KILARA POWER PVT. LTD. Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2007-08. The appeal was admitted by a bench of this Court vide order dated 14.11.2014 on the following substantial question of law:

(2.) Facts leading to filing of this appeal briefly stated are that the assessee is a company engaged in the business of generation of power. According to the assessee, it continuously ran into losses since its inception and borrowed an amount from Indian Renewable Energy Development Agency (IREDA). However, the assessee neither repaid the principle nor the interest. The total interest, which was payable in the Assessment Year 2007-08 was Rs.3.59 Crores. For the year ending 31.03.2007, the assessee entered into One Time Settlement (OTS) with IREDA under which entire interest as well as a part of principle amount was also waived by the IREDA. The total amount of interest waived by the IREDA under the One Time Settlement for the year ending 31.03.2007 was Rs.3,59,58,370/-. The assessee in the profit and loss account for the Assessment Year 2007-08 credited a sum of Rs.3,59,58,370/- being the amount of interest waived by IREDA. However, while preparing the return of income, the assessee excluded the amount as no part of such interest had even been allowed in any prior Assessment Year and provisions of Section 41(1) of the Act were not attracted. The Assessing Officer by an order dated 29.12.2009 inter alia included an amount of Rs.3,59,58,370/- in the book profits for levying tax under Section 115JB of the Act and negatived the plea of the assessee that the sum was deductible in full under Explanation to Section 115JB(2) of the Act.

(3.) The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 26.02.2013 affirmed by the order passed by the Assessing Officer. The assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by order dated 11.04.2014 inter alia held that no provision can be made for an ascertained liability and therefore no provision was made by the assessee for interest payable and waiver of interest by IREDA cannot be considered as withdrawal of the provision and cannot be reduced from the book profit as contended by the assessee. However, it was held that only a sum of Rs.1.08 Crores should be considered as waiver of interest and part of book profit as interest payable for pre-commencement period was capitalized, the aforesaid contention needs examination, therefore, the matter was remitted to the Assessing Officer. Accordingly, the appeal was partly allowed. In the aforesaid factual background, the assessee has filed this appeal.