Interest Payable on Disputed Liability Settlement Not Considered as Exceptional Items
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- By Taxmann
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- Last Updated on 10 July, 2024
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A Limited enters into partnership with B Limited for the construction of airport line. As per the partnership deed, B limited was to operate the airport line for 30 years and thereafter handover it to A limited. After the commencement of commercial operation of the airport line, there arose conflict among the partners. This conflict led B Limited to serve notice to A Limited on 30.06.2011, conveying that they intends to stop the operation of airport line. The board of A Limited considered such termination notice as unlawful and hence sued B Limited. They also took complete control over the operation and maintenance of airport line.
The trail ran over the years and finally on 01.01.2022 the court’s verdict came in favour of A Limited. The court concluded that termination notice served by B Limited was valid and within the terms of partnership deed. Thus, after considering all the financial data, the court ordered A Limited to pay an amount of 2500 crore along with interest w.e.f 30.06.2011. On receipt of court order, A Limited recognised the interest payable arising on termination payment for the period 01.07.2011 to 31.03.2022 in the Statement of Profit and Loss under the head “Exceptional Items” for the financial year ended 31.03.2022.
Some management personnel of A Limited were not in agreement with the accounting treatment of interest payable and hence reached to the Expert Advisory Committee (EAC) of ICAI for opinion. To understand EAC opinion on the aforesaid matter and appropriate accounting of interest payable arising from disputed liability.
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