EARC TRUST SC 146,MUMBAI V. ITO WARD 22(3)(1), MUMBAI

ITA 7154/MUM/2025

AI Insights

The case involves EARC Trust, a securitization trust, which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the disallowance of an exemption claimed under section 10(23DA) of the Income Tax Act, 1961. The trust, acting as an intermediary for non-performing loans, claimed that its income should be exempt as per the specific provisions applicable to securitization trusts. The Assessing Officer had disallowed the exemption due to non-submission of required documents, and the CIT(A) upheld this decision. The Tribunal, considering the circumstances of non-submission, decided to give the trust another opportunity to present its case.

• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Mumbai
• Assessment Year: 2022-2023
• Appeal Filed On: 06-11-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RITESH MISRA
• Assessee Lawyers: AJAY DHOOD
• Keywords: Set aside
• Section: 143(3); 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.7154/MUM/2025 (Assessment Year: 2022-23) EARC Trust – SC 146, Edelweiss House, Off CST Road Kalina, Mumbai - 400098 PAN : AAATE6683P ............... Appellant v/s Income Tax Officer, Ward – 22(3)(1), Piramal Chamber, Mumbai ……………… Respondent Assessee by : Shri Ajay Dhood Revenue by : Shri Ritesh Misra, CIT-DR Date of Hearing – 09/03/2026 Date of Order - 23/03/2026 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 08/09/2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2022-23. 2. In this appeal, the assessee has raised the following grounds: - Printed from counselvise.com ITA No.7154/Mum/2025 (A.Y. 2022-23) 2 “(1) In the facts and circumstances of the case and position of law, the Ld. CIT(A) has erred in disregarding the fact that the Appellant is a securitization trust within the meaning of section 115TCA of the Income Tax Act, 1961 ('Act'). (2) In the facts and circumstances of the case and position of law, the Ld. CIT(A) has erred in disallowing the exemption claimed u/s 10(23DA) of the Act amounting to Rs 37,79,43,089/- by the appellant. 3. In the facts and circumstances of the case and position of law, the Ld. CIT(A) erred in initiating penalty proceedings u/s 270A of the Act.” 3. The solitary grievance of the assessee is against the denial of exemption claimed under section 10(23DA) of the Act. 4. We have considered the submissions of both sides and perused the material available on record. For the year under consideration, the assessee filed its return of income on 26/07/2022, declaring a total income of INR Nil. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Accordingly, the assessee was asked to furnish the details in support of its return of income. In response, the assessee filed a copy of the trust deed, a copy of the acknowledgement of return of income, a copy of the balance sheet, and a copy of the revenue account. Vide notices issued under section 142(1) of the Act, the assessee was asked to furnish further details. However, the assessee failed to respond to the same. Accordingly, a final opportunity was granted to the assessee, and the notice was issued to show cause as to why the amount of INR 37,79,43,089 available for distribution to the security receipt holders should not be disallowed. In the absence of any reply from the assessee, the Assessing Officer (“AO”), vide order dated 07/03/2024 passed under section 143(3) read with section 144B Printed from counselvise.com ITA No.7154/Mum/2025 (A.Y. 2022-23) 3 of the Act, disallowed INR 37,79,43,089 available for distribution to the security receipt holders as reported in the revenue account and treated the same as income from other sources in the hands of the assessee treating it as an AOP . 5. The learned CIT(A), vide impugned order, upheld the addition made by the AO due to non-availability of documents as noted on page 8 of the impugned order. Being aggrieved, the assessee is in appeal before us. 6. During the hearing, the learned AR submitted that the assessee is a securitisation trust in accordance with the Indian Trust Act, 1882 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The learned AR submitted that Edelweiss Asset Reconstruction Co Ltd (“EARCL”) is the “Declarant” of such securitisation trust. It was submitted that EARCL is in the business of securitisation, wherein it requires loans that have turned non-performing from banks and financial institutions and then tries to recover such amounts from the original borrowers. The learned AR submitted that the assessee is formed to which EARCL transfers such a loan portfolio, and in turn, investors are issued security receipts/instruments by the assessee. Further, as and when recoveries are made from the original borrowers, the assessee transfers such amounts to the investors, effectively acting as an intermediary and a passthrough entity. Accordingly, the learned AR submitted that the assessee’s income is exempt as per section 10(23DA) and as such income is taxable in the hands of the investors as per the provisions of section 115-TCA of the Act. Printed from counselvise.com ITA No.7154/Mum/2025 (A.Y. 2022-23) 4 7. During the hearing, the learned AR admitted that the assessee could not file the details as sought by the AO, as the person who was responsible for supervising the tax notices and whose email address was updated on the Income Tax Portal had left the organisation. Further, the learned AR submitted that, given an opportunity, the assessee will furnish all the documents as noted by the learned CIT(A) for necessary examination. 8. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities. 9. Having considered the submissions of both sides and perused the material available on record, in the interest of justice and fair play, we deem it appropriate to grant one more opportunity to the assessee to furnish all the documents in support of its claim of deduction under section 10(23DA) of the Act. Accordingly, we restore the matter to the file of the learned CIT(A) for de novo adjudication, as per law, with a direction to the assessee to furnish all the details as noted in the impugned order. We further direct the assessee to produce any other information/documents as may be sought by the learned CIT(A) for complete adjudication of the issue involved. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to both parties. Further, the assessee is directed to comply with all hearing notices as may be issued by the learned CIT(A). Accordingly, with the above directions, the impugned order is set aside, and the grounds raised by the assessee are allowed for statistical purposes. Printed from counselvise.com ITA No.7154/Mum/2025 (A.Y. 2022-23) 5 10. In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 23/03/2026 Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER S Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 23/03/2026 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai Printed from counselvise.com "