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TMI Blog2018 (5) TMI 2186X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) was justified in deleting the addition of Rs. 1,76,88,00,000/- made on account of advance received against depreciation deferred." 2. Regarding grounds No. 1 and 2 of the Revenue's appeal, following the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Jaipur Vidyut Vitran Nigam Ltd. 98 DTR 105 (Raj) and Ors, the ld. CIT(A) has given his findings which are as under: "3.4 From the above decisions, it is clear that payment or contribution made to the provident fund authority any time before filing of the return for the year in which the liability to pay accrued is an allowable expenditure. Likewise, in the present case, the employees' contribution was deposited by the appellant before due date for filing of return of income, therefore, in view off the decision of the Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd (supra) and decision of the Hon'ble Delhi High Court in the case of CIT vs. Aimil Ltd & Ors (supra), the payments made before due date for filing of return of income are allowable. The AO is directed to verify the dates of payment of employee's contribution towards PF and ESI and delete the addition made on this account if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case 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 reference to adjustment of book profit U/s 115JB has held that the amount of AAD received through tariff is an obligation to be adjusted in future so as to reduce the tariff in the future years. It is a timing difference. It is only the income received in advance. It was accordingly submitted that the Hon'ble Supreme Court has held that the amount of AAD is income 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 future years when such AAD is transferred to income. Further, reliance was placed on the decision of Hon'ble 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 structure of Power Companies needs to be understood. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the year same is reduced and shown as liability. The assessee company has reduced the amount by stating that the excess depreciation charged in tariff is to be reversed in subsequent year. In view of the above discussion the contention of the assessee is not acceptable on account of the following reasons: - (i) The assessee has relied on the decision of the Hon'ble Supreme Court in the case of National Hydro Electric Power Corporation 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 under the normal provisions of computation as per Income Tax Act, 1961 not the book profit u/s 115JB as per the Company's Act. In this case Hon'ble Apex Court has dealt with the issue relating to reserves and not with the issue of revenue of the current year or subsequent year. Hence, the facts of the case dealt by the Apex Court are entirely different from the facts of the assessee company. (ii) Opinion of ICAI has also been considered. ICAI has opined that where revenue or part thereof received / receivable, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company has reduced the AAD amount from its revenue and shown reduced income. The discoms (JVVNL, JDVVNL, AVVNL) who are paying the power purchase charges are claiming the entire amount including AAD as expenditure. Thus, assessee company in its hand is treating the AAD amount as advance revenue whereas the power purchasing company is claiming 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 the accounting principles. Based on the above reasons the contention of the assessee is not acceptable and the treatment of revenue from sale of power to discoms amounting to Rs. 176,88,00,000/- as advance against depreciation deferred by the assessee is disallowed. Thus, addition 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 assessee 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 SO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present appeal is taxability of AAD under the normal provisions of the Act. 8. Per contra, the ld. AR of the assessee has submitted that the matter is squarely covered by the decision of the Hon'ble Supreme Court in the case of National Hydro Electric Power Corporation Ltd. Vs. CIT (supra) as well as the subsequent decision of the Coordinate Bench in case of NHPC (supra), which has rightly been followed by the ld. CIT(A). Accordingly, he supported the findings of the ld CIT(A). Further, the 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 regulated and determined by Rajasthan State Electricity Regulatory Commission (RERC). RERC fix the tariff rate on the basis of cost incurred by the assessee. Power plants are installed by the assessee co. by raising the loan fund. The life of power plant is estimated around 20 years whereas repayment 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out adjustment of AAD in subsequent year tariff, no adverse inference can be drawn. 2. The assessee has shown Deferred revenue on account 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 year 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 the AAD would be reversed in the subsequent year and therefore the opinion of the ICAI is not acceptable is without appreciating the nature of receipt peculiar to the electricity companies. 3. The Expert Advisory Committee of ICAI has also given its opinion on the accounting treatment of AAD recovered through the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 by the other as a fixed asset it would not be an expenditure in the hands of the purchaser. Therefore, only because the other party has claimed the expenditure, it necessarily would not become the income of the assessee of that year. 9. In order to appreciate the rival contentions, firstly, we refer the decision of Hon'ble Supreme Court in the case of NHPC 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), Discoms etc. at tariff rates notified by CERC. The tariff consists of depreciation, AAD, interest on loans, interest on working capital, operation and maintenance expenses, return on equity. As per the Government of India policy, notified on 26th May, 1997, the Govt. of India introduced a mechanism to generate additional cash flow by allowing generating companies to collect AAD by way of tariff charge. It was decided that the year in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 mechanism notified on May 26, 1997. This adjustment may take place over a long period of time. Hence, we are of the view that AAD is not a reserve. 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 section 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 Coordinate 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 in law in deleting the addition of Rs. 1,40,58,00,000/- made by the Assessing Officer U/s 143(3) on account of advance against deprecation ignoring the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. 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. 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 the 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 Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 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 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 the future years." In view of the categorical finding 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." 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 Hon'ble Supreme Court as well as before the Coordinate Bench referred supra and the latter decision has been rendered in the context of taxability of Advance against depreciation under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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