ASSISTANT COMMISSIONER OF INCOME TAX Vs. NHPC LTD.

JUDGEMENT

(1.) 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: - -

(2.) 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.

(3.) 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. AR's contention was also that advance against depreciation was not meant for uncertain purpose and it was for a definite purpose that is under obligation, right from the inception, and it is going to be adjusted in the future. Therefore, it cannot be designated as a reserve. The assessee is a public sector undertaking engaged in the business of generation of power. The tariff for the power is determined by the Central Electricity Regulatory Commission (CERC) and accordingly assessee has to sell electricity to the various State Electricity Boards at the tariff rates notified by the CERC. This tariff is worked out on the basis of the cost of plant which consists of depreciation, interest on loans, operation and maintenance expenses and also a fixed return on equity. The CERC determines the tariff for power generating companies. These power generating companies were not in a position to repay the instalment of the loan for the borrowed loan for the purpose of setting up of power plant for generation of the electricity. To meet such crisis, the Central Government devised a mechanism to help power generating companies including the assessee to raise funds to meet its obligation of repayment of loan in time. By notification dated 26th May, 1997, these companies were permitted to collect an amount in advance in the years in which the normal depreciation (9096 of the original cost of the Plant spread equally over the useful life of Plant) otherwise allowed to be recovered was not sufficient to meet loan repayment schedule and called it "advance against depreciation". On the payment of the loan the advance so collected is to be adjusted from the normal depreciation allowable and included in the tariff of such later years and on this count, this issue arises how this advance received against future obligation is to be adjusted in the account of the assessee. The assessee company approached the Institute of Chartered Accountants of India (ICAI) for its opinion. The ICAI gave an opinion that it is in the nature of advance and should be shown as a liability in the balance sheet. The assessee company followed this accounting practice. However, the AO did not accept this contention and treated advance against depreciation as income while computing regular income as well as book profit. The assessee applied to the Authority for Advance Ruling. The Authority for Advance Ruling 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 Supreme Court vide its order dated 05.01.2010. The CIT(A) after taking into consideration the decision of Hon'ble Supreme Court held that advance against depreciation cannot be considered as income for the year under consideration. The relevant portion of the order of the CIT(A) read as under: - -