ACIT, Faridabad V. M/s. National Hydro Electric Power Corporation Ltd., Faridabad

ITA 3013/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81780 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 26-08-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 15-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL BAJPAI
• Assessee Lawyers: RANO JAIN CAS
• Keywords: Business income; Depreciation; Advance ruling
• Section: 143(3); 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.3013/DEL./2010 (ASSESSMENT YEAR : 2000-01) ITA NO.3014/DEL./2010 (ASSESSMENT YEAR : 2001-02) ITA NO.3015/DEL./2010 (ASSESSMENT YEAR : 2003-04) ACIT, RANGE II, VS. M/S. NHPC LIMITED, FARIDABAD. SECTOR 33, NHPC COMPLEX, FARIDABAD. (PAN : AAACN0149C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN & MS. RANO JAIN, CAS REVENUE BY : SHRI SUNIL BAJPAI, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THE BUNCH OF THESE THREE APPEALS FILED BY REVENUE E MANATES FROM THE COMMON ORDER OF CIT (APPEALS), FARIDABAD DATED 05.04.2010 FOR THREE ASSESSMENT YEARS AND IN ALL THESE APPEALS, TH E COMMON ISSUE INVOLVED IS WITH REGARD TO THE TAXABILITY OF ADVANC E AGAINST DEPRECIATION (AAD). THE GROUNDS OF APPEAL ARE COMMON EXCEPT DIF FERENCE IN FIGURE ITA NOS.3013 TO 3015/DEL/2010 2 OF ADDITION. THE GROUNDS OF APPEAL IN ITA NO.3013/ DEL/2020 FOR ASSESSMENT YEAR 2000-01 READ AS UNDER :- 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT IN LAW IN DELETING T HE ADDITION OF RS. 1,40,58,00,000/- MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF 'ADVANCE AGAINST DEPRECIATION', IN SPITE OF THE HON'BLE SUPREME COURT'S DECISION DATED 05-01-2010 W HEREIN, IT WAS HELD THAT THE ADVANCE AGAINST DEPRECIATION I S 'INCOME RECEIVED IN ADVANCE', THUS MAKING THE SAID INCOME S UBJECT TO 'CHARGE' UNDER CHAPTER-II, AS BUSINESS INCOME UNDER CHAPTER- IV-D READ WITH SUB CLAUSE (I) OF SUB-SECTION 24 OF SECTION 2 OF THE INCOME TAX ACT ?' 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) WAS RIGHT IN LAW IN DELETING T HE ADDITION OF RS. 1,40,58,00,000/ - MADE BY THE ASSESSING OFFI CER UNDER SECTION 143(3) [AND NOT UNDER SECTION 115JB] ON ACC OUNT OF 'ADVANCE AGAINST DEPRECIATION' IGNORING THE PROVISI ONS OF SECTION 2(24) READ WITH SECTION 28 OF THE INCOME TA X ACT, 1961 ~ WHICH PROVIDES THAT 'INCOME' INCLUDES PROFIT S AND GAINS AND THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE P REVIOUS YEAR IS TAXABLE ? 3. