ACIT, Faridabad V. M/s. N.H.P.C. Ltd., Faridabad

ITA 4028/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86685 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-12-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 31-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJHA
• Assessee Lawyers: V MOHA N CHOURASIYA
• Keywords: Business income; Depreciation; Advance ruling
• Section: 143(3); 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. N. K. SAINI , AM AND SH. A. T VA RK E Y , JM ITA NO. 4028 /DEL/201 0 : ASSTT. YEAR : 2002 - 03 ITA NO. 4029/DEL/2010 : ASSTT. YEAR : 2004 - 05 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - II, FARIDABAD VS M/ S N. H. P. C. LTD. SECTOR - 33, N. H. P. C. COMPLEX, FARIDABAD (APPELLANT) (RESPONDENT) PAN NO. A A A CN0149C A SSESSEE BY : SH. VED JAIN, CA & SH.V. MOHA N CHOURASIYA, ADV . REVENUE BY : SH. P. DAM KANUNJHA, SR DR DATE OF HEARIN G : 04 .02.2015 DATE O F PRONOUNCEMENT : 04 . 02 .201 5 ORDER P ER BENCH : THESE TWO APPEAL S BY THE DEPARTMENT ARE DIRECTED AGAINST THE COMMON ORDER DAT ED 18.06.2010 OF LD. CIT (A) , FARIDABAD . 2. COMMON ISSUE IS INVOLVED IN BOTH THESE APPEALS WHICH WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATING ORDER FOR THE SAKE OF CONVENIENCE. 3 . IN ITA NO. 4028/DEL/2010 , THE GROUNDS RAISED BY THE DEPARTMENT 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 THE ADDITION OF RS. 1,28,55,00,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVANCE AGAINST DEPRECIATION , IN SPITE OF THE HON BLE ITA NOS. 4028 & 4029 /DEL/201 0 N.H.P.C. LTD. 2 SUPREME COURT S DECISION DATED 05.01.2010 WHEREIN, IT WAS HELD THAT THE ADVANCE AGAINST DEPRECIATION IS INCOME RECEIVED IN ADVANCE , THUS MAKING THE SAID INCOME SUBJECT TO CHARGE UNDER CHAPTER - II, AS BUSINESS INCOME UNDER CHAPTER - I V - 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 OF THE CASE, THE LD. CIT(A) WAS RIGHT IN LAW IN DELETING THE ADDITION OF RS. 1,28,55,00,000/ - MADE BY THE ASSESSING OFFIC ER UNDER SECTION 143(3) (AND NOT UNDER SECTION 115JB) ON ACCOUNT OF ADVANCE AGAINST DEPRECIATION IGNORING THE PROVISIONS OF SECTION 2(24) READ WITH SECTION 28 OF THE INCOME TAX ACT, 1961, WHICH PROVIDES THAT INCOME INCLUDES PROFITS AND GAINS AND THE PR OFITS AND GAINS OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR IS TAXABLE ? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT IN LAW IN DELETING THE ADDITION OF RS. 1,28, 55,00,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVANCE AGAINST DEPRECIATION BOTH FOR THE PURPOSE OF CALCULATION OF BOOK PROFITS UNDER MAT U/S 115JB AND AS ASSESSEE S INCOME U/S 28(1) OF THE INCOME TAX ACT, 1961 IGNORING THE FACTS THAT THE AMOUNT R EPRESENTING ADVANCE AGAINST DEPRECIATION HAD LEGITIMATELY ACCRUED TO THE ASSESSEE, THUS IT BECOMES A PART OF THE INCOME OF THE ASSESSEE AND CANNOT BE TAKEN OUT FROM THE SALES ? 4. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE G ROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4 . DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS COVERED BY ITA NOS. 4028 & 4029 /DEL/201 0 N.H.P.C. LTD. 3 THE EARLIER ORDER OF THE ITAT DELHI BENCH C , NEW DELHI (COPY OF THE SA ID ORDER WAS FURNISHED). 