TMI Blog2010 (1) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... as possible in the case of a reserve) except to adjust it against future depreciation so as to reduce the tariff in the future years. The AAD was an income received in advance. It was a timing difference. Therefore, clause (b) of Explanation 1 to section 115JB (2) of the act was not applicable to AAD. - 6/10 - - - Dated:- 5-1-2010 - KAPADIA S. H. and AFTAB ALAM JJ. Judgment: S. H. Kapadia J.- Leave granted. 2. In this civil appeal filed by the assessee we are concerned with the accounting treatment of Advance Against Depreciation ("AAD", for short). 3. We are concerned with the assessment year 2001-02. 4. The assessee is a public sector enterprise registered under the Companies Act, 1956. Its accounts are pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able nor adjustable against the future bills; that, the sale price (which includes AAD) was shown as "sales" in the profit and loss account; that, it was received in terms of the invoice raised by the assessee and, therefore, it was "income" in the year of receipt. However, according to the AAR, when it came to computation of book profit, the assessee deducted the AAD component from the total sale price and only the balance amount net of the AAD was taken into the profit and loss account and book profit. Consequently, the AAR ruled (which is challenged herein) that reduction of the AAD from the "sales" was nothing but a reserve which has to be added back on the basis of clause (b) of Explanation 1 to section 115JB of the Income-tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account, for example, 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 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 the 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 to reduce the tariff in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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