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER :- ASSESSEE IS A PUBLIC SECTOR ENTERPRISE REGISTERED UNDER THE COMPANIES ACT, 1956. ITS ACCOUNTS ARE PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT. TH E ENTIRE SHAREHOLDING OF THE ASSESSEE IS WITH GOVERNMENT OF INDIA. ITS A CCOUNTS ARE AUDITED BY COMPTROLLER AND AUDITOR GENERAL OF INDIA. THEY ARE LAID BEFORE BOTH THE HOUSES OF PARLIAMENT. ITA NOS.3013 TO 3015/DEL/2010 3 ASSESSEE IS REQUIRED TO SELL ELECTRICITY TO STATE ELECTRICITY BOARDS DISCOMS ETC. AT TARIFF RATES NOTIFIED BY CERC. THE TARIFF CONSISTS OF DEPRECIATION, AAD, INTEREST ON LOANS, INTEREST ON W ORKING CAPITAL, OPERATION AND MAINTENANCE EXPENSES, RETURN ON EQUIT Y. ON 26.5.97, GOI INTRODUCED A MECHANISM TO GENERA TE ADDITIONAL CASH FLOW BY ALLOWING GENERATING COMPANIES TO COLLE CT AAD BY WAY OF TARIFF CHARGE. IT WAS DECIDED THAT THE YEAR IN WH ICH NORMAL DEPRECIATION FELL SHORT OF ORIGINAL SCHEDULED LOAN REPAYMENT, IN STALLMENT (CAPPED AT 1/12 TH OF THE ORIGINAL LOAN) SUCH SHORTFALL WOULD BE COL LECTED AS ADVANCE AGAINST FUTURE DEPRECIATION. IN OTHER WORDS, ONCE THE LOAN STOOD RE-PAID, THE ADVANCE SO COLLECTED WOULD GET REDUCED FROM THE NORMAL DEPRECIATION OF THE LATER YEARS, AND SUCH REDUCED D EPRECIATION WOULD BE INCLUDED IN THE TARIFF, IN TURN LOWERING THE TARIFF . 3. IN THE FIRST ROUND OF APPEAL, THE ITAT IN ITS OR DER DATED 11.01.2008 FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 HAS RE STORED THE ISSUE TO THE FILE OF THE CIT(A) ON THE ISSUE OF ADVANCE AGAI NST DEPRECIATION. SIMILARLY, THE ISSUE ON ACCOUNT OF ADVANCE AGAINST DEPRECIATION WAS RESTORED TO THE CIT (A) IN ASSESSMENT YEAR 2003-04 VIDE ITAT ORDER DATED 09.02.2009. THE CIT (A) HAS DELETED THE ADDI TION BY PASSING A COMMON ORDER DATED 05.04.2010, AGAINST WHICH THE RE VENUE IS IN APPEAL. ITA NOS.3013 TO 3015/DEL/2010 4 AS PER REVENUES CONTENTION, ADVANCE AGAINST DEPREC IATION IS AN INCOME TO BE TAXED UNDER THE YEAR UNDER CONSIDERATION. 4. LD. DR SUBMITTED THAT THE ISSUE BEFORE THE HON'B LE SUPREME COURT WAS WITH REFERENCE TO THE ADDITION WHILE COMPUTING THE PROFIT U/S 115JB OF THE INCOME-TAX ACT, 1961, HENCE SAME CANNOT BE A PPLIED WHILE COMPUTING THE INCOME UNDER THE REGULAR PROVISIONS O F INCOME-TAX ACT, 1961. HON'BLE SUPREME COURT, IN ASSESSEES CASE, H AS HELD THAT ADVANCE AGAINST DEPRECIATION IS NOT A RESERVE AND ALSO IT I S NOT AN APPROPRIATION OF PROFIT, HENCE, THE SAME CANNOT BE ADDED WHILE COMPU TING THE INCOME UNDER THE REGULAR PROVISIONS OF THE INCOME TAX ACT. LD. ARS CONTENTION WAS ALSO THAT ADVANCE AGAINST DEPRECIATION WAS NOT MEANT FOR UNCERTAIN PURPOSE AND IT WAS FOR A DEFINITE PURPOSE THAT IS U NDER OBLIGATION, RIGHT FROM THE INCEPTION, AND IT IS GOING TO BE ADJUSTED IN THE FUTURE. THEREFORE, IT CANNOT BE DESIGNATED AS A RESERVE. THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING ENGAGED IN THE BUSINESS OF GENERATION O F POWER. THE TARIFF FOR THE POWER IS DETERMINED BY THE CENTRAL ELECTRIC ITY REGULATORY COMMISSION (CERC) AND ACCORDINGLY ASSESSEE HAS TO S ELL ELECTRICITY TO THE VARIOUS STATE