5 . IN HIS RIVAL SUBMISSIONS THE LD. DR COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 6 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT THE IDENTICAL ISSUE HAVING SIMILAR FACTS HAD ALREADY BEEN ADJUDICATED BY THE ITAT DELHI BENCH C , NEW DELHI VIDE ORDER DATED 30.09.2014 IN ITA NOS. 3013 TO 3015/DEL/2010 FOR THE ASSESSMENT YEARS 2000 - 01 TO 2003 - 04 IN ASSESSEE S OWN CAS E WHEREIN BY FOLLOWING THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT VIDE ORDER DATED 05.01.2010 IN S.L.P IN ASSESSEE S OWN CASE . THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY OBSERVING IN PARA 5 OF THE SAID ORDER DATED 30.09.2014 AS UNDER: 5 . AFTER HEARING BOTH THE SIDES ON THE ISSUE AND CONSIDERING THE DECISIONS OF HON'BLE SUPREME COURT, WE DECIDE THE ISSUE AS UNDER. HON'BLE SUPREME COURT HAS GIVEN FINDING AFTER CONSIDERING THE OBSERVATION OF THE AUTHORITY FOR ADVANCE RULING IN PARA 11 WHIC H IS REPRODUCED AS UNDER : - 11. SINCE THE AMOUNT OF ADVANCE AGAINST DEPRECIATION (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 PURPOSES OF DETERMINATION OF NET PROFIT AT ALL, , HENCE CLAUSE (B) OF ITA NOS. 4028 & 4029 /DEL/201 0 N.H.P.C. LTD. 4 EXPLANATION - I WAS NOT APPLICABLE. FURTHER, 'RESERVE' AS CONTEMPLATED BY CLAUSE (B) OF THE EXPLANATION - I 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 PROFIT AND LOSS ACCOUNT AND THOSE WHICH ARE NOT CARRIED VIA PROFIT AND LOSS ACCOUNT, FOR EXAMPLE, A CAPITAL RESERVE SUCH AS SHARE RESERVE. IT IS NOT APPROPRIATION OF PR OFITS. 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 NOTHING BUT AN ADJUSTMENT BY REDUCING THE NORMAL DEPRECI ATION 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 CAS E OF A RESERVE) EXCEPT TO ADJUST THE SAME AGAINST FUTURE DEPRECIATION SO AS TO REDUCE THE TARIFF IN THE FUTURE YEARS. AS STATED ABOVE, AT THE END OF THE LIFE OF THE PLANT, AAD WILL BE REDUCED TO NIL. IN FACT, SCHEDULE XII - A TO THE BALANCE SHEET FOR THE YE ARS 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 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 ADVANCE AGAINST DEPRECIATION IS NOT MEANT FOR UNCERTAIN PURPOSES. ADVANCE AGAINST DEPRECIATION IS AN AMOUNT THAT IS UNDER OBLIGATION RIGHT FROM THE INCEPTION AS THE SAME SHALL BE ADJUSTED IN FUTURE, HENCE, CANNOT BE DESIGNATED AS RESERVE. ITA NOS. 4028 & 4029 /DEL/201 0 N.H.P.C. LTD. 5 HON'BLE SUPREME COURT HAS ALSO HELD THAT ADVANCE AGAINST DEPRECIATION IS NOTHING BUT AN ADJUSTMENT BY REDUCING 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 REDUCED TO NIL. THE HON BLE SUPREME COURT HAS ALSO HELD THAT ASSESSEE CANNOT USE THE ADVANCE AGAINST DEPRECIATION FOR ANY OTHER PURPOSES EXCEPT TO ADJUST T HE SAME AGAINST FUTURE DEPRECIATION SO AS TO REDUCE THE TARIFF IN FUTURE YEARS. FOR THIS, THE RELEVANT OBSERVATION OF THE HON'BLE SUPREME COURT IS 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 ACCOUNT, ADVANCE