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TMI Blog2014 (9) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... thority for Advance Ruling. 3. The appellant craves leave to add, amend or alter any of the grounds of appeal. The only effective ground taken by the assessee is against confirming the addition made by the Assessing Officer of Rs. 1,31,75,00,000/- on account of advance against depreciation while computing regular income of the assessee. 1.1 A similar issue has come up in the preceding assessment year i.e. 2000-01, 2001-02 and 2003-04 being ITA Nos. 3013, 3014, 3015/Del/2010 wherein we have held as under:- "5. After hearing both the sides on the issue and considering the decisions of Hon'ble Supreme Court, we decide the issue as under. Hon'ble Supreme Court has given finding after considering the observation of the Authority for Advance Ruling in para 11 which is reproduced as under :- "11. Since the amount of "advance against depreciation" (AAD) is reduced from sales, there is no debit in the profit and loss account. The amount did not enter the stream of income for the purposes of determination of net profit at all, , hence clause (b) of Explanation-I was not applicable. Further, "reserve" as contemplated by clause (b) of the Explanation-I to Section 115JB of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd loss account and those which are not carried vide profit and loss account, for example, a Capital Reserve such as Share Premium Account, advance against depreciation is not a reserve and it is not appropriation of profits. The above findings by the Supreme Court are clear and decide the issue. It has been held that AAD is not appropriation of profit meaning thereby AAD is not taken out of profit. That it is not a deduction out of profit. The Supreme Court has further held that AAD is an amount that is under obligation, right from the inception. Thus it is a liability and hence not income. When an amount is received by a person from another person, it can have two nature. It can be income. If so it has to be taken to the profit and loss account and from profit and loss account it goes to the balance sheet as reserve. Alternatively it is a liability and straight away goes to the balance sheet under the head 'liability' not under the head 'reserve'. The Supreme Court has categorically held that it is an amount that is under obligation right from the inception. The Supreme Court has further gone to analyse the nature of "reserve". It has held that there are two types of reserves. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 86,54,00,000/- made by the Assessing Officer in normal income as well as book profit computed u/s 115JB on account of tariff adjustments by holding the liability was an ascertained liability disregarding the fact that later on, the CERC actually approved the Tariff rates which were different from the rates proposed by the assessee and the quantification of adjustment of tariff rates was made by the assessee on the basis of tariff rates proposed by it, and as such the liability was evidently not an ascertained liability during the year under consideration?" 2. "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in deleting the addition of Rs. 26,94,93,951/- made by the Assessing Officer in computing the book profit u/s 115JB in respect of provision made for gratuity, leave encashment and post retirement benefits? 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in deleting the addition of Rs. 16,38,38,700/- made by the Assessing Officer in computing the book profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany filed with CERC tariff to the application for the period 2004-09 for their necessary order. Proposed tariff applicable for F/y 2004-05 was lower than tariff for F/y 2003-04 whereas assessee claimed/bill power sold at the tariff applicable for FY 2003-04. Since lower tariff rates was proposed for F.Y. 2004-05, necessary tariff adjustment was made in the Annual Sales Project-wise amount of tariff adjustment is as under": S. No. Projects Rs. In Lacs 1. Uri 6845.20 2. Chamera-I 139.75 3. Rangit 1668.99 Total 8653.94 ====== The assessee company filed the petition for tariff adjustment on 25.4.2005 with CERC for F/y 2004-05 as per which the tariff adjustment has been quantified at Rs. 86.54 Crore. This quantification has been made by applying a tariff rate which the assessee company has recommended to CERC. However, the CERC has to take its own decision in respect of the tariff rate. The CERC approved the tariff rates vide its order dated 29.05.2006 & 31.5.2006 (copy placed on the file) in respect of tariff adjustment which are different from the Tariff rates proposed by the assessee company. So, this liability is not ascertain o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this is an ascertained liability. The assessee has reduced sales on the basis of the estimated rates and accordingly the same cannot be allowed as deduction while computing income. 3.4 As against, the Ld. AR has contended that only the real income can be assessed to tax. It is an admitted fact that the tariff rate application submitted by the assessee has proposed rate lower than the rates in the preceding block. Consequently the appellant company was justified in recognizing income on the basis of the tariff rate as proposed by it in the application before the CERC since in any case it cannot get any tariff rate over and above the rate which it had proposed before the CERC. In this regard he invited our attention to the fact that CERC tariff rates ultimately approved were lower than the demand by the appellant company in the application and a further deduction of Rs. 18.74 Crore was allowed over and above what has been computed by the appellant company. It was further submitted that the accounts of the appellant company have been audited by the statutory auditors as well as C&AG and there has been no adverse comment about the accounting of the income by these auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight perspective while the CIT(A) has rightly appreciated the facts of this issue, therefore, we sustain the order of CIT (A). 