT BY REDUCING THE NORMAL DEPRECIATION INCL UDIBLE IN THE FUTURE YEARS IN SUCH A MANNER THAT AT THE END OF USEFUL LI FE OF THE PLANT (WHICH IS NORMALLY 30 YEARS) THE SAME WOULD BE REDUCED TO NIL. THEREFORE, THE ASSESSEE CANNOT USE THE AAD FOR ANY OTHER PURPOSE ( WHICH IS POSSIBLE IN THE CASE OF A RESERVE) EXCEPT TO ADJUST THE SAME AG AINST FUTURE DEPRECIATION SO AS TO REDUCE THE TARIFF IN THE FUTU RE YEARS.' ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 19 IN VIEW OF THE CATEGORICAL FINDING OF THE SUPREME COURT WE HOLD THAT THE CIT(A) WAS CORRECT IN HOLDING THAT AD VANCE AGAINST DEPRECIATION CANNOT BE ADDED UNDER THE COMPUTATION OF THE NORMAL INCOME. THE ORDER OF CIT(A) IS UPHELD AND THE APPEALS OF T HE REVENUE ARE DISMISSED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE PARI-MATERIA TO THE FACTS BEFORE THE HONBLE SUPREME COURT AS WELL AS BEFORE THE COORDINATE BENCH REFERRED SUPRA A ND THE LATTER DECISION HAS BEEN RENDERED IN THE CONTEXT OF TAXABILITY OF A DVANCE AGAINST DEPRECIATION UNDER THE NORMAL PROVISIONS OF THE ACT . THE LD CIT(A) HAS RIGHTLY FOLLOWED THE RATIO LAID DOWN IN THE SAID DECI SIONS. WE DONOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A) AND THE SAME IS HEREBY CONFIRMED. THE GROUND TAKEN BY THE REVENUE IS THUS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/05/2018. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08 TH MAY, 2018 * RANJAN VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE D.C.I.T., CIRCLE-6, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- M/S RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LTD., JAIPUR 3. VK;DJ VK;QDR@ CIT ITA 1013/JP/2017_ DCIT VS. M/S RRVUNL 20 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 1013/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR