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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 487 & 488/JP/2018
PER BENCH:
These are two appeals filed by the Revenue against the order of ld. CIT(A)-2, Jaipur dated 25.01.2018 for A.Y. 2007-08 & 2009-10 respectively.
Firstly, a common ground has been taken by the Revenue in both the appeals challenging the action of the ld CIT(A) in deleting the disallowance on account of advance received against depreciation deferred.
2 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
At the outset, the ld. AR submitted that the matter is squarely covered by the recent decision of this Bench in assessee’s own case in ITA No. 1013/JP/2017 for AY 2008-09 dated 08.05.2018 and the facts and circumstances of the case are exactly identical, the said decision should therefore be followed in respect of both the impunged assessment years.
The relevant findings in ITA No. 1013/JP/2017 for AY 2008-09 dated 08.05.2018 are contained at para 9 to 11 of our order which are reproduced as under:-
“9. In order to appreciate the rival contentions, firstly, we refer the decision of Hon'ble Supreme Court in the case of NHPC Vs. CIT (Supra). In the facts before the Hon'ble Supreme Court, the assessee company was a public sector enterprise engaged in generation of electricity and selling the same to State Electricity Board(s), Discoms etc. at tariff rates notified by CERC. The tariff consists of depreciation, AAD, interest on loans, interest on working capital, operation and maintenance expenses, return on equity. As per the Government of India policy, notified on 26th May, 1997, the Govt. 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 original scheduled loan repayment installment (capped at 1/12th of the original loan) such shortfall would be collected as advance against future depreciation. In other words, once the loan stood repaid, the advance so collected would get reduce from the normal depreciation of the later years, as such reduced depreciation would be included in the tariff, in turn lowering the tariff. In that factual
3 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
background, the question for consideration before the Hon'ble Supreme Court was how to account for such an advance in the hands of assessee and further whether the reduction of AAD from sales was nothing but a reserve which has to be added back on the basis of clause (b) of explanation 1 to Section 115JB of the Act and the relevant findings of the Hon'ble Supreme Court are contained at para 11 and 12 of its order, which is reproduced as under: “11. Since the amount of 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 1 was not applicable. Further, "reserve" as contemplated by clause (b) of Explanation 1 to section 115JB of the 1961 Act is required to be carried through the profit and loss account. At this stage, it may be stated that there are broadly two types of reserves, viz., those that are routed through the profit and loss account and those which are not carried via the profit and loss account, for example, a capital reserve such as share premium account. AAD is not a reserve. It is not an appropriation of profits. 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 the 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 XII-A to the balance-sheet for the financial years 2004-
4 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
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 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.
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 ruling is set aside and the civil appeal filed by the assessee stands allowed with no order as to costs.”
Further, we refer to the decision of the Coordinate Bench in the case of ACIT Vs. NHPC (in ITA No. 3013 to 3015/Del/2010 order dated September, 20, 2014), the issue for consideration before the Coordinate Bench was whether the ld. CIT(A) was right in law in deleting the addition of Rs. 1,40,58,00,000/- made by the Assessing Officer U/s 143(3) on account of advance against deprecation ignoring the provisions of Section 2(24) read with Section 28 of the Act. The Coordinate Bench relying on the decision of the Hon'ble Supreme Court in the case of NHPC Vs. CIT (supra) has held that advance against depreciation cannot be added under the computation of the normal income. The relevant findings of the Coordinate Bench are contained at Para 5 of its order, which is reproduced 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.
5 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
The 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 the 1961 Act is required to be carried through the profit and loss account. At this stage it may be stated that there are broadly two types of reserves, viz, those that are routed through profit and loss account and those which are not carried via profit and loss account, for example, a Capital Reserve such as Share reserve. It is not appropriation of profits. 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. As stated above, at the end of the life of the Plant, AAD will be reduced to nil. In fact, Schedule XII-A 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
6 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
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 is nothing but an adjustment by reducing the normal depreciation including in the future years in such a manner that at the end of the useful life of the plant the same shall be reduced to nil. The Hon'ble Supreme Court has also held that assessee cannot use the advance against depreciation for any other purposes except to adjust the same against future depreciation so as to reduce the tariff in future years. For this, the relevant observation of the Hon'ble Supreme Court is that there are broadly two types of reserves, viz., those that are routed through profit and 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
7 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
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. One which is created out of profit and another which are capital reserve such as Share Premium Account. It has held that AAD is not a reserve created out of profit since AAD is not income but a liability. If the contention of the Revenue as is being argued is taken to the logical conclusion, then AAD will be income and hence part of Profit and Loss Account. The liability created will be a "reserve" by debit to the profit and loss account. The Supreme Court has categorically held that AAD is not a "reserve". Once AAD is considered as income as is being alleged by Revenue the obvious implication will be that such income in 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
8 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
(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 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.”
We have heard the rival contentions of both the parties and perused the material available on the record. We find that the facts of the present case are pari-materia to the facts before the Hon’ble Supreme Court as well as before the Coordinate Bench referred supra and the latter decision has been rendered in the context of taxability of Advance against depreciation under the normal provisions of the Act. The ld CIT(A) has rightly followed the ratio laid down in the said decisions. We donot find any infirmity in the order of the ld CIT(A) and the same is hereby confirmed. The ground taken by the Revenue is thus dismissed.”
In light of above, given that there are no changes in the facts and circumstances of the case, we do not see any infirmity in the order of ld. CIT(A) who has followed the decision of Hon’ble Supreme Court in case of National Hydro Electric Power Corporation Ltd. vs. CIT 320 ITR 374 as well as the decision of the Co-ordinate Bench in case of ACIT vs. NHPC Ltd. 67 SOT 130 and the fact that the same is covered by our own decision referred supra.
9 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur
In the result, the sole ground of appeal in ITA No. 487-JP-2018 and ground No. 1 in ITA No. 488-JP-2018 of the Revenue’s appeal is hereby dismissed.
In ITA No. 488-JP-2018, the ground Nos. 2 and 3 taken by the Revenue reads as under:-
“(ii) Whether on the facts and circumstances of the case and in law the ld. CIT(A) was justified in deleting the disallowance of Rs. 49,87,507/- made for depositing the employees’ contribution to PF & ESI beyond the prescribed time limit provided in the respective Acts.
(iii) Whether on the facts and circumstances of the case, and in law the ld. CIT(A) was justified in holding that the employee’s contribution to PF & ESI are governed by the provisions of Section 43B and not by section 36(1)(va) r.w.s 2(24)(x) of the Income Tax Act, 1961.”
The ld. CIT(A) has returned a finding that contribution to PF and ESI has been paid before the due date of filing of return of income under section 139(1) of the Act. The said findings remain uncontroverted before us. Following the decisions of the Hon’ble Rajasthan High Court in case of Jaipur Vidyut Vitran Nigam ltd 265 CTR 62 and Udaipur Dugdh Utpadak Sahakari Sangh Ltd 265 CTR 59, he has allowed the claim of the assessee. We do not find any infirmity in the order of the ld. CIT(A) who, following the decisions of the Hon’ble Rajasthan High Court referred supra, has directed the deletion of
10 ITA. No. 487 & 488/JP/2018 DCIT, Jaipur vs. M/s Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Jaipur disallowance so made by the AO. In the result, the grounds taken by the Revenue are dismissed.
In the result, both the appeals filed by the Revenue are dismissed. Order pronounced in the open Court on 01/06/2018.
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