If the case, currently being heard before the appellate tribunal in Gujarat goes against it, IPCL may have to pay out arrears amounting to Rs 386.2 crore. The dispute has come to light for the first time after disclosure in the latest balance sheet.
IPCL executives said they were confident of a favourable verdict from the tribunal. We have a strong case. The commissioner of appeals has already given a verdict in our favour. We expect the same from the tribunal, said senior company sources.
The case relates to various interest payments made by IPCL on its borrowings over the previous years. The borrowings were made for implementing several of its previous projects.
Under Income-Tax rules, IPCL had two ways of treating this expenditure. It can either treat it as capital expenditure and obtain tax benefits, or capitalise it and obtain depreciation benefits on the amount paid.
The company's practice had been to treat it as business expenditure and avail of tax concessions. In this, we have the support of various high court and Supreme Court judgements, which have observed that if an existing company pays interest on borrowings made for projects which promote business and better profits, then such expenditure should be treated as business expenditure, IPCL officials said.