ELECTRICITY BOARDS AT THE TARIFF RATES NOTIFIED BY THE CERC. THIS TARIFF IS WORKED OUT ON THE BASIS OF TH E COST OF PLANT WHICH CONSISTS OF DEPRECIATION, INTEREST ON LOANS, OPERAT ION AND MAINTENANCE EXPENSES AND ALSO A FIXED RETURN ON EQUITY. THE CE RC DETERMINES THE TARIFF FOR POWER GENERATING COMPANIES. THESE POWER GENERATING ITA NOS.3013 TO 3015/DEL/2010 5 COMPANIES WERE NOT IN A POSITION TO REPAY THE INSTA LLMENT OF THE LOAN FOR THE BORROWED LOAN FOR THE PURPOSE OF SETTING UP OF POWER PLANT FOR GENERATION OF THE ELECTRICITY. TO MEET SUCH CRISIS , THE CENTRAL GOVERNMENT DEVISED A MECHANISM TO HELP POWER GENERA TING COMPANIES INCLUDING THE ASSESSEE TO RAISE FUNDS TO MEET ITS O BLIGATION OF REPAYMENT OF LOAN IN TIME. BY NOTIFICATION DATED 26 TH MAY, 1997, THESE COMPANIES WERE PERMITTED TO COLLECT AN AMOUNT IN ADVANCE IN T HE YEARS IN WHICH THE NORMAL DEPRECIATION (90% OF THE ORIGINAL COST OF TH E PLANT SPREAD EQUALLY OVER THE USEFUL LIFE OF PLANT) OTHERWISE ALLOWED TO BE RECOVERED WAS NOT SUFFICIENT TO MEET LOAN REPAYMENT SCHEDULE AND CALL ED IT ADVANCE AGAINST DEPRECIATION. ON THE PAYMENT OF THE LOAN THE ADV ANCE SO COLLECTED IS TO BE ADJUSTED FROM THE NORMAL DEPRECIATION ALLOWABLE AND INCLUDED IN THE TARIFF OF SUCH LATER YEARS AND ON THIS COUNT, THIS ISSUE ARISES HOW THIS ADVANCE RECEIVED AGAINST FUTURE OBLIGATION IS TO BE ADJUSTED IN THE ACCOUNT OF THE ASSESSEE. THE ASSESSEE COMPANY APPROACHED T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) FOR ITS OPINI ON. THE ICAI GAVE AN OPINION THAT IT IS IN THE NATURE OF ADVANCE AND SHO ULD BE SHOWN AS A LIABILITY IN THE BALANCE SHEET. THE ASSESSEE COMPA NY FOLLOWED THIS ACCOUNTING PRACTICE. HOWEVER, THE AO DID NOT ACCEP T THIS CONTENTION AND TREATED ADVANCE AGAINST DEPRECIATION AS INCOME WHIL E COMPUTING REGULAR INCOME AS WELL AS BOOK PROFIT. THE ASSESSEE APPLIE D TO THE AUTHORITY FOR ADVANCE RULING. THE AUTHORITY FOR ADVANCE RULING D ECIDED VIDE ITS ITA NOS.3013 TO 3015/DEL/2010 6 ORDER DATED 17 TH DECEMBER, 2004 THAT THE ADVANCE AGAINST DEPRECIATI ON IS TO BE ADDED TO THE BOOK PROFIT WHILE DETERMINING MI NIMUM ALTERNATE TAX LIABILITY UNDER SECTION 115JB OF THE ACT. AGAINST T HIS ORDER OF THE AUTHORITY FOR ADVANCE RULING, THE ASSESSEE FILED A SPECIAL LEAVE PETITION BEFORE THE HONBLE SUPREME COURT. THE ASSESSEE ALS O FILED APPEALS AGAINST THE ORDER OF THE ASSESSING OFFICER BEFORE T HE CIT(A). THE CIT (A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER IN ITS ORDER DATED 31.03.2005 IN SO FAR AS THE ADDITION TO THE BOOK PROFIT MADE F OR THE PURPOSE OF MINIMUM ALTERNATE TAX. THE CIT(A), HOWEVER, DID NO T DECIDE THE ISSUE REGARDING ADDITION MADE WHILE COMPUTING THE INCOME UNDER THE REGULAR PROVISIONS OF THE ACT. AGAINST THIS, THE ASSESSEE CAME IN APPEAL BEFORE THE ITAT AND CONTENDED THAT THE CIT(A) HAS NOT DECI DED THE ISSUE OF TAXING ADVANCE AGAINST DEPRECIATION WHILE COMPUTING REGULAR INCOME AS UNDER THE REGULAR PROVISIONS OF INCOME-TAX ACT, 196 1. THE ITAT SET ASIDE THE ISSUE TO THE FILE OF CIT (A) VIDE ITS ORD ER DATED 11 TH JANUARY, 2009 FOR ASSESSMENT YEARS 2000-01 AND 2001-02. MEAN WHILE, THE SLP FILED BY THE ASSESSEE WAS DECIDED BY HON'BLE SUPREM E COURT VIDE ITS ORDER DATED 05.01.2010. THE CIT (A) AFTER TAKING I NTO CONSIDERATION THE DECISION OF HON'BLE SUPREME COURT HELD THAT ADVANCE AGAINST DEPRECIATION CANNOT BE CONSIDERED AS INCOME FOR THE YEAR UNDER C ONSIDERATION. THE RELEVANT PORTION OF THE ORDER OF THE CIT (A) READ A S UNDER :- ITA NOS.3013 TO 3015/DEL/2010 7 4. I HAVE CAREFULLY CONSIDERED THE ABOVE CONTENTIO NS OF THE LD. A.R. AND PERUSED THE IMPUGNED ASSESSMENT OR DERS PASSED U/S 143(3) IN THE INSTANT CASE FOR ALL THE A BOVE- MENTIONED ASSESSMENT YEARS, AND THE SUBSEQUENT ORDE RS PASSED BY THE CIT(A) AND THE LD. ITAT ON THE ISSUE OF AAD FOR THE PURPOSES OF SECTION 115JB OF THE INCOME TAX ACT, 1961 IN RESPECT OF WHICH THE WORTHY AAR AUTHOR ITIES VIDE THEIR ORDER DATED 17-12-2004 HAD GIVEN THE RUL ING IN FAVOUR OF THE REVENUE BY HOLDING THAT THE AAD HAD T O BE INCLUDED IN THE COMPUTATION OF BOOK PROFIT FOR MAT U/S 115JB OF THE INCOME TAX ACT, 1961 IN THE YEAR OF IT S RECEIPT. I HAVE ALSO GONE THROUGH THE NOTIFICATION OF THE CENTRAL GOVERNMENT ISSUED IN 1997 FOR FIXATION TARI FF FOR THE SUPPLY OF ELECTRICITY U/S 43A OF THE ELECTRICIT Y (SUPPLY) ACT, 1948 DATED 23-05-1997 AS WELL AS THE OPINION O F THE EXPERT ADVISORY COMMITTEE OF INSTITUTE OF CHARTERE D ACCOUNTANTS OF INDIA ALONGWITH THE ACCOUNTING TREA TMENT OF AAD AS ADVISED BY THE I.C.A.I. I HAVE ALSO PERUSED THE TARIFF NOTIFICATION OF CENTRAL ELECTRICITY REGULATO RY COMMISSION (CERC) DATED 26-03-2001 EFFECTIVE FOR THE PERIOD 01-04-2001 TO 31-03-2004. I HAVE ALSO STUDI ED THE HONBLE APEX COURTS ORDER DATED JANUARY 5, 2010 FO R THE ASSESSMENT YEAR 2001-02 IN THE APPELLANTS OWN CASE IN CIVIL APPEAL NO.6 OF 2010 ADJUDICATING ON THE ACCOU NTING TREATMENT OF AAD. AFTER EXAMINING THE STATUS OF TH E COMPANY BEING A PUBLIC SECTOR ENTERPRISE, WHOSE ACC OUNTS WERE PREPARED IN ACCORDANCE WITH PARA II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND AUDITED BY COMPTROLLER AND AUDITOR GENERAL OF INDIA AND LAID B EFORE BOTH THE HOUSES OF PARLIAMENT, THE HONBLE SUPREME COURT HAS ALSO APPRECIATED THE BUSINESS OF THE APPELLANT PUBLIC UNDERTAKING TO SELL ELECTRICITY TO STATE ELECTRICIT Y BOARD(S), DISCOMS, ETC. AT TARIFF RATES NOTED BY CERC WHICH C ONSISTED OF DEPRECIATION, ADVANCE AGAINST DEPRECIATION, INTE REST ON LOANS, INTEREST ON WORKING CAPITAL, ETC. THE APEX C OURT ANALYSED