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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI R. S. SYAL & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed against the order dated 24/1/2016 passed by the CIT(A)-15, New Delhi. 2. Grounds of appeal are as under:-
“1. That the Commissioner of Income tax (Appeals) [“CIT(A)” erred in upholding the action of the Assessing Officer (“Assessing Officer ) in treating loss on sale of loan portfolio as a capital loss and erroneously confirming the addition of Rs.2,09,05,000/- made by the A.O in this regard without appreciating that the Appellant being a non-banking financial company (“NBFC”), loss on sale of non-performing loans was a business loss and allowable deduction u/s 28 read with Section 37 of the Income tax Act, 1961 (the “Act”).
That the CIT(A) further erred in not appreciating that the Appellant being an NBFC, the entire non-performing loan could have been written off and claimed as deduction u/s 36(1) (vii) r/w Section 36(2) of the Act.
3. That the CIT(A) erred in upholding the addition made by the A.O by treating loss on sale of loan portfolio as a capital loss without appreciating that the jurisdictional Commissioner while exercising powers u/s 263 of the Act (which forms the basis of the present assessment) had categorically held that loss on sale of loan portfolio is not a capital loss but a business loss.
4. That the CIT (A) erred in confirming the action of the A.O in levying interest u/s 234B and Section 234D of the Act.”
The Ld. AR submitted that the issue is covered in favour of the assessee by the Tribunal for Assessment Year 2004-05 by the order dated 29/08/2016. The relevant paragraph of the said order is as follows:-
We have considered the rival submissions and have perused the record of the case. The assessee was engaged in the business of consumer and auto finance. Accordingly, in course of its business it financed the consumer goods and automobiles. Thus, the debtors were created in ordinary course of business and there was out flow of money from assessee’s coffers. It is well accepted commercial fact that realization of loan is one of the most difficult task faced by any money lender. Therefore, entrepreneurs consider various avenues for realization of their dues. Under such circumstances those who are in a position to realize non-performing assets take over loans from entrepreneurs. It is well settled commercial practice to invest in stressed assets which is presently gaining momentum on account of upsurge in NPAS in business and financial institutions. High profile fund managers are finding lot of business prospectus in acquiring non-performing portfolio at considerable discounts. Thus, fund managers are, therefore, investing in the stressed assets space. The government has also eased norms in this regard. Thus, selling of delinquent loan portfolio was purely a commercial prudent decision taken by assessee in line with the prevailing business practice in order to minimize its business loss. This was a case of outright sale without recourse obligations. The assessee was NBFC and, therefore, the financing
6. To negotiate loans, to draw, accept, endorse, discount buy, sell and deal in bill of exchange, promissory notes, bonds, debentures, coupons and other instruments and securities.
38.1. Therefore, this activity was in line with the main objects of assessee also.
38.2. Now coming to the submissions of Id. CIT(DR) that assessee had primarily sold right to receive money. This plea of Id. CIT(DR) has to be considered keeping in view the entire conspectus of the assessee’s business. This cannot be considered in isolation de hors of the nature of assessee’s business. Ld. counsel has rightly pointed out that had there been direct loss or repossession of assets then the loss would have been allowed. Therefore, on the same footing loss arising out of sale of delinquent assets portfolio also is to be allowed. Admittedly, assessee had right to receive money from its debtors on account of financing of assets. This right had accrued in favour of assessee in ordinary course of business and not on capital account. Further, we are in agreement with ld. counsel for the assessee that the conditions laid down u/s 36(l)(vii) read with section 36(2)(i) are also fulfilled because of following reasons:
- The debt or loan was in respect of a business which was carried on by the assessee in the relevant accounting year; - The debt represented money lent in the ordinary course of the business, which was akin to money lending; - The amount was written off as irrecoverable in the accounts of the assessee for that accounting year in which the claim for deduction was made for the first time. 38.3. In view of above discussion this ground is allowed.
The Ld. DR was unable to distinguish the facts of the present assessment year and that of Assessment Year 2004-05.
We have heard both the sides after perusing the order for Assessment Year 2004-05 passed by this Tribunal in assessee’s own case being (Assessment Year 2004- 05) dated 29/8/2016 the issues are identical to that of present Assessment Year.
In the result, the appeal of the assessee is allowed.
The order is pronounced in the open court on 05th of December, 2016.