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TMI Blog2010 (1) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act. The entire shareholding of the assessee is with the Government of India. Its accounts are audited by the Comptroller and Auditor General of India. They are laid before both the Houses of Parliament. 5. The assessee is required to sell electricity to State Electricity Board(s), Discoms, etc., at tariff rates notified by the CERC. The tariff consists of depreciation, AAD, interest on loans, interest on working capital, operation and maintenance expenses, return on equity. 6. On May 26, 1997, the Government 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 which normal depreciation fell short of the original s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115JB of the 1961 Act which reads as under: "Explanation 1.-For the purposes of this section, `book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- . . . (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or . . . if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by,-" 10. We find merit in this civil appeal. On reading Explanation 1, quoted above, it is clear that to make an addition under clause (b) two conditions must be jointly satisfied: (a) There must be a debit of the amount to the profit and loss accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reduced to nil. In fact, schedule XII-A to the balance-sheet for 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 inbuilt 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 rulin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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