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TMI Blog2023 (7) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Commissioner of Income Tax (Appeals)-22, New Delhi [ Ld. CIT(A) , for short], dated 29.10.2018 for Assessment Year 2011-12. Grounds taken in this appeal are as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is legally justified in deleting the addition of Rs. 15,98,86,715/- on account of claim of loss on sale of finance receivables. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 3. Brief facts of the case are that, the assessee filed return declaring loss of Rs. 54,60,29,396/- and subsequently filed revised return. The case was selected for scrutiny and assessment order came to be passed u/s 143(3) read with Section 144C of the Act by assessing the loss of Rs. 30,93,58,600/- as against returned loss at Rs. 54,60,29,396/-. Aggrieved by the assessment order dated 30/04/2015, the assessee preferred an appeal before the CIT(A). The ld. CIT(A) vide order dated 29/10/2018 deleted the addition of Rs. 15,98,86,715/- made on account of claim of loss on sale of finance receivables. Aggrieved by the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 14% are not final and can go upto 20%. 3. The loans to various debtors were given on the security of vehicles or other assets and the vehicles and other machineries were hypothecated in favour of the assessee particularly in the case of vehicles. Further, the vehicles remain to be hypothecated in favour of the assessee. 6.3 In response to the above observations of the AO, the Ld. AR submitted relevant agreements entered between the Assessee and buyer. The assessee while making reference to clause 2.1, 2.2 and 2.8 of the assignment agreements, submitted that the finance receivables were assigned without 'recourse' i.e. to say in the event of default by the borrower in repaying instalments to STFCL, it cannot claim such loss from the assesssee. 6.4 The Assessee also brought my attention to clause 4.2 of the assignment agreements according to which the agreement was duly completed in terms of on the basis of following: The estimated sales consideration was duly received by the Assessee from STFCL as per clause 4.2.1 of the agreement. In this regard, copy of certificates from bank of the Assessee evidencing the receipt of estimated sales consideration f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's submission that in light of the power of attorney issued by the Assessee to STFCL, there is no additional requirement to transfer hypothecation in favour of STFCL. It is also submitted that it is a standard transaction in this industry and the modus in all such transaction is the same and given the volume of transactions mentioned, it is physically impractical to approach tens of thousands of customers and change the documentation in favour of the buyer and hence the same legal effect is sought to be obtained via the Power of Attorney. 6.7 With respect to allowability of loss, the AO has noted that section 28 is a charging section and not for allowing lossess to the assessee. In this regard, the Assessee submitted that expenditure necessitated out of commercial expediency has to be allowed and the said transaction is incidental to its business and is allowable under section 28 of the Act. 6.8 I have considered the facts of the case and submission filed by the Assessee in this regard. Considering the same, I am of the view that the finance receivables/debtors were created in ordinary course of business and there was an outflow of money from assessee's funds. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(1)(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. 6.12 Further, the reference of AO to the transaction being collusive in nature/ colorable device to avoid tax is also without any reason / support and is merely based on the assumption that the transaction has not been completed during the subject year. The AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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