These appeals are filed by the assessee challenging the common order dated 03.07.2009 passed by the Income Tax Appellate Tribunal, “B” Bench, Bangalore (‘Tribunal’ for short) under Section 260-A of the Income Tax Act, 1961 (the ‘Act’ for short) relating to the assessment years 2005-06 to 2007-08.

2. Facts in brief are :

The appellant is an undertaking of the Government of Karnataka engaged in power transmission. The appellant purchases electricity from various parties by entering into power purchase agreements. For such purchases, when payment of purchase price is delayed, the agreements provide for payment of interest to suppliers of electricity by the appellant. During the assessment years i.e., 2005-06, 2006-07 and 2007-08 in question, the appellant had created provisions for a sum of Rs.17,65,75,903/-, Rs.12,40,70,972/- and Rs.5,74,39,557/- respectively for contingent payment of interest on belated payments to its suppliers. For the first two years, the appellants in their profit and loss account treated the said amount of provision as expenditure to arrive at the profit. However, in the returns of income filed for the assessment year 2005-06 and 2006-07, the appellant did not treat the said amount of provision towards contingent interest payable as expenditure instead, it arrived at the taxable income without excluding such amounts of provision towards such interest. However, as these amount of provision created by book entries towards contingent interest payable for assessment years 2005-06 and 2006-07, a corresponding reversal entries were made in the books of accounts during the financial year 2007, indicating that the subject amounts of provision towards contingent interest would never be paid.

3. In respect of financial year ending on 31.03.2007, a similar provision towards contingent interest payable on belated payments were created but at the end of the year, the said amount though treated as expenditure in the profit and loss account was not excluded to arrive at the taxable income in the return of income filed for the year 2007-08. The TDS Officer invoked the provisions of Section 194(A)(1) read with explanation appended to the said Section, held that the appellant should have deducted tax at source on the amount of provision made towards likely interest payable in respect of related purchase payments and held the appellant as an assessee in default and further, invoked the provisions of Section 201(1) and 201(1A) of the Act Accordingly, orders under Section 201(1) and Section 201(1A) of the Act for the assessment years in question were passed.

4. On appeal by the assessee before the Appellate Commissioner, the same was confirmed against which appeals were filed by the assessee before the Tribunal. All the three appeals filed by the assessee were considered together and disposed off by a common order, dismissing the appeals, confirming the orders passed by the Authorities. Being aggrieved by the said common order passed by the Tribunal for the assessment years in question, the assessee is before this Court. The matter was admitted on 20.11.2009 to consider the following substantial questions of law :-

“1. Whether in law, the Appellate Tribunal was justified in ignoring the evidence and submissions of the appellant with regard to mutual agreement between the appellant and the suppliers of power not to enforce the interest clause in the Power Purchase Agreement and thereby the appellant had no obligation to pay interest and consequently, had no obligation to deduct tax at source under Section 194-A of the Act.

2. Whether in law, the Tribunal was justified in upholding the levy of tax u/S 201(1) and the interest u/S 201(1A) when the bonafides of the appellant had been proved for the non-deduction of tax at source if any u/s 194-A of the Act?”

5. Heard Sri Gurunathan, learned counsel appearing for the appell