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2014 (9) TMI 1196 - AT - Income TaxTaxability of advance against depreciation (AAD) - Addition on account of advance against depreciation while computing regular income of the assessee - HELD THAT - As decided in own case 2014 (11) TMI 92 - ITAT DELHI 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 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 NATIONAL HYDROELECTRIC POWER CORPORATION LTD. VERSUS COMMISSIONER OF INCOME-TAX 2010 (1) TMI 281 - 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. Addition in the book profit while computing Minimum Alternate Tax liability under section 115JB on account of the tariff adjustments - ascertained liability - AO made this addition to the book profit as well as normal income - CIT- deleted the addition - HELD THAT - AO has added this amount considering the same as unascertained liability. In our considered view this contention of the AO is not correct. In fact it is not a liability at all. It is a reduction in the sale consequent to the rate being determined by the CERC which by the calculation done by the appellant company itself was required to be done. This view of ours gets further strengthened from the fact that the CERC approved tariff rates vide order dated 29th May 2006 and 31st May 2006 which resulted into further reduction by 18.74 Crores. Thus it cannot be said that the adjustment made by the appellant company was not correct or not bonafide. It is not the case of the AO that the rate proposed by the appellant company was different as compared to the rate which it has applied for the tariff adjustment. The contention of the AO that this liability has not crystallized is also not correct. The AO has not appreciated the facts in the right perspective while the CIT(A) has rightly appreciated the facts of this issue therefore we sustain the order of CIT (A). Addition to book profit on account of provision made for gratuity leave encashment and post retirement benefits - HELD THAT - As in assessee s own case in assessment year 2002-03 2010 (10) TMI 1022 - ITAT DELHI once the assessee is maintaining his accounts on mercantile system a liability accrued though to be discharged at a future date would be a proper deduction while working out the profits and gains of business regard being had to be accepted principles of commercial practice and accountancy. If the facts of the case are viewed in the light of the decisions referred to above we find that the provision made by the assessee in respect of gratuity leave encashment and post retirement medical benefit on actuarial basis cannot be said provisions for unascertained liability so as to fall in clause (c) of the Explanation to section 115-JB (2) of the Act. Accordingly the CIT (Appeals) and the assessing officer erred in holding the provisions made by the assessee were on account of unascertained liability to be added back under clause (c) of the Explanation to section 115-JB (2) of the Act. Accordingly we set aside the order of the authorities below and direct the assessing officer to allow the claim of the assessee. Addition on account of provision for doubtful debts - HELD THAT - AR was fair enough to concede that this issue is covered against the assessee in view of the retrospective amendment made by the Finance (No.2) Act 2009. Accordingly this ground of the department is allowed. Addition on account of amortization of land by addition to the book profit - MAT computation - HELD THAT - As decided in own case it is not the case of the Revenue here that the adjustment made by the AO is under Explanation to section 115J. The contention of the Revenue here is that land is not a depreciable asset and depreciation charged in the profit and loss account which is not in accordance with the provisions of the Companies Act read with Accounting Standard 6. As stated hereinabove the contention of the Revenue that the land in question of the assessee company is not a depreciable asset is factually incorrect and further as held by the Supreme Court no adjustment can be made to net profit as certified by the statutory auditors. Applicability of provisions of section 234B(2)(ii) read with section 140A - as contended by the Ld. DR that the CIT(A) was not justified in allowing the adjustment of the self assessment tax before deducting the same in respect of the interest liability arising under section 234B - HELD THAT - As decided in PATSON TRANSFORMERS LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX SPECIAL RANGE-VIII 2005 (11) TMI 388 - ITAT AHMEDABAD we are of the considered view that adjustment towards interest payable under section 234B is to be considered only at the time of filing return of income i.e. when payment of self-assessment under section 140A is required to be made. Before that interest under section 234B is independently required to be calculated only in accordance with the provisions provided in section 234B(i). If at the time of filing return it is found short payment after adjustment of interest out of tax paid under section 140A further interest is required to calculate in accordance with section 234B(2)(ii) on balance amount which is assessed tax minus advance tax and ad hoc payment. Thus we find that approach of revenue for calculation of interest under section 234B is not correct therefore the orders of lower authorities are set-aside and the claim of the assessee is allowed. The Assessing Officer is directed to calculate interest under section 234B as per above discussion
