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TMI Blog2014 (11) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... n’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. – Decided against revenue. - ITA No.3013/Del./2010, ITA No.3014/Del./2010, ITA No.3015/Del./2010 - - - Dated:- 30-9-2014 - SHRI B.C. MEENA And SHRI C.M. GARG, JJ. For The Assessee : Shri Ved Jain Ms. Rano Jain, CAs For The Revenue : Shri Sunil Bajpai, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : The bunch of these three appeals filed by revenue emanates from the common order of CIT (Appeals), Faridabad dated 05.04.2010 for three Assessment Years and in all these appeals, the common issue involved is with regard to the taxability of advance against depreciation (AAD). The grounds of appeal are common except difference in figure of addition. The grounds of appeal in ITA No.3013/Del/2020 for Assessment Year 2000-01 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 ₹ 1,40,58,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tariff, in turn lowering the tariff. 3. In the first round of appeal, the ITAT in its order dated 11.01.2008 for the assessment years 2000-01 and 2001-02 has restored the issue to the file of the CIT(A) on the issue of advance against depreciation. Similarly, the issue on account of advance against depreciation was restored to the CIT (A) in Assessment Year 2003-04 vide ITAT order dated 09.02.2009. The CIT (A) has deleted the addition by passing a common order dated 05.04.2010, against which the revenue is in appeal. As per revenue s contention, advance against depreciation is an income to be taxed under the year under consideration. 4. Ld. DR submitted that the issue before the Hon'ble Supreme Court was with reference to the addition while computing the profit u/s 115JB of the Income-tax Act, 1961, hence same cannot be applied while computing the income under the regular provisions of Income-tax Act, 1961. Hon'ble Supreme Court, in assessee s case, has held that advance against depreciation is not a reserve and also it is not an appropriation of profit, hence, the same cannot be added while computing the income under the regular provisions of the Income Tax Act. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing decided vide its order dated 17th December, 2004 that the advance against depreciation is to be added to the book profit while determining Minimum Alternate Tax liability under section 115JB of the Act. Against this order of the Authority for Advance Ruling, the assessee filed a Special Leave Petition before the Hon ble Supreme Court. The assessee also filed appeals against the order of the Assessing Officer before the CIT(A). the CIT (A) confirmed the order of the Assessing Officer in its order dated 31.03.2005 in so far as the addition to the book profit made for the purpose of Minimum Alternate Tax. The CIT(A), however, did not decide the issue regarding addition made while computing the income under the regular provisions of the Act. Against this, the assessee came in appeal before the ITAT and contended that the CIT(A) has not decided the issue of taxing advance against depreciation while computing regular income as under the regular provisions of Income-tax Act, 1961. The ITAT set aside the issue to the file of CIT (A) vide its order dated 11th January, 2009 for assessment years 2000-01 and 2001-02. Meanwhile, the SLP filed by the assessee was decided by Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith clause (b) of Explanation I to section 115JB of the Income Tax Act, 1961, finally concluded vide its para 11 that since the amount of AAD is reduced from sales and did not enter the stream of income for the purposes of determination of net profit at all, hence the clause (b) of Explanation I to section 115JB of the 1961 Act was not applicable. Further, the Apex Court held that the AAD is not a reserve, not appropriation of profits and not meant for an uncertain purpose and it is an amount that is under obligation, right from the inception to get adjusted in the future and hence it cannot be designated as a reserve . At the most, the AAD is income received in advance and it is a timing difference that represents adjustment in future which is inbuilt in the mechanism notified on 26-05-1997. Hence the clause (b) of Explanation I to section 115JB is inapplicable and hence the AAD could not be added as adjustment under the provisions of section 115JB for the purposes of computation of book profit. 5. I have given a deep thought to the above ruling of the Hon ble Supreme Court on the issue of AAD for the purposes of section 115JB. Although the decision of the Ld. Apex Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. As stated above, at the end of the life of the Plant, AAD will be reduced to nil. In fact, Schedule XIIA to the balance sheet for the 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 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. Hon'ble Supreme Court has also held that advance against depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 futu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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