2023 (11) TMI 865 - HC - Income Tax

Nature of loss - Loss on sale of loans - whether the loss incurred was on capital or revenue account? - as per revenue right to receive money is a capital right as the assessee is not in the business of trading of loan portfolio - ITAT deleted the addition - HELD THAT - Tribunal, in its order for the AY in issue i.e., 2010-11, has extensively extracted its decision in 2016 (8) TMI 1202 - ITAT DELHI AY 2004-05, which had concluded that the assessee s right to receive money from its debtors, on account of financing of assets, accrued to the assessee in the ordinary course of business and was not in the nature of capital receipt. The record shows that for the AY in issue i.e., 2010-11, the respondent/assessee had entered into an agreement with Shriram for the sale of financial receivables, having an aggregate book value of Rs. 10,11,71,94,000/-, for a consideration amounting to Rs. 9,08,29,87,000/-. As noticed above, the loan portfolio was sold to Shriram. The record shows that there is no dispute concerning the fact that the loan portfolios, concerning forty-five thousand (45,000) borrowers, had been sold to Shriram, and therefore, the difference between the figures the difference between the value of the financial receivables and consideration received from Shriram was sought to be claimed by the respondent/assessee as loss on revenue account - proposed question no. B does not arise from the orders passed by the statutory authorities. Whether the liability had, in fact, crystallized in the period in issue ? - Tribunal, after examining the assignment agreement executed between the respondent/assessee and Shriram, has returned a categorical finding of fact that the liability indeed arose in the period in issue, as indicated in paragraph 38 of the Tribunal s order extracted hereinabove. Appellant has not proposed any question of law to the effect that this finding is perverse. Therefore, on this score as well, we are not inclined to entertain the appeal, and the appeal is, accordingly, closed.

Summary

Issues involved:
The issues involved in the judgment are related to the Assessment Year (AY) 2010-11. The primary issues revolve around the disallowance under section 14A of the Income Tax Act and the deletion of addition corresponding to the loss on the sale of loans.

Disallowance under section 14A:
The appellant/revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance under section 14A of the Income Tax Act. The Tribunal restricted the addition on disallowance to Rs. 78,037, differing from the AO's addition of Rs. 7,94,53,077. The Tribunal found that there was no nexus between borrowed funds and investments made in shares, leading to the deletion of the disallowance. The court held that the addition could not have been deleted as the exempt income earned was only Rs. 78,037. The court referred to various judgments to support its decision and concluded that the proposed question regarding this issue did not arise for consideration.

Deletion of addition corresponding to loss on sale of loans:
The second issue pertained to the deletion of the addition of Rs. 103,87,99,712 corresponding to the loss on the sale of loans. The court analyzed the agreement between the respondent/assessee and Shriram Transport Finance Company Limited (STFCL) regarding the sale of debts. The court noted that the sale of debts had not fully materialized in the relevant year, as it was in a transition phase. The court also highlighted the findings of the Dispute Resolution Panel and the Assessing Officer regarding the sale of receivables and the continuation of business activities by the assessee. The Tribunal concluded that the transaction had taken place during the relevant year, and the loss had crystallized, directing the Assessing Officer to delete the addition. The court found that the proposed question 'B' did not arise from the orders passed by the authorities and dismissed the appeal, as the appellant did not challenge the finding that the liability had crystallized in the relevant period.

Separate Judgement:
No separate judgment was delivered by the judges in this case.