Issues Involved:
1. Addition of Rs. 1,31,75,00,000 on account of advance against depreciation. 2. Deletion of addition of Rs. 86,54,00,000 on account of tariff adjustments. 3. Deletion of addition of Rs. 26,94,93,951 on account of provision for gratuity, leave encashment, and post-retirement benefits. 4. Deletion of addition of Rs. 16,38,38,700 on account of provision for doubtful debts. 5. Deletion of addition of Rs. 97,65,000 on account of amortization of land. 6. Applicability of provisions of section 234B(2)(ii) read with section 140A of the Income Tax Act. Detailed Analysis: 1. Addition of Rs. 1,31,75,00,000 on Account of Advance Against Depreciation: The issue pertains to the addition made by the Assessing Officer (AO) on account of advance against depreciation (AAD). The Tribunal referenced a similar issue from preceding assessment years (2000-01, 2001-02, and 2003-04) and cited the Supreme Court's findings. The Supreme Court held that AAD is not a reserve but an amount under obligation to be adjusted in future years, thus it is a liability and not income. Consequently, the Tribunal allowed the assessee's appeal, confirming that AAD cannot be added to the computation of normal income. 2. Deletion of Addition of Rs. 86,54,00,000 on Account of Tariff Adjustments: The AO added Rs. 86.54 Crore to the book profit, considering it an unascertained liability. The CIT(A) deleted this addition, recognizing it as an ascertained liability based on CERC guidelines and the mercantile system of accounting. The Tribunal upheld the CIT(A)'s decision, noting that the reduction in sales was due to the tariff proposed by the assessee before CERC, which was lower than the previous period. The Tribunal emphasized that the adjustment was correct and bona fide, and the AO's contention was not justified. 3. Deletion of Addition of Rs. 26,94,93,951 on Account of Provision for Gratuity, Leave Encashment, and Post-Retirement Benefits: The CIT(A) deleted the addition made by the AO for provisions related to gratuity, leave encashment, and post-retirement benefits. The Tribunal referenced its own decision in the assessee's case for the assessment year 2002-03 and the Supreme Court's judgment in Bharat Earth Movers vs. CIT, which held that such provisions, when estimated on an actuarial basis, are not contingent liabilities but ascertained ones. Thus, the Tribunal dismissed this ground of the Revenue's appeal. 4. Deletion of Addition of Rs. 16,38,38,700 on Account of Provision for Doubtful Debts: The CIT(A) deleted the addition made by the AO for provisions related to doubtful debts. However, the Tribunal noted the retrospective amendment made by the Finance (No.2) Act, 2009, which disallows such provisions. Therefore, this ground of the department was allowed, reversing the CIT(A)'s decision. 5. Deletion of Addition of Rs. 97,65,000 on Account of Amortization of Land: The AO added Rs. 97.65 Lacs to the book profit, arguing that depreciation on land is not allowable. The CIT(A) deleted this addition, and the Tribunal upheld this decision. The Tribunal referenced its own decision in the assessee's case for the assessment year 2004-05, noting that the land in question was not owned by the assessee but was used for relief and rehabilitation purposes. The Tribunal emphasized that the accounts were audited and approved by statutory auditors and C&AG, and the AO has no jurisdiction to make adjustments beyond what is provided in the Explanation to section 115J. 6. Applicability of Provisions of Section 234B(2)(ii) Read with Section 140A: The CIT(A) reduced the interest charged under section 234B from Rs. 4,02,65,082 to Rs. 3,70,58,281, considering the self-assessment tax paid by the assessee. The Tribunal upheld the CIT(A)'s decision, referencing the ITAT's judgment in Patson Transformers Ltd. vs. CIT, which clarified that adjustments towards interest under section 234B should be made at the time of filing the return, not at the time of ad hoc payments. Conclusion: - The appeal in ITA No.2509/Del/2008 was allowed. - The appeal in ITA No. 2618/Del/2008 was partly allowed. - The appeal in ITA No. 3681/Del/2008 was dismissed. - The Tribunal upheld various decisions of the CIT(A) while reversing some based on retrospective amendments and existing legal precedents.
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