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TMI Blog2015 (6) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... vable in a later year, assessee discounted ₹ 1,41,74,070/- and has received an amount of ₹ 1,54,42,456/- as gain, out of the total price received of ₹ 24,33,76,256/- [that total amount ₹ 24,33,76,256 – ₹ 22,79,34,100 = 1,54,42,456]. Thus, in a way, out of the book value of ₹ 22.79 Crores of portfolio, assessee did receive ₹ 24.33 Crores thereby having the gain of ₹ 1.54 Crores. Since the transaction happened on 19th March, the entire amount is to be accounted as income on that transaction as a gain. - Decided against assessee. Disallowance of deduction u/s.35D - Held that:- Since the issue relevant to the assessee’s claim for deduction under section 35D as involved in the year under consideration is consequential to the similar issue involved in the initial year i.e., A.Y. 2007-2008 for which the appeal is pending before the Ld. CIT(A), the same may be remitted back to the Ld. CIT(A) for deciding the same afresh depending on his decision on a similar issue for the initial year. Since the learned D.R. has also not raised any objection in this regard, we remit this matter back to the Ld. CIT(A) for deciding the same afresh depending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,577 during the year under consideration being the net gain on assignment of loan portfolio under Type-1 model. Out of this gain, an amount of ₹ 3,96,88,684 was offered to tax by the assessee in the year under consideration while the balance amount of ₹ 15,45,89,893 was amortized and offered to tax as income for the next assessment year i.e., A.Y. 2011- 2012. During the course of assessment proceedings, copies of relevant deeds of assignments entered into by the assessee with different Banks under Type-1 model were obtained and examined by the A.O. On such examination, he found that the assessee has sold the loan portfolio in outright fashion and received the purchase consideration. He therefore required the assessee to explain as to why the entire net gain received on assignment should not be brought to tax in the year under consideration itself instead of allowing part amortization as claimed by the assessee. In reply, detailed submission was offered by the assessee which, as summarized by the A.O. in the assessment order was under : a ) The assignment of loans has been accounted in accordance with AS - 9 and guidance note on Accounting for Securitization issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asset by itself can not lead to a situation of partial derecognition of asset and thereby revenue from the asset. Further, the servicer is not entitled exercise any general or particular or lien with respect to a borrower against the assigned receivables. As per the terms of the service agreement, the assignee has the right to terminate the services of the servicer and appoint alternate servicer. This further proves that the portfolio buyout and servicing of the portfolio are not linked. d) The procedure prescribed for collection and the costs involved in service are not material for recognition of revenue from the sale of portfolio; e) The difficulty in estimation of servicing costs or obligation to service the portfolio are not relevant for recognition of revenue from sale of portfolio as both are distinct and separate functions performed by the assessee; f) The interest income received on sale of portfolio has no link with service cost. Also, there is no interest strip or service strip in the agreement to sell the portfolio; g) Keeping of cash collaterals indicates only a contingent liability. Only the first part is out of the amounts received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the appellant sold its loan portfolio to the banks. Through 'collection agent agreement' the appellant took the responsibility of collecting the principal and interest on behalf of the bank. These two activities are totally different. By way of selling the loan portfolio the net gain of ₹ 19,42,78,577/- was already received by tl1e appellant. Even in the worst scenario, where the appellant fails to recover the loans due from the borrowers, his risk is restricted to the extent of collateral given to the banks. Even if the borrowers default, if the recoveries are adjusted against collateral deposits, as and when such eventuality arises such claim can be made u/s.36(1)(vii). In any case, the fears expressed by the appellant with reference to recovery are merely hypothetical and Irrelevant, In summary, for the reasons mentioned in the above paras, I find no reason as to why the taxing of ₹ 15,45,89,893/- is to be postponed for A.Y. 2011- 12. Therefore, the addition made by the A.O. is sustained. 6. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the learned Representatives of both the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o discounts the bill takes the interest amount upfront when he discounts the bill by way of 'front end discount', the income accrues at that point of time. What is material is the certainty of the date of discount. In this case, assessee contends that the gain on the transaction has not accrued as the future interest receivable is not an accrued income. However, this aspect cannot be accepted as assessee has received the discounted amount as a part of sale consideration. Even though, there are certain deposits kept with the banks for the purpose, the fact is that out of the total portfolio including the future interest of ₹ 25.75 Crores, Assessee did receive ₹ 24.33 Crores as can be seen in the transaction stated above. Therefore, at the time of sale of portfolio, there is a gain of ₹ 1.54 Crores. This amount received by assessee is in a way discounted interest on the future receivables. Since this amount is already received by assessee, question of postponing the accrual does not arise. Had assessee been accounting the interest receivables as and when accrued, without sale of the portfolio, it has to be admitted that future interest cannot be taken as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accounting entries are similar to the portfolio sale/securitization of loan portfolios, being the method involved being same, we uphold the orders of Assessing Officer and CIT(A) on the issue. In fact, both Assessing Officer and CIT(A) analyzed the accounting principles, agreements and came to conclusion that the amounts have accrued at the time of sale of portfolio. We affirm the same and hold that the amount of ₹ 13,09,44,315/- being the amount of discounted future interest received by assessee during the year is taxable in the year. Accordingly, we uphold the orders of Assessing Officer and reject the ground of assessee. 6.1. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2009-2010, we respectfully follow the decision of the Coordinate Bench of this Tribunal rendered for A.Y. 2009-2010 and uphold the impugned order of the Ld. CIT(A) confirming the addition of ₹ 15,45,89,893 made by the A.O. on account of gain on assignment of loan portfolio by the assessee. Ground No.2 of the assessee s appeal is accordingly dismissed. 7. In Ground No.3, the assessee has disputed the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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