ADVANCE AGAINST DEPRECIATION IS NOT RESERVE, RULES SC

The Supreme Court has held that Advance Against Depreciation (AAD) is ‘income received in advance’ subject to adjustment in future for Income Tax purposes and not ‘reserve’. Allowing the appeal in the case of National Hydroelectric Power Corporation vs. Commissioner of Income Tax, the Supreme Court explained that AAD is a ’timing difference’ and it is not carried through profit and loss account. Therefore, Section 115JB, clause (b) of the Act is not applicable. The court further stated that since the amount of AAD is reduced from the sale of electricity, there is no debit in the profit and loss account. The amount did not enter the stream of income for determination of net
profit at all.