GOIS NOTIFICATION DATED 26.05.1997 AND AF TER GOING INTO THE MERITS OF THE ISSUE AS PER THE RULIN G OF THE AAR READ WITH CLAUSE (B) OF EXPLANATION I TO SECTIO N 115JB OF THE INCOME TAX ACT, 1961, FINALLY CONCLUDED VIDE ITS PARA 11 THAT SINCE THE AMOUNT OF AAD IS REDUCED FROM SAL ES AND DID NOT ENTER THE STREAM OF INCOME FOR THE PURPOSES OF DETERMINATION OF NET PROFIT AT ALL, HENCE THE CLAUS E (B) OF EXPLANATION I TO SECTION 115JB OF THE 1961 ACT WAS NOT ITA NOS.3013 TO 3015/DEL/2010 8 APPLICABLE. FURTHER, THE APEX COURT HELD THAT THE AAD IS NOT A RESERVE, NOT APPROPRIATION OF PROFITS AND NOT MEANT FOR AN UNCERTAIN PURPOSE AND IT IS AN AMOUNT THAT IS UN DER OBLIGATION, RIGHT FROM THE INCEPTION TO GET ADJUSTE D IN THE FUTURE AND HENCE IT CANNOT BE DESIGNATED AS A RESE RVE. AT THE MOST, THE AAD IS INCOME RECEIVED IN ADVANCE A ND IT IS A TIMING DIFFERENCE THAT REPRESENTS ADJUSTMENT IN F UTURE WHICH IS INBUILT IN THE MECHANISM NOTIFIED ON 26-05 -1997. HENCE THE CLAUSE (B) OF EXPLANATION I TO SECTION 11 5JB IS INAPPLICABLE AND HENCE THE AAD COULD NOT BE ADDED A S ADJUSTMENT UNDER THE PROVISIONS OF SECTION 115JB FO R THE PURPOSES OF COMPUTATION OF BOOK PROFIT. 5. I HAVE GIVEN A DEEP THOUGHT TO THE ABOVE RULING OF THE HONBLE SUPREME COURT ON THE ISSUE OF AAD FOR THE PURPOSES OF SECTION 115JB. ALTHOUGH THE DECISION O F THE LD. APEX COURT HAS BEEN GIVEN IN RESPECT OF THE ADJUSTM ENTS TO BE MADE FOR THE MAT PURPOSES UNDER CLAUSE (B) OF EXPLANATION I TO SECTION 115JB, IT IS OBSERVED THAT THE ISSUE HAS BEEN FINALLY CLINCHED BY THE HONBLE COURT, AS TO ITS NATURE AND TAXABILITY, WHICH WOULD ALSO BE RELEVANT FOR THE COMPUTATION OF REGULAR INCOME AS PER THE PROVISIONS OF SECTION 143(3) OF THE INCOME TAX ACT, 1961. SINCE THE AAD IS A TIMING DIFFERENCE, IT IS NOT A RESERVE, IT IS NOT CARRIED THROUGH P & L ACCOUNT AND IT IS INCOME RECE IVED IN ADVANCE SUBJECT TO ADJUSTMENT IN FUTURE, IT CANNOT BE ADDED/DISALLOWED ALSO UNDER THE COMPUTATION OF NORM AL INCOME U/S 143(3) OF THE INCOME TAXACT, 1961. THE ABOVE RATIO OF THE HONBLE SUPREME COURT, BEING EQUALLY INVOKABALE AND APPLICABLE IN THE REGULAR ASSESSMENT S, THE ADDITION MADE BY THE A.O. IN THE ORDERS U/S 143(3) FOR THESE THREE YEARS ON ACCOUNT OF AAD STAND CANCELLED TOO. 6. IN THE RESULT, ALL THE THREE APPEALS ARE ALLOWED , GIVING A RELIEF OF RS.133,81,00,000/-, RS.140,58,00,000/- AN D RS.152,63,00,000/- RESPECTIVELY FOR THE ASSESSMENT YEARS 2000-01, 2001-02 AND 2003-04. 