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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 ..... sessment years. The Ld. CIT(A) ought to have directed that the gain relating to the year under consideration but was assessed by the A.O. for the earlier assessment years should not be brought to tax again for the year under consideration. 5. Any other grounds that may be urged at the time of hearing." 2. Ground Nos. 1 and 5 raised by the assessee in this appeal are general in nature which do not call for any specific adjudication. 3. In Ground No.2, the assessee has challenged the action of the Ld. CIT(A) in confirming the addition of Rs. 15,45,89,893 made by the A.O. by bringing to tax the entire gain on assignment of loan portfolio. 4. The assessee in the present case is a company which is carrying on the business as micro finance institution. The return of income for the year under consideration was filed by it on 28.09.2010 declaring total income of Rs. 90,79,46,733. In the said year, the assessee had sold certain portion of its loan portfolio to banks by way of direct assignment of receivables. The assigning transaction entered into by the assessee were of two types. It had received an amount of Rs. 19,42,78,577 during the year under consideration being the net gain on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on proportionate basis over the period of contract with Banks; i) Out of the interest receivable of Rs. 19,42,78,577/- an amount of Rs. 3,96,88,684/- is recognized as income during the year and balance amount of Rs. 1545,89,893/ - is deferred to subsequent years following the above principle; 4.1. The above submissions of the assessee were considered by the A.O. in the light of 'guidance note on accounting for securitization' issued by ICAI and on such consideration, he recorded his findings/observations as under: a) "The transaction is a complete buyout of loan portfolio by the bankers and the asset is derecognized from the books of the assessee; b) The collection agent's agreement f servicing agreement fixes certain fee for collection and attendant work and the costs involved are to be borne by the assignor. Thus, the control over cost of servicing is with the assignor. c) The agreement for portfolio buyout and collection are separate and distinct. The sale of portfolio is unconditional. As per para 6 of the guidance note, servicing of the asset by itself can not lead to a situation of partial derecognition of asset and thereby revenue from the asset. Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) confirmed the addition of Rs. 15,45,89,893 made by the A.O. on account of gain on assignment of loan portfolio for the following reasons given in para 4.8 of his impugned order. "4.8. ... it is evident that there seems to be no reason as to why the gain on sale of loan portfolio has to be amortized and the income should be offered in A.Y.2010-11 and in A.Y. 2011-12 instead of offering the entire amount in A.Y.2010-11. It is fairly simple and straight case where, the appellant has already recovered the net gain of Rs. 19,42,78,577 /- has to offer the same to tax. The appellant is unnecessarily trying to complicate the issue by referring to RBI Guidelines, Guidance Note given by the Institute of Chartered Accountants Association of India. Through the assignment deed, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gain of Rs. 1.54 Crores. It is assessee's contention that the entire amount of Rs. 2.96 Crores, being future interest receivable, is not accruing during the year. Therefore, the gain on discounting of that is not an amount accrued during the year and so, the same is deferred to later year. It is this amount which is under dispute. As this transaction given as an example above has occurred on 19th March 09 and as no interest is receivable during that month, assessee has deferred the entire amount of gain to the later year. There are many such transactions entered regularly by assessee during the course of year and to the extent of amount discounted, assessee is accordingly offering income on the proportion of interest accrued during the year. 12. This system of account being done by assessee is more or less similar to the bill discounting system, which is generally followed by many in the business. In the bill discounting system, a person who 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision it had made towards bad debts under the RBI norms was deductible. The Assessing Officer and the Tribunal rejected the claim. Held, (i) that the Tribunal was right in concluding that the uncertainty regarding the discharge of the bill or rediscounting has no relevance. The transaction of discounting is complete at the moment the customer is given 90 per cent of the value of the bill. The discount is equivalent to the interest and it accrued at that point. (ii) That the debts were shown as written off on the basis of the formula given by the Reserve Bank of India. Writing off the debt as bad requires judgment on the part of the person carrying on the business but in the present case, the debts had been 'written off' merely on the basis of the RBI norms and nothing more. Thus, they were not deductible under section 36. 14. Since, principles of bill discounting and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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