Income Tax Appellate Tribunal - Hyderabad
Asmitha Microfin Limited, Hyderabad vs Assessee on 17 June, 2015
ITA No 1524 of 2014 Asmitha Microfin Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A' Bench, Hyderabad
Before Shri B. Ramakotaiah, Accountant Member
& Smt.Asha Vijayaraghavan, Judicial Member
ITA No.1524/Hyd/2014
(Assessment year: 2008-09)
Asmitha Microfin Ltd Dy. Commissioner of
Hyderabad Vs. Income Tax, Circle 1(1)
PAN: AADCA 9399 Q Hyderabad
(Appellant) (Respondent)
For Assessee : Shri P. Ravisesha Giri Rao
For Revenue : Smt. Anjala Sahu
Date of Hearing : 08/06/2015
Date of Pronouncement : 17/06/2015
ORDER
Per Smt. Asha Vijayaraghavan, J.M.
This appeal is preferred by the assessee against the order of the CIT (A)-II, Hyderabad, dated 22.07.2014 relating to A.Y 2008-
09. Assessee has raised the following grounds:
"1. The order of the ld CIT (A) is erroneous both on facts and in law.
2. The ld CIT (A) erred in confirming the addition of Rs.2,86,79,153 on the ground that the gain on assignment of loan portfolio by the appellant would become taxable in its entirety during the assessment year under consideration.
3. The AO erred in disallowing Rs.4,70,000 being fee paid for issue of share capital without considering the fact that the same is allowable u/s 35D of Rs.4,70,000.Page 1 of 6
ITA No 1524 of 2014 Asmitha Microfin Ltd Hyderabad
4. The ld CIT (A) ought to have seen that by making the adjustment to the assignment of the gain on sale of loan portfolia, the income cannot be brought to tax in both the A.Ys. The ld CIT (A) ought to have directed that the gain relating to the year under consideration but was assessed by the AO for the earlier A.Ys should not be brought to tax again for the year under consideration".
2. The issue involved in Ground No.2 of the appeal of the assessee is squarely covered in favour of the Revenue and against the Assessee by the decision of Coordinate Bench of this Tribunal in assessee's own case for the A.Y. 2009-2010 rendered vide its order dated 30.01.2015 passed in ITA.No.137/Hyd/2013. A copy of the said order is placed on record before us and perusal of the same shows that similar issue has been decided by the Tribunal against the assessee for the following reasons given in paragraph Nos. 11 to 14 of its order.
"11. As can be seen from the above, assessee's book value and the future interest receivable totaling to Rs.25,75,50,626/- out of which discount was given to an extent of Rs.1,41,74,070/- and mainly on future interest receivables. Thus, out of the interest receivables of Rs.2,96,16,526/- as future interest, assessee discounted the same for an amount of Rs.1,41,74,070/- and received the gain of Rs.1,54,42,456/-. Thus, short of the accounting entries made, the basic principle involved in this sale of portfolio is that as far as principal amount is concerned, no discount was considered as the entire portfolio was given at the book value only. Only interest receivable sold to the purchaser, however, was discounted. Thus, as seen from the above example out of Rs.2.96 Crores receivable, assessee discounted to an extent of Rs.1.41 Crores and showed 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 Page 2 of 6 ITA No 1524 of 2014 Asmitha Microfin Ltd Hyderabad 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, 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 Rs.25.75 Crores, Assessee did receive Rs.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 Rs.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 income. However, when assessee bundles it and sells it as a portfolio for a discount, the amount did accrue and received on the date of entering agreement. As can be seen from the above example, out of the total amount of Rs.2,96,16,526/- receivable in a later year, assessee discounted Rs.1,41,74,070/- and has received an amount of Rs.1,54,42,456/- as gain, out of the total price received of Rs.24,33,76,256/- [that total amount Rs.24,33,76,256 - Rs.22,79,34,100 = 1,54,42,456]. Thus, in a way, out of the book value of Rs.22.79 Crores of portfolio, assessee did receive Rs.24.33 Crores thereby having the gain of Rs.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.
13. Similar issue was considered by the Hon'ble Madras High Court in the case of TVS Finance and Services Ltd., Vs. JCIT [318 ITR 435 (Mad)] on the issue of accrual of income and timing of accrual on discounting of bills. The Hon'ble Madras High Court held as under:Page 3 of 6
ITA No 1524 of 2014 Asmitha Microfin Ltd Hyderabad "Where bills are discounted the accrual of interest is certain and arises on the date of discount.
The assessee was a non-banking finance company engaged in lease, hire purchase, bills discounting and mortgage loans. The Assessing Officer held that the whole of the income from bill discounting accrued at the time of discounting the bill. This was confirmed by the Tribunal. The assessee claimed the provision 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 that the amounts have accrued at the time of sale of portfolio. We affirm the same and hold that the amount of Rs.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."
3. 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 Rs.2,86,79,153/-made by the A.O. on account of gain on Page 4 of 6 ITA No 1524 of 2014 Asmitha Microfin Ltd Hyderabad assignment of loan portfolio by the assessee. Ground No.2 of the assessee's appeal is accordingly dismissed.
4. In Ground No.3, the assessee has disputed the disallowance of Rs. 4 lakhs made by the A.O. under section 35D which is confirmed by the Ld. CIT(A).
5. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The Tribunal by its order dated 30.01.2015 for the A.Ys 2009-10 in ITA No.137/Hyd/2013 has held as follows: As submitted by the Ld. Counsel for the assessee, the relevant expenditure in respect of which deduction under section 35D is claimed by the assessee for the year under consideration, was actually incurred in the previous year relevant to A.Y. 2007-2008. He has submitted that although the deduction claimed under section 35D in respect of the said initial year was originally allowed by the A.O., he subsequently reopened the assessment for the said year i.e., A.Y. 2007-2008 and disallowed the deduction claimed by the assessee under section 35D. He has submitted that the assessee has disputed the disallowance made under section 35D in A.Y. 2007-2008 in the appeal filed before the Ld. CIT(A) which is still pending. He has contended 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 on his decision on a similar issue involved in Page 5 of 6 ITA No 1524 of 2014 Asmitha Microfin Ltd Hyderabad assessee's own case for A.Y. 2007- 2008 for which the appeal is pending with him".
6. For this A.Y also, we give similar direction and remit this matter back to the ld CIT (A) for deciding the same afresh depending on his decision on a similar issue involved in the assessee's own case for A.Y 2007-08 for which the appeal is pending with him. Ground No.3 of the assessee's appeal is accordingly treated as allowed for statistical purposes.
7. With respect to the 4th ground of appeal, we direct the AO that the gain relating to the year under consideration but was assessed by the AO for the earlier A.Ys should not be brought to tax again for the year under consideration.
8. In the result, appeal is partly allowed for statistical purposes.
Order pronounced in the Open Court on 17th June, 2015.
Sd/- Sd/-
(B.Ramakotaiah) (Asha Vijayaraghavan)
Accountant Member Judicial Member
Hyderabad, dated 17th June, 2015.
Vnodan/sps
Copy to:
1. Asmitha Microfin Ltd, c/o Sri S. Rama Rao, Advocate, Flat No.102, Shriya's Elegance, 3-6-643 Street No.9, Himayatnagar, Hyderabad 500029
2. Dy. Commissioner of Income Tax Circle 1(1) Hyderabad
3. CIT(A) -II Hyderabad
4. CIT -I Hyderabad
5. The DR, ITAT, Hyderabad
6. Guard File By Order Page 6 of 6