5. AFTER HEARING BOTH THE SIDES ON THE ISSUE AND CO NSIDERING THE DECISIONS OF HON'BLE SUPREME COURT, WE DECIDE THE I SSUE AS UNDER. ITA NOS.3013 TO 3015/DEL/2010 9 HON'BLE SUPREME COURT HAS GIVEN FINDING AFTER CONSI DERING THE OBSERVATION OF THE AUTHORITY FOR ADVANCE RULING IN PARA 11 WHICH IS REPRODUCED AS UNDER :- 11. SINCE THE AMOUNT OF ADVANCE AGAINST DEPRECIA TION (AAD) IS REDUCED FROM SALES, THERE IS NO DEBIT IN T HE PROFIT AND LOSS ACCOUNT. THE AMOUNT DID NOT ENTER THE STREAM O F INCOME FOR THE PURPOSES OF DETERMINATION OF NET PROFIT AT ALL, , HENCE CLAUSE (B) OF EXPLANATION-I WAS NOT APPLICABLE. FUR THER, 'RESERVE' AS CONTEMPLATED BY CLAUSE (B) OF THE EXPL ANATION-I TO SECTION 115JB OF THE 1961 ACT IS REQUIRED TO BE CAR RIED 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 EX AMPLE, A CAPITAL RESERVE SUCH AS SHARE RESERVE. IT IS NOT AP PROPRIATION OF PROFITS. AAD IS NOT MEANT FOR AN UNCERTAIN PURP OSE. AAD IS AN AMOUNT THAT IS UNDER OBLIGATION, RIGHT FROM T HE INCEPTION, TO GET ADJUSTED IN THE FUTURE, HENCE, CANNOT BE DES IGNATED AS A RESERVE. AAD IS NOTHING BUT AN ADJUSTMENT BY REDUCI NG THE NORMAL DEPRECIATION INCLUDIBLE IN THE FUTURE YEARS 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 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 T O REDUCE THE TARIFF IN THE FUTURE YEARS. AS STATED ABOVE, AT TH E END OF THE LIFE OF THE PLANT, AAD WILL BE REDUCED TO NIL. IN FACT, SCHEDULE XII- A TO THE BALANCE SHEET FOR THE YEARS 2004-05 ONWARD S INDICATES RECOUPING. IN OUR VIEW, AAD IS INCOME RECEIVED IN ADVANCE. IT IS A TIMING DIFFERENCE. IT REPRESENT S ADJUSTMENT IN FUTURE WHICH IS IN-BUILT IN THE MECHANISM NOTIFIED ON 26.5.1997. THIS ADJUSTMENT MAY TAKE PLACE OVER A LO NG 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. ADVANCE AGAINST DEPRECIATION IS AN AMOUNT THAT IS UNDER OBLIGATION RIGHT FROM THE INCEPTION ITA NOS.3013 TO 3015/DEL/2010 10 AS THE SAME SHALL BE ADJUSTED IN FUTURE, HENCE, CAN NOT BE DESIGNATED AS RESERVE. HON'BLE SUPREME COURT HAS ALSO HELD THAT ADVANCE 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 HONBLE SUPREME COURT HAS ALSO HELD THAT ASSESSEE C ANNOT USE THE ADVANCE AGAINST DEPRECIATION FOR ANY OTHER PURPOSES EXCEPT TO ADJUST THE SAME AGAINST FUTURE DEPRECIATION SO AS TO REDUCE TH E TARIFF IN FUTURE YEARS. FOR THIS, THE RELEVANT OBSERVATION OF THE HON'BLE S UPREME COURT IS THAT THERE ARE BROADLY TWO TYPES OF RESERVES, VIZ., THOS E THAT ARE ROUTED THROUGH PROFIT AND LOSS ACCOUNT AND THOSE WHICH ARE NOT CAR RIED VIDE PROFIT AND LOSS ACCOUNT, FOR EXAMPLE, A CAPITAL RESERVE SUCH A S SHARE PREMIUM ACCOUNT, ADVANCE AGAINST DEPRECIATION IS NOT A RESE RVE AND IT IS NOT APPROPRIATION OF PROFITS. THE ABOVE FINDINGS BY TH E SUPREME COURT ARE CLEAR AND DECIDE THE ISSUE. IT HAS BEEN HELD THAT AAD IS NOT APPROPRIATION OF PROFIT MEANING THEREBY AAD IS NOT TAKEN OUT OF P ROFIT. THAT IT IS NOT A DEDUCTION OUT OF PROFIT. THE SUPREME COURT HAS FUR THER HELD THAT AAD IS AN AMOUNT THAT IS UNDER OBLIGATION, RIGHT FROM THE INCEPTION. THUS IT IS A LIABILITY