2020 (11) TMI 347 - HC - Income Tax

MAT computation - profits chargeable to tax u/s 115JB - Assessee showed the outstanding interest as credit to profit and loss account because of waiver of interest on account of One Time Settlement - as submitted outstanding interest amount was not shown as either as reserve or provision and it was shown as liability and even the corresponding debits in the earlier years were not added back - Tribunal has held that the AO on perusal of the balance sheets as on 31.03.2006 and 31.03.2007 has held that amount of interest has neither been shown as reserve nor provision anywhere but the same has been shown in Schedule C as a liability - HELD THAT - No provision can be made for ascertained liability and therefore, no provision has been made by the assessee for interest payable and therefore, waiver of interest by IREDA cannot be considered as withdrawal of provision and cannot be reduced from the book profit. As held that the contention of the assessee that a sum should be considered as waiver of interest and part of book profit as interest payable for pre commencement period, needs examination and therefore, the matter was remitted for adjudication in accordance with law. The aforesaid findings by all the authorities under the Act are based on meticulous appreciation of evidence on record and does not suffer from any perversity warranting interference of this court in this appeal. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the assessee

Summary

Issues:
1. Interpretation of Section 115JB of the Income Tax Act, 1961 regarding reduction from book profit.
2. Treatment of interest waiver by Indian Renewable Energy Development Agency (IREDA) in the profit and loss account.
3. Assessment of provisions made for meeting liabilities under Section 115JB.

Issue 1 - Interpretation of Section 115JB:
The appeal under Section 260A of the Income Tax Act, 1961 involves the interpretation of Section 115JB regarding the reduction from book profit for the Assessment Year 2007-08. The primary question raised was whether a specific amount should be reduced from the book profit of the appellant company under Section 115JB. The appellant contended that the interest waived by IREDA should be considered for reduction under the Act, while the revenue argued that no provision was created, and hence, no adjustment could be made unless specific conditions were met as per the Act.

Issue 2 - Treatment of Interest Waiver:
The case revolved around the treatment of interest waiver by IREDA in the profit and loss account of the appellant company. The appellant claimed that the interest waived by IREDA should be excluded from the book profit as it was not allowed in any prior assessment year. However, the authorities held that no provision was made for the interest payable, and the waiver by IREDA could not be considered as withdrawal of provision. The matter was remitted for further examination to determine the exact amount eligible for reduction.

Issue 3 - Assessment of Provisions for Liabilities:
The crux of the issue was the assessment of provisions made for meeting liabilities under Section 115JB. The Assessing Officer, Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal analyzed the balance sheets and schedules of the appellant company to determine if the conditions for reduction from book profit were met. They concluded that since no provision was created or made for the interest payable, the question of reduction did not arise. The authorities meticulously examined the evidence on record and found no perversity warranting interference in the appeal.

In conclusion, the High Court dismissed the appeal, ruling against the appellant and in favor of the revenue. The judgment extensively analyzed the provisions of Section 115JB, the treatment of interest waiver, and the assessment of provisions made for meeting liabilities, ultimately upholding the decisions of the lower authorities based on a thorough evaluation of the facts and legal principles involved.