PEGASUS ASSETS RECONSTRUCTION P.LTD, MUMBAI V. DCIT 3(2), NAGPUR

ITA 6331/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2641 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 29-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: HARESH G BUCH; MONICA S AGARWAL
• Keywords: Business income; Business expenditure; Revenue expenditure
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI , , BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI RAMIT KOCHAR , AM ./ ITA N OS . 3123 & 6331 /MUM/2013 ( / ASSESSMENT YEA RS : 2009 - 10 & 2010 - 11 ) PEGASUA ASSETS RECONSTRUCTION P. LTD. / VS. DEPUTY COMMISSOIN OF 55 - 56, 5TH FLOOR, FREE PRESS HOUSE FREE PRESS JOURNAL ROAD NARIMAN POINT, MUMBAI 400021 INCOME TAX - 3(2) MUMBAI ./ PAN - AADCP3334Q /APPELLANT / RESPONDENT / APPELLANT BY: SHRI HARESH G. BUCH & MS. MONICA S. AGARWAL / RESPONDENT BY : SHRI B.S. BIST / DATE OF HEARING : 14.10.2015 / DATE OF PRONOUNCEMENT : 30 .10.2015 / O R D E R PER SHAILENDRA KUMAR YADAV, JM BOTH THESE APPEALS ARE FILED BY THE ORDERS OF THE CIT(A) - 4, MUMBAI AND THEY PERTAINS TO ASSESSMENT YEARS 2009 - 10 AND 2010 - 11. SINCE COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS, THEY ARE DISPOSED OF BY THE COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. ITA NO. 3123/MUM/2013 : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ACQUIRING NON PERFORMING ASSETS (HEREIN AFTER CALLED NPA) FROM BANKS AND FINANCIAL INSTITUTIONS AND THEN RECOVER OR 2 ITA NO S . 3123 & 6331 /MUM/2013 PEGASUA ASSETS RECONSTRUCTION P. LTD. REALIZE THE MONEY FROM SUCH LOAN ACCOUNTS OR FROM THE ASSETS ACQUIRED WITH NPA AS SECURITY. THE AMOUNT PAID FOR ACQUIRING NPA IS CAPITALIZED IN THE BOOKS OF ACCOUNT AND ANY EXPENDITURE SUBSEQUENT TO IT, RELATING TO ANY PARTICULAR NPA, IS ALSO CAPITALIZED W ITH IT AND THE SAME IS CARRIED FORWARD AS CURRENT ASSET, WHEREAS, NORMAL BUSINESS EXPENSES OF MAINTAINING OFFICE, ETC. ARE CHARGED TO THE PROFIT & LOSS ACCOUNT. BUT IN THE RETURN OF INCOME ASSESSEE HAS CLAIMED THAT ALL EXPENSES WHICH ARE INCURRED RELATING TO ANY NPA SUBSEQUENT TO ITS ACQUISITION WERE IN THE NATURE OF REVENUE EXPENDITURE, THEREFORE THE SAME WERE CLAIMED AGAINST THE BUSINESS INCOME, WHEREAS THE ASSESSING OFFICER HAS HELD IT AS PART OF WORK - IN - PROGRESS WITH THE INITIAL COST OF THE NPA AND TO B E CHARGED TO PROFIT & LOSS ACCOUNT FOR THE YEAR WHEN THE NPA IS FINALLY REALIZED, WHICH HAS BEEN DISPUTED BY THE ASSESSEE. 3. IN FIRST APPEAL A SSESSEE RAISED VARIOUS CONTENTION BEFORE THE CIT(A) VIDE IT LETTERS DATED 20.12.2012 AND 07.02.2013 WHICH ARE DETAIL ED ON PAGES 2 & 8 OF THE ORDER OF THE CIT(A). THE CIT(A), HAVING CONSIDERED THE SAME, UPHELD THE ORDER OF THE ASSESSING OFFICER . 4. THE SAME STAND HAS BEEN TAKEN BEFORE US BY, INTER ALIA, SUBMITTING THAT THE CIT(A) ERRED IN CONFIRMING THE ACTION OF ASSESSING 3 ITA NO S . 3123 & 6331 /MUM/2013 PEGASUA ASSETS RECONSTRUCTION P. LTD. OFFICER IN DISALLOWING REVENUE EXPENDITURE AMOUNTING TO ` 1,93,93,293/ - INCURRED TOWARDS REALIZATION OF NPA ON THE GROUND THAT THE SAME BE TREATED AS WORK - IN - PROGRESS WITH EACH NPA AND CAN BE CLAIMED ONLY WHEN SUCH NPAS ARE FINALLY SETTLED. ACCORDINGLY THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) BE SET ASIDE AND CLAIM OF THE ASSESSEE BE ALLOWED BECAUSE THE SAME WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTED THE ORDERS OF THE LOWER AUTHORITIE S. 5. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND THE MATERIAL BEFORE US WE FIND THAT THE BUSINESS OF THE ASSESSEE INVOLVES ACQUIRING NPAS FROM BANKS OR FINANCIAL INSTITUTIONS. THESE NPAS ARE LOAN AMOUNTS OF VARIOUS TYPES OF PARTIES WHERE LOSS IS OUTSTANDIN G AGAINST THE PARTY AND SUCH PARTY HAS ALSO GIVEN CERTAIN ASSETS AS SECURITY TO THE BANK/ FINANCIAL INSTITUTIONS. THE CHARGE OF SUCH SECURITIES ALSO COMES TO THE ASSESSEE WITH NPAS. EITHER THE NPA LOAN IS RECOVERED FROM THE PARTY AND AUTOMATICALLY THE CHAR GE OF THE ASSTS BY WHICH THE LOAN WAS SECURED COMES TO AN END. BUT GENERALLY SUCH LOANS ARE BAD ACCOUNTS THEREFORE ASSESSEE HAS TO REALIZE THE MONEY BY DISPOSING OF THE ASSETS SECURED AGAINST SU CH LOAN. ANY PROFIT OR LOSS AT THE END OF THE ENTIRE PROCESS O F RECOVERY AND DISPOSING OF THE ASSETS IS CHARGED/CREDITED TO THE PROFIT & LOSS ACCOUNT. THIS IS A LONG DRAWN 4 ITA NO S . 3123 & 6331 /MUM/2013 PEGASUA ASSETS RECONSTRUCTION P. LTD. PROCESS AND MAY INVOLVE A FEW YEARS. THERE IS UNCERTAINTY ABOUT THE AMOUNT TO BE REALIZED AND THE PERIOD DURING WHICH IT WOULD BE REALIZED. IN VIE W OF THIS THE ASSESSEE WANTS TO CLAIM THE EXPENSES RELATING TO RECOVERY AND MAINTAINING OF SUCH NPAS TO PROFIT & LOSS ACCOUNT AS REVENUE EXPENDITURE. ASSESSEE HAS PRACTICAL DIFFICULTIES IN VALUING SUCH NPAS BECAUSE IT IS NOT CERTAIN AS TO HOW MUCH WILL BE THE REALIZATION AND WHEN. IT MAY BE DIFFICULT TO EVEN PARTIALLY REALIZE THE REVENUE OR DETERMINE THE PROFIT. THEREFORE THE ASSESSEE IS NOT CREDITING PROFIT & LOSS ACCOUNT WITH RECOVERY AS AND WHEN MADE WHEREAS THAT IS TRANSFERRED TO NPA A/C. AND ONLY AT THE END, NET PROFIT OR LOSS IS TRANSFERRED TO THE PROFIT & LOSS ACCOUNT. THEREFORE THE EXPENDITURE INCURRED DURING THE RECOVERY PROCESS RELATES TO THE RECOVERIES WHICH ARE TO BE ACCOUNTED FOR IN THE NPA ACCOUNT EITHER IN THIS YEAR OR IN FUTURE WHENEVER THE RECOVERIES ARE MADE. THEREFORE, A S PER MATCHING PRINCIPLE OF ACCOUNTANCY THEY ARE NOT MATCHING WITH THE REVENUE REALIZED BEFORE THE NPA IS SETTLED. S UCH EXPENDITURE SHOULD BE TREATED AS WORK - IN - PROGRESS WITH EACH NPA AND TRANSFERRED TO PROFIT & LOSS ACCOU NT ONLY WHEN THE NPA IS FINALLY SETTLED. ACCORDINGLY CIT(A) WAS JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE ON THIS ACCOUNT. THIS REASONED FINDINGS OF THE CIT(A) NEED NO INTERFERENCE FROM OUR SIDE BECAUSE SUCH EXPENSES SHOULD BE TREATED AS WORK - IN - PRO GRESS WITH EACH NPA AND TRANSFERRED TO PROFIT & LOSS 5 ITA NO S . 3123 & 6331 /MUM/2013 PEGASUA ASSETS RECONSTRUCTION P. LTD. ACCOUNT ONLY WHEN THE NPA IS FINALLY SETTLED. ACCORDINGLY THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 6. SIMILAR ISSUE AROSE IN ITA NO. 6331/MUM/2013. THE FACTS BEING SIMILAR, FOLLOWING THE SAME REASON GIVEN HEREINABOVE WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). SAME IS UPHELD. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2015. 30.10.2015 SD/ - SD/ - (RAMIT KOCHAR) ( SHAILENDRA KUMAR YADAV ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI , DATED 30 TH OCTOBER, 2015 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) - 3 , MUMBAI 4. / THE CIT - , MUMBAI 5. , , / DR, C BENCH ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER //TRUE COPY// /ASSTT. REGISTRAR) , /ITAT, MUMBAI