AND HENCE NOT INCOME. WHEN AN AMOUNT IS RECEIVED BY A PERSON FROM ANOTHER PERSON, IT CAN HAVE TWO NATURE. IT CA N 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. A LTERNATIVELY IT IS A ITA NOS.3013 TO 3015/DEL/2010 11 LIABILITY AND STRAIGHT AWAY GOES TO THE BALANCE SHE ET UNDER THE HEAD LIABILITY NOT UNDER THE HEAD RESERVE. THE SUPR EME COURT HAS CATEGORICALLY HELD THAT IT IS AN AMOUNT THAT IS UND ER OBLIGATION RIGHT FROM THE INCEPTION. THE SUPREME COURT HAS FURTHER GONE T O ANALYSE THE NATURE OF RESERVE. IT HAS HELD THAT THERE ARE TWO TYPES OF RESERVES. ONE WHICH IS CREATED OUT OF PROFIT AND ANOTHER WHICH ARE CAPI TAL 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 LIABILI TY. IF THE CONTENTION OF THE REVENUE AS IS BEING ARGUED IS TAKEN TO THE LOGI CAL CONCLUSION, THEN AAD WILL BE INCOME AND HENCE PART OF PROFIT AND LOS S ACCOUNT. THE LIABILITY CREATED WILL BE A RESERVE BY DEBIT TO T HE PROFIT AND LOSS ACCOUNT. THE SUPREME COURT HAS CATEGORICALLY HELD THAT AAD I S NOT A RESERVE. ONCE AAD IS CONSIDERED AS INCOME AS IS BEING ALLEGE D BY REVENUE THE OBVIOUS IMPLICATION WILL BE THAT SUCH INCOME IN THE BALANCE SHEET IS A RESERVE. IT CANT BE THAT AAD IS AN INCOME AND THE N IT VANISHES. INCOME HAS TO BE CARRIED TO THE BALANCE SHEET AND SUCH INC OME CARRIED TO BALANCE SHEET WILL FORM PART OF THE RESERVE. SINCE AAD HAS BEEN HELD BY SUPREME COURT IS NOT A RESERVE, THIS CONTENTION OF THE REVENUE CANT BE ACCEPTED. IT IS TO BE FURTHER NOTED THAT SUPREME C OURT HAS NOT STOPPED BY JUST SAYING THAT AAD IS NOT A RESERVE. IT HAS GONE FURTHER TO DEFINE THE NATURE OF AAD AND HELD THAT IT IS A LIABILITY AND I S TO BE DISCHARGED IN FUTURE AS CAN BE SEEN FROM THE FOLLOWING OBSERVATIO NS: ITA NOS.3013 TO 3015/DEL/2010 12 AAD IS NOT MEANT FOR AN UNCERTAIN PURPOSE. AAD IS AN AMOUNT THAT IS UNDER OBLIGATION, RIGHT FROM THE INC EPTION, TO GET ADJUSTED IN THE FUTURE, HENCE, CANNOT BE DESIGNATED AS A RESERVE. AAD IS NOTHING BUT AN ADJUSTMENT BY REDUCING THE NORMAL DEPRECIATION INCLUDIBLE IN THE FUTURE YEARS 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 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 T O REDUCE THE TARIFF IN THE FUTURE YEARS. IN VIEW OF THE CATEGORICAL FINDING OF THE SUPREME C OURT WE HOLD THAT THE CIT(A) WAS CORRECT IN HOLDING THAT ADVANCE AGAINST DEPRECIATION CANNOT BE ADDED UNDER THE COMPUTATION OF THE NORMAL INCOME . THE ORDER OF CIT(A) IS UPHELD AND THE APPEALS OF THE REVENUE ARE DISMISSED. 6. IN THE RESULT, ALL THE THREE APPEALS OF THE REVE NUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2014. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 30 TH DAY OF SEPTEMBER, 2014/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), FARIDABAD. 5.CIT(ITAT), NEW DELHI. AR/ITAT