Judgment :-

S.H. Kapadia, J.

Leave granted.

2. In this civil appeal filed by the assessee we are concerned with accounting treatment of Advance Against Depreciation ("AAD", for short).

3. We are concerned with assessment year 2001-02.

4. Assessee is a public sector enterprise registered under the Companies Act, 1956. Its accounts are prepared in accordance with Parts II and III of Schedule VI to the Companies Act. The entire shareholding of the assessee is with Government of India. Its accounts are audited by Comptroller and Auditor General of India. They are laid before both the Houses of Parliament.

5. Assessee is required to sell electricity 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 Express, Return on equity.

6. On 26.5.97, GOI 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