AGAINST DEPRECIATION IS NOT A RESERVE AND IT IS NOT APPROPRIATION OF PROFITS. THE ABOVE FINDINGS BY THE SUPREME COURT ARE CLEA R AND DECIDE THE ISSUE. IT HAS BEEN HELD THAT AAD IS NOT APPROPRIATION OF PROFIT MEANING THEREBY AAD IS NOT TAKEN OUT OF PROFIT. THAT IT IS NOT A DEDUCTION OUT OF PROFIT. THE SUPREME COURT HAS FURTHER 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 CAN BE INCOME. IF SO IT HAS TO BE TAKEN TO THE PROFIT AND LOSS ACCOUNT AND FROM PROFIT AND LO SS ACCOUNT IT GOES TO THE BALANCE SHEET AS RESERVE. ALTERNATIVELY IT IS A LIABILITY AND STRAIGHT AWAY GOES TO THE BALANCE SHEET UNDER THE HEAD LIABILITY NOT UNDER THE HEAD RESERVE . THE SUPREME COURT HAS CATEGORICALLY HELD THAT IT IS AN AMOUNT THAT IS UNDER OBLIGATION RIGHT FROM THE INCEPTION. THE SUPREME COURT HAS FURTHER 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 WHICH ARE CAPITAL RESERVE SUCH AS SHARE PR EMIUM 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 TAKEN TO THE LOGICAL CONCLUSION, THEN AAD WILL ITA NOS. 4028 & 4029 /DEL/201 0 N.H.P.C. LTD. 6 BE INCOME AND HENCE PART OF PROFIT A ND LOSS ACCOUNT. THE LIABILITY CREATED WILL BE A RESERVE BY DEBIT TO THE PROFIT AND LOSS ACCOUNT. THE SUPREME COURT HAS CATEGORICALLY HELD THAT AAD IS NOT A RESERVE . ONCE AAD IS CONSIDERED AS INCOME AS IS BEING ALLEGED BY REVENUE THE OBVIOUS IMPLICA TION WILL BE THAT SUCH INCOME IN THE BALANCE SHEET IS A RESERVE. IT CAN T BE THAT AAD IS AN INCOME AND THEN IT VANISHES. INCOME HAS TO BE CARRIED TO THE BALANCE SHEET AND SUCH INCOME 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 CAN T BE ACCEPTED. IT IS TO BE FURTHER NOTED THAT SUPREME COURT 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 IS TO BE DISCHARGED IN FUTURE AS CAN BE SEEN FROM 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 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 REDUC ED 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 TO REDUCE THE TARIFF IN THE FUTURE YEARS. IN VIEW OF THE CATEGORICAL FIN DING OF THE SUPREME COURT 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. ITA NOS. 4028 & 4029 /DEL/201 0 N.H.P.C. LTD. 7 7 . SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS INVOLVED IN THE ASSESSMENT YEARS 2000 - 01 TO 2003 - 04, THEREFORE, BY RESPECTFULLY FOLLOWING THE AFORESAID RE FERRED TO ORDER DATED 30.09.2014 IN ITA NOS. 3013 TO 3015/DEL/2010 (S UPRA) , WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 8 . IN ITA NO. 4029/DEL/2010 THE ISSUE INVOLVED IS SIMILAR HAVING IDENTICAL FACTS AS WAS I N ITA NO. 4028/DEL/2010 (SUPRA), T HE ONLY DIFFERENCE IS IN THE AMOUNT INVOLVED, THEREFORE, OUR FINDI NGS GIVEN IN THE FORMER PART OF THIS ORDER SHALL APPLY MUTATIS MUTANDIS FOR THIS ASSES SMENT YEAR I.E. ASSESSMENT YEAR 2004 - 05 ALSO. 9 . IN THE RESULT, APPEAL S OF THE DEPARTMENT ARE DISMISSED. ( ORDER PRONOU N CED IN T HE OPEN COURT ON 04 /0 2 / 2015 ) . SD/ - SD/ - ( A. T. VA RK E Y ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04 / 0 2 / 2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR