ITO 23 (1)(2), MUMBAI vs. ISARC-SIDBI-2/2009-10 TRUST, MUMBAI

Per Bench : The captioned appeals filed by the revenue in the case of the aforementioned assessee‟s are directed against the respective orders passed by the CIT(A)-32, Mumbai, each dated 30.11.2018, which in turn arises from the respective assessment orders passed by the A.O under Sec. 143(3) of the Income Tax Act 1961 (for short „Act‟). As common issues are involved in the aforementioned appeals, the same therefore are being taken up and disposed off together by way of a consolidated order. We shall take up the appeal of the revenue in as the lead case. The revenue has assailed the impugned order on the following grounds of appeal before us:

(c) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact of the Circular, No. 13/2014, in which board has clarified that the trusts which are non-charitable trusts where the investors name and beneficial interest are not explicitly known on the date of its creation - such information becoming available only when the funds starts accepting contribution from investors, hfwe to be treated as falling within section 164 (l) of the Act and the fund should be taxed in respect of the income received on behalf of the beneficiaries at the maximum marginal rate. 2. a) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.1,04,37,543/ - on the ground that the AO did not consider the cost of purchases of assets sold during the year. b) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact that during the assessment proceedings the assessee has failed to submit the details of cost of purchases of the assets sold even after asked by the AO.

ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 c) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in holding that as per the guidelines of the RBI, no upside income should be recognized till the full redemption of the entire principal security receipts and ignored the fact that as per the IT Act, the assessee has to offer for taxation any income which accrues or arises or deemed to accrue or arise in India during such year. 3. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."

Sr. No. Name of Shareholders Percentage of equity shares held Sponsors 1. Small Industries Development Bank of India 15% (SIDBI) 2. SIDBI Venture Capital Ltd. 11% 3. Bank of Baroda 10% 4. United Bank of India 10% Total Sponsor Shareholding (A) 46% Non-Sponsors 5. Punjab National Bank 9% 6. Punjab & Sind Bank 5% 7. Uco Bank 4% 8. Bank of Maharashtra 4% 9. Syndicate Bank 4% 10. Corporation Bank 4% 11. Dena Bank 4% 12. Union Bank of India 4% 13. Allahabad Bank 4% 14. Oriental Bank of Commerce 1.9% 15. LIC 9% 16. Kerala Financial Corporation 0.35% 17. Andhra Pradesh State Financial Corporation 0.35% 18. APITCO Ltd. 0.3% 3 ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 19. Rajasthan Financial Corporation 0.1% Total Non-sponsors Shareholding (B) 54% Total Shareholding (A+B) 100% On a perusal of the records, it was observed by the A.O that the assessee was created under the guidelines of the Reserve Bank of India for fast recovery of Non-Performing Assets of the Banks/FIs and principally derived income from Asset Reconstruction Activity and handling of Non-Performing Assets of Banks/financial institutions. As the assessee had receipts of Rs.3.66 crores on account of sales made during the year on which no tax was paid, the A.O therefore called upon it to explain as to on what basis the said receipts were claimed as not exigible to tax. Further, the assessee was called upon to explain as to under which head of income the receipts generated by it during the year under consideration would fall. Also, the assessee was called upon to put forth an explanation as to why its income may not be taxed in the hands of the trust/AOP. In reply, it was submitted by the assessee as under:

“….The Trust is created by the assets reconstruct/op Company namely ISARC for the purpose of liquidating/recovering/realizing the Non Performing Assets, take over by the assets Reconstruction Company (which is registered under section 3 of SARFASEI act by Reserve bank of India) from banks and financial .institutions Such Trusts are pass through entity The Trust Deed and the Offer Document read together, amply make it clear that it is a revocable trust and that being the, case, the income if at all arising on acquisition of NPA and disposal thereof or recovery thereof will be taxable in the hands of the Security Receipt holders (Beneficiary) in terms of section 61 of Income Tax Act, 1961. We invite your attention to the Notes of the Financial Statements, forming part of the annual audited accounts furnished, along with the Return of Income. We also invite your attention to Clause 2.7.1 of the Trust Deed, which categorically states that Security Receipt holders ho/ding more than 75% may decide the termination of the Trust. This clause is binding clause and cannot be ignore. This is being the case it is a revocable trust and hence the trust has correctly filed NIL return. We request you to consider the following facts and circumstances affecting the assessment of the entity.

ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 2. Ours is a Securitization/Reconstruction Trust, created under. the Guidelines of Reserve Bank of India for fast recovery of Non-Performing Assets of the banks/ FIs. In this context, we attach RBI circular: No. RBI/2013-14/54 DNBS(PD) CC. No. 31/SCRC/26.03.001/2013-14 dated July 1, 2013. Please refer to clause 2(u) of 'The Guidance Note for Securitization and 'Reconstruction Companies" forming a part of the above-referred circular, according to which the trust is required to issue SRs only to QIBs, which are 'identifiable at all time. Please also refer to the Section 7(3) of SARFAESI Act, 2002, which empowers QIBs holding 75% or more SRs to hold a meeting and pass resolution which are binding on the company. Consistent with this, the trust deeds carry clauses facilitating revocation of the trust.

3. The Assets Reconstruction /Securitization Company and the Trusts created in terms of the guidelines of Reserve bank of India, have to follow the Guidelines issued by the Reserve Bank of India.

5. Our Trust is a revocable trust, We invite your attention to Clause 5.2.1 of the Trust Deed, a copy of which is already furnished to you. Clause 5.2.1 reads as under: The Security Receipt Holders shall be entitled to revoke the Contributions made by them, at any time during the term of this Deed, in accordance with the terms and, conditions contained herein, for any reason, including but not limited to circumstances resulting from any adverse tax consequences(for the Trust or the Security Receipt Holders) or any direction of any Statutory Authority, provided that no such revocation shall take effect unless the consent of the Security Receipt Holders holding' Security Receipts representing not less than 7591o' of the total face value of the then outstanding Security Receipts, issued pursuant to this Deed has been obtained, in this behalf, provided that a notice of not less than 60 days of the intention to revoke the contribution, is given to the Trustee. The above clause makes it explicitly clear that the trust is revocable and 'hence it has to be given treatment in terms of Section 61, 62 and 63 of the Income tax Act, .1961. We produce here before Section 61 of the Income Tax Act, 1961: Section 61: All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.

8. We have furnish herewith details of purchase consideration, recovery during the financial year 2011-12 & 2012-13 Management Fees paid by Trust, Other expenses Incurred by the Trust.

10. In response to your letter we have to state that Trust is a pass though entity and as such the receipt of Rs. 3.66 crores' as stated in your letter to be sales proceeds of financial assets, is not at all an income of the Trust.

14. Since the beneficiaries of the Trust are definite and identifiable with definite shares at all the times, question of making the trust liable for tax, does not arises.

ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 15. The trust deed has been properly executed and as such the Return filed in earlier established as per Guidelines issued by Reserve Bank of India and SARFAESI Act….” However, the aforesaid reply of the assessee did not find favor with the A.O. It was inter alia observed by the A.O that the assessee was an AOP and not a trust. Alternatively, the A.O held a conviction that even if for the sake of argument the assessee was to be accepted as a trust, the same being a non-revocable trust would fail to get the benefit of Sec. 61 to Sec. 63 of the Act. Further, it was observed by the A.O, that the assessee being an indeterminate trust would thus be subject to the provisions of Sec. 164(1) of the Act. Lastly, the A.O observed, that the assessee had merely relied on the „form‟ of the transactions and the artificial device created by it to generate income and avoid taxability, while for the „substance‟ of the transactions was that the assessee had carried on business from the contributions of various beneficiaries with a common motive to earn income. To sum up, the contentions advanced by the assessee were rejected by the A.O, who culled out the reasons for not subscribing to the claim raised by the assessee as regards the multiple issues therein involved by summarizing his view in the assessment order, as under:

“8. Summary of Arguments 1 Whereas in the case of the trust, settlor, contributor and beneficiaries, all have to be independent and distinct In the case of the .assessee the contributors are the beneficiaries themselves, therefore, the assessee cannot be treated as a trust, but as an AOP having 19 members in the form of QIB5 and financial institution. 2 After its creation, the so-called trust entered into contribution assignment/offer document on 28.06.2011 for the sole purpose of taking NPAs for sale at a profit. Such an entity can be at best be classified as an AOP created jointly by several persons for earning profits.

ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 4. The Clause relied Upon by the assessee makes it clear that individual contributors cannot revoke their contribution on their own and revocation can occur only if the contributors holding 75% of the units consent together, then only can the contributions be revoked. Such restrictions point out to the fact that the entity is not a 'revocable trust'. The members lack any direct power or revocation under the instrument of transfer.

3. Aggrieved, the assessee assailed the assessment order in appeal before the CIT(A). After deliberating on the contentions advanced by the assessee the CIT(A) was of the view that issues therein involved in the appeal before him had already been decided by his predecessor in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13 vide his order passed in Appeal No. CIT(A)-32/IT- 211/23(1)(2)/15-16, dated 08.02.2017. Relying on the aforesaid order, the CIT(A) concluded that the A.O in the case of the assessee before him had rightly taken the status of the assessee as that of an AOP. Further, it was observed by the CIT(A), that in the aforesaid case before his predecessor though the assessee was formed as a trust, in substance, it was held as not a trust since the settlor and the beneficiaries remained the same. Observing, that as the fact situation in the case before him in the present appeal remained the same, the CIT(A) followed the view that was earlier taken by his predecessor in his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017. As for the alternative view taken by the A.O, that even if the assessee was to be held to be a trust, it being an irrevocable trust the provisions of Sec. 61 to Sec. 63 would not be applicable in its case, the CIT(A) relied on the order passed by his predecessor in ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017 found no infirmity in the said observation of the A.O and upheld the same. As regards the view taken by the A.O that the assessee being an indeterminate trust its surplus was to be assessed at the maximum marginal rate as per the provisions of Sec. 167B by treating it as an AOP, the CIT(A) relied on the view taken by his predecessor under identical facts in his order passed Appeal No. CIT(A)-32/IT-211/23(1)(2)/15- 16, dated 08.02.2017, and approved the same. To sum up, the CIT(A) following the view that was taken by his predecessor while disposing off the appeal in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13, vide his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017, wherein identical facts were involved, therein concluded that the A.O had rightly assessed the income of the assessee in the status as that of an AOP, i.e at the maximum marginal rate.

4. As for the quantification of the income of the assessee was concerned, it was observed by the CIT(A) that the A.O had assessed the total income of the assessee at Rs. 2,73,71,372/- as against the nil income declared by it. On a perusal of the assessment order, it was observed by the CIT(A) that the A.O had computed the income of the assessee by considering the receipts of Rs. 3,34,30,005/- on liquidation of NPAs and the expenses to the tune of Rs. 60,58,633/- as shown in the profit & loss account. As noticed by the CIT(A), the assessee had submitted that it was a pass through entity, and thus, the receipts had to be first applied towards the redemption of the SRs of the investors who had funded the acquisition of the NPAs, and also, to meet the expenses and management fees. As such, it was the claim of the assessee that the surplus after meeting the aforesaid obligations was to be transferred to the SR holders, viz. ISARC and PNB. After deliberating on the contentions advanced by the assessee, it was observed by the CIT(A) that his predecessor while disposing off the appeal in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13, had vide his ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017 observed, that the income of the assessee before him was to be assessed at Rs.nil for the reason, viz. (i) that the A.O had not considered the purchase consideration while bringing the realization (net of expenses) during A.Y. 2012-13 of Rs.3.12 crores to tax; and (ii) that there was no „upside income‟ accrued to the assessee during the year. It was observed by the CIT(A), that his predecessor while concluding as hereinabove had relied on the RBI Circular No. RBI/2013- 14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, which laid down the Uniform Accounting Standards at ARCs, and therein provided the guidelines for revenue recognition by ARCs, which read as under (relevant extract): “Revenue Recognition i). Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts. ii). Upside income should be recognized only after the full redemption of Security receipts. iii). Management fees may be recognized on accrual basis…..”

It was observed by the CIT(A) that the facts involved in the appeal of the present assessee for the year under consideration i.e A.Y. 2013-14 remained the same as were there before his predecessor in the case of ISARC SIDBI-2, sister concern, for A.Y. 2012-13, that was disposed off by him vide his order passed in appeal no. CIT(A)-32/IT-211/23(1)(2)/2015-16, dated 08.02.2017. Accordingly, relying on the aforesaid order of his predecessor, and also, the RBI Circular No. RBI/2013- 14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the CIT(A) concluded that in the case before him no upside income could be recognized in the hands of the assessee company, as there was a shortfall of recovery over purchase consideration till 31.03.2013 of Rs.24.26 crores. Also, as observed by the CIT(A) there was no receipt of management fees as per the profit and loss account. Accordingly, it was observed by the CIT(A) that since there was ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 no upside/or surplus in terms of the guidelines issued by the RBI vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the income therefore arising during the year to the assessee was to be assessed at Rs.nil. On the basis of his aforesaid observations, the CIT(A) directed the A.O to assess the income of the assessee at Rs. Nil.

5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal it was submitted by the ld. Authorized representative (for short “A.R”) for the assessee, that the issues involved in the present appeal were squarely covered by the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & others, vide order dated 04.09.2019 (copies placed on record). As a perusal of the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & Others revealed, that both the assessee and revenue had assailed the order of the CIT(A) before the Tribunal, therefore, a query was raised by the bench to the ld. counsel for the assessee that as to whether any cross-appeal was filed by the assessee against the impugned order. However, no reply was filed by the Ld. A.R. Accordingly, in the backdrop of the aforesaid facts, we proceed with the adjudication of the present appeal of the revenue before us. Admittedly, the observations of the A.O, viz. (i) that the status of the assessee was an AOP; (ii) that even if the assessee was held to be a trust it being an irrevocable trust would thus not be governed by the provisions of Sec. 61 to Sec. 63 of the Act; (iii) that though the assessee had formed a trust, but in substance it could not be treated as a trust since the settlor and the beneficiaries were the same; and (iv) that as the shares of the members were non-determinate the surplus was therefore to be taxed in the hands of the assessee as an AOP at maximum marginal rate, as per the provisions of Sec.167B of the Act, were upheld by the CIT(A) by relying on the view taken by his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 A.Y.2012-13, vide his order passed while disposing off its appeal, viz. Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017. Accordingly, the contentions which were advanced by the assessee assailing the aforesaid observations of the A.O were dismissed by the CIT(A). As the assessee had not assailed the aforesaid observations of the CIT(A) any further in appeal before us, the same thus had attained finality.

6. As observed by us hereinabove, the controversy raised by the revenue in the present appeal is regarding the quantification of the income of the assessee at Rs. Nil by the CIT(A). We find that the CIT(A) had observed that as there was no upside/or surplus, in terms of the RBI guidelines, therefore, the income arising during the year to the assessee was to be assessed at Rs. Nil. As is discernible from the appellate order, we find that the CIT(A) had relied on the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, which is regarding the Uniform Accounting Standard and the guidelines for revenue recognition by ARCs. As observed by us hereinabove, the guidelines issued by the RBI for revenue recognition by the ARCs, reads as under (relevant extract) :

“Revenue Recognition” (i) Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts. (ii) Upside income should be recognized only after the full redemption of Security Receipts. (iii) Management fees may be recognized on accrual basis………..” As observed by the CIT(A), his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for A.Y.2012-13, vide his order dated 08.02.2017 passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, had after drawing support from the aforesaid RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014 observed, that the income of the assessee before him was to be assessed at Rs.nil, for the reason, viz. (i) that the A.O had not considered the purchase consideration while bringing 12 ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 the realization (net of expenses) during A.Y. 2012-13 of Rs.3.12 crores to tax; and (ii) that there was no „upside income‟ accrued to the assessee during the year. Accordingly, the CIT(A) was of the view that in the present appeal before him no upside income could be recognized in the hands of the assessee company as there was a shortfall of recovery over purchase consideration till 31.03.2013 amounting to Rs.24.26 crores. Further, it was noticed by the CIT(A) that there were also no receipts of management fees as per the profits and loss account. After considering the view taken by his predecessor, and also, the guidelines issued by the RBI for recognizing of revenue for ARCs, vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, the CIT(A) concluded that the income of the assessee was to be assessed at Rs. Nil.

ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 ITA No.926/Mum/2019 A.Y.2014-15 9. We shall now advert to the appeal of the revenue in ITA 926/Mum/2019 in the case of ISARC SIDBI-2/2009-10.

11. Aggrieved, the assessee carried the matter in appeal before the CIT(A). As is discernible from the records, the A.O while framing the assessment had not reduced the cost of acquisition of the non-performing assets from the sale proceeds of Rs. 6,62,05,368/-. In fact, the A.O had after reducing the expenses incurred by the assessee during the year amounting to Rs. 29,99,296/-, had treated the net sales receipts of Rs. 6,32,06,072/- (forming part of the NPAs out of the pool of assets acquired), as the income of the assessee under the head “Income from business and profession”, and treated the interest income of Rs. 96,565/- as its income under the head “Income from other sources”. After deliberating on the contentions advanced by the assessee, it was observed by the CIT(A) that his predecessor while disposing off the appeal in the assessee‟s own case for A.Y 2012-13, had vide his order passed in Appeal No. CIT(A)-32/IT- 211/23(1)(2)/15-16, dated 08.02.2017 observed, that the income of the assessee before him was to be assessed at Rs. nil for the reason ,viz. (i) that, the A.O had not considered the purchase consideration while bringing the realization (net of expenses) during A.Y. 2012-13 of Rs.7.11 crores to tax; and (ii) that there was no „upside income‟ accrued to the assessee during the year. It was observed by the CIT(A), that his predecessor while concluding as hereinabove had relied on the 15 ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013- 14, dated 23.04.2014, which provided the Uniform Accounting Standards at ARCs, and therein laid down the guidelines for revenue recognition by ARCs, which read as under (relevant extract):

“Revenue Recognition i). Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts. ii). Upside income should be recognized only after the full redemption of Security receipts. iii). Management fees may be recognized on accrual basis…..” It was observed by the CIT(A) that the facts involved in the appeal of the present assessee for the year under consideration i.e A.Y. 2014-15 remained the same as were there before his predecessor in its own case for A.Y. 2012-13, that was disposed off by his predecessor vide his order passed in appeal no. CIT(A)-32/IT- 211/23(1)(2)/2015-16, dated 08.02.2017. Accordingly, relying on the aforesaid order of his predecessor, and also, the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the CIT(A) concluded that in the case before him no upside income could be recognized in the hands of the assessee company as there was a shortfall of recovery over purchase consideration till 31.03.2014 of Rs. 1/-. Also, as observed by the CIT(A), there was no receipt of management fees as per the profit and loss account. Accordingly, it was observed by the CIT(A) that since there was no upside/or surplus in terms of the guidelines issued by the RBI vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the income therefore arising during the year to the assessee was to be assessed at Rs.nil. On the basis of his aforesaid observations, the CIT(A) directed the A.O to assess the income of the assessee at Rs. Nil.

ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 12. The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. As the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in ITA No. 929/Mum/2019 in the case of ITO-23(1)(2), Mumbai, Vs. ISARC-FA-41-I/2011-12 Trust, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal of the revenue in ITA No.926/Mum/2019. Accordingly, on the basis of the reasoning given by us while disposing off the appeal of the revenue in ITA No.929/Mum/2019, the present appeal of the revenue is dismissed.

13. The appeal filed by the revenue is dismissed.

ITA No.927/Mum/2019 A.Y. 2014-15

ITO 23(1)(2) Vs. ISARC-SIDBI-2/2009-10 Trust-A.Y 2014-15 – ITO 23(1)(2) Vs. ISARC-BOB-1/2009-10 Trust-A.Y 2014-15 ITA No. 929/Mum/2019 – ITO 23(1)(2) Vs. ISARC-FA-41-I/201-12 Trust-A.Y 2013-14 17. The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. As the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in ITA No. 929/Mum/2019 in the case of ITO-23(1)(2), Mumbai, Vs. ISARC-FA-41-I/2011-12 Trust, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal of the revenue in ITA No.927/Mum/2019. Accordingly, on the basis of the reasoning given by us while disposing off the appeal of the revenue in ITA No.929/Mum/2019, the present appeal of the revenue is dismissed.