4. Ground No.2 is regarding deleting addition to book profit of Rs. 26,94,93,951/- on account of provision made for gratuity, leave encashment and post retirement benefits. 4.1 In this regard it has been submitted by the Ld. AR that the issue is covered by the judgment of the ITAT in assessee's own case for assessment year 2002-03 in ITA No. 1105/Del/2006. 4.2 Further the Ld. AR has placed reliance on the following judgments:- (i) Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (SC) (ii) DCIT vs. Lumax Ind. Ltd. (Del-Trib) (iii) ACIT vs. Jaiprakash Hydro Power Ltd. (Chd-Trib) ITA No. 592/Chd/2012 dt. 11.6.2013 (iv) Gujarat State Fertilizer & Chemical Ltd. vs. DCIT (Ahm), ITA No. 401/Ahd/2010, dt. 21.6.2013 (v) Relying on the judgment of Metal Box Company of India Ltd. (1969) 73 ITR 53 (SC) 4.3 We notice that in assessee's own case in assessment year 2002-03 in ITA No. 1105/Del/2006, the ITAT has held as under:- "24. We have heard both the parties and perused the material available on record. In this case the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Echjay Forgings P. Ltd. (supra) has held that where the assessee has made a provision for gratuity on the basis of actuarial calculations, it cannot be said that provision for gratuity was not ascertained liability. Likewise in the case of Vinitech Corp. P. Ltd. (supra) Hon'ble jurisdictional High Court has held that where a liability which was capable of being construed in definite terms, which had arisen in the accounting year, although its actual quantification and discharge might be deferred to a future date. 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 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. The Supreme Court has further held that the AO while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section (115J). The Supreme Court has further went on to hold "To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J". 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law of M/s Patson Transformers Ltd. vs. Deputy Commissioner of Income-tax, Special Range - VIII (2006) 6 SOT 673 (Ahd) is also enclosed in support of our claim. From the above your goodself will kindly conclude that interest U/s 234B has been excess charged by Rs. 32,06,801/- (Rs. 4,02,65,082/- - 3,70,58,281/-). It is further submitted that in the similar facts, it has been held in the case of M/s Patson Transformers Ltd. vs. DCIT (2006) 6 SOT 673 (AHB) "the adjustment towards interest payable under section 234B(21) is to be considered only at the time of filing return of income, i.e. when payment of self-assessment tax 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(2)(i). If at the time of filing return it is found short after adjustment of interest out of tax paid under section 140A, further interest is required to be calculated in accordance with section 234B(2)(ii), on balance amount which is assessed tax minus advance tax and ad hoc payment." In view of above, it is requested that interest charged u/s 234B be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable. 234B. Interest for defaults in payment of advance tax.-(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax, or where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one-fourth per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1.-In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 or on regular assessment as reduced by the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary. For proper implementation of the new scheme of assessment, it is necessary that the assessees should also pay interest due under the provisions of the new sections 234A to 234C along with the self-assessment tax before filing the return of income. The Amending Act, 1987, has, therefore, amended sub-section (1) of section 140A to make it mandatory for a person to pay before furnishing the return, tax together with interest payable under any provisions of the Act for delay in furnishing the return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with the return. Further, an Explanation has been inserted in the said sub-section (1) to clarify that where the assessee pays only part of the amount due at the time of filing the return, such payment shall first be adjusted towards the interest payable, and balance, if any, shall be adjusted towards the tax payable. 11. Section 234B and section 140A both are separate and independent sections of the Act, section 234B(1) provides general situation of calculation of interest. The period for which interest under this section leviable is from the 1st day of April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income, the calculation of tax payable under section 140A comes to Rs. 33,39,956 of which details is reproduced in para Nos. 5 and 5.1. The assessee deposited following ad hoc amount before filing the return : Date Amount 29-9-1992 Rs. 33,00,000 29-9-1992 Rs. 39,956 Rs. 33,39,956 13. At the time of filing return of income, Explanation to section 140A is required to consider. The newly inserted (with effect from 1-4-1989) Explanation to section 140A(1) takes care of a situation where the amount paid by the assessee under section 140A(1) falls short of the aggregate of the tax and interest as mentioned therein. In such a situation, the amount, so paid is first to be adjusted towards the interest payable and the balance, if any, is to be adjusted towards the tax payable. In the instant case, adjustment is required to be made is as under :- The total amount deposited by the Assessee Rs. 33,39,956 Less : First adjustment towards interest Under section 234B Rs. 4,03,240 Under section 234C Rs. 1,78,280 (undisputed) Rs. 5,81,520 Balance adjustable against tax amount Rs. 27,58,436 Amount of tax payable under section 140 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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