Asmitha Microfin Ltd., Hyderabad V. Addl.CIT, Range-1, Hyderabad

ITA 990/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91700 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: P RAVI SESHAGIRI RAO
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA.NO.990/HYD/2014 ASSESSMENT YEAR 2010-2011 ASMITHA MICROFIN LTD., HYDERABAD. PAN AADCA9399Q VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-1, HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. P. RAVISESHAGIRI RAO FOR REVENUE : MR. D. SUDHAKAR RAO DATE OF HEARING : 02.06.2015 DATE OF PRONOUNCEMENT : 05.06.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-II, HYDERABAD D ATED 14.03.2014 AND THE GRIEVANCE OF THE ASSESSEE IS PRO JECTED IN THE FOLLOWING GROUNDS RAISED THEREIN 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS TO THE EX TENT IT IS PREJUDICIAL TO THE APPELLANT HEREIN. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.15,45,89,893 ON THE GROUND THAT THE GAIN ON ASSIGNMENT OF LOAN PORTFOLIO BY THE APPELLANT WOULD BECOME TAXABLE IN ITS ENTIRETY DURING THE ASSESSMEN T YEAR UNDER CONSIDERATION 3. THE LEARNED A.O. ERRED IN NOT ALLOWING DEDUCTION U/S.35D OF RS.4,00,000. 2 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. 4. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT BY MAKIN G THE ADJUSTMENT TO THE ASSIGNMENT OF THE GAIN ON SAL E OF LOAN PORTFOLIO, THE INCOME CANNOT BE BROUGHT TO TAX IN BOTH THE ASSESSMENT YEARS. THE LD. CIT(A) OUGHT TO HAVE DIRECTED THAT THE GAIN RELATING TO THE YEAR UN DER CONSIDERATION BUT WAS ASSESSED BY THE A.O. FOR THE EARLIER ASSESSMENT YEARS SHOULD NOT BE BROUGHT TO T AX 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 T HIS 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 CONSIDERATI ON 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 POR TION 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 AMOU NT OF RS.19,42,78,577 DURING THE YEAR UNDER CONSIDERATION BEING THE NET GAIN ON ASSIGNMENT OF LOAN PORTFOLIO UNDER TYPE -1 MODEL. OUT OF THIS GAIN, AN AMOUNT OF RS.3,96,88,684 WAS O FFERED TO TAX BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WHILE THE BALANCE AMOUNT OF RS.15,45,89,893 WAS AMORTIZED AND OFFERED TO TAX AS INCOME FOR THE NEXT ASSESSMENT YEAR I.E., A.Y. 2011- 3 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. 2012. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, COPIES OF RELEVANT DEEDS OF ASSIGNMENTS ENTERED INTO BY THE A SSESSEE WITH DIFFERENT BANKS UNDER TYPE-1 MODEL WERE OBTAIN ED AND EXAMINED BY THE A.O. ON SUCH EXAMINATION, HE FOUND THAT THE ASSESSEE HAS SOLD THE LOAN PORTFOLIO IN OUTRIGHT FA SHION AND RECEIVED THE PURCHASE CONSIDERATION. HE THEREFORE R EQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE ENTIRE NET GAIN R ECEIVED ON ASSIGNMENT SHOULD NOT BE BROUGHT TO TAX IN THE YEAR UNDER CONSIDERATION ITSELF INSTEAD OF ALLOWING PART AMORT IZATION AS CLAIMED BY THE ASSESSEE. IN REPLY, DETAILED SUBMISS ION WAS OFFERED BY THE ASSESSEE WHICH, AS SUMMARIZED BY THE A.O. IN THE ASSESSMENT ORDER WAS UNDER : A) THE ASSIGNMENT OF LOANS HAS BEEN ACCOUNTED IN ACCORDANCE WITH AS - 9 AND GUIDANCE NOTE ON 'ACCOUNTING FOR SECURITIZATION' ISSUED BY ICAI. B) ASSESSEE CONTINUES TO SERVICE THE ASSETS BY WAY OF MAINTENANCE OF RECORD OF ASSIGNED PORTFOLIO, DEALS WITH THE BORROWERS AND COLLECTS THE DUES. THESE COLLECTIONS ARE DEPOSITED IN A POOL AND REMITTED TO THE ASSIGNEE BANKS ON DUE DATES; C) ASSESSEE HAS TO INCUR SUBSTANTIAL EXPENDITURE ON SERVICING THE LOANS AND COLLECTING THE RECEIVABLES. D) THE COST IS TO BE INCURRED DURING THE TENURE OF THE AGREEMENT AND IT IS DIFFICULT ~ 'TO ESTIMATE THE SAME. E) IN VIEW OF THE UNCERTAINTIES IN ESTIMATION OF THE COST OF FULFILLING THE OBLIGATIONS, IT WOULD NOT BE PROPER TO RECOGNIZE THE INCOME UPFRONT BY MERELY ARRIVING AT THE DIFFERENCE BETWEEN THE PROCEEDS RECEIVED AND THE BOOK VALUE OF THE ASSIGNED PORTFOLIO. 4 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. F) ASSESSEE HAS GIVEN CASH COLLATERAL RANGING FROM 5% TO 10% AND ALSO GUARANTEED 10% OF THE ASSETS ASSIGNED AND HENCE, INITIAL LOSS, IF ANY, IN RECOVERIES TO BE MADE IS TO BE BORNE BY THE ASSESSEE UPTO 20% OF THE ASSETS. G) IN PRACTICE, ASSESSEE FULFILLS ITS REPAYMENT OBLIGATIONS TO BANKS AS PER SCHEDULE, EVEN WHEN THE DUES HAVE NOT BEEN COLLECTED FROM THE BORROWERS; H) THE INTEREST INCOME RECEIVED IN ADVANCE ON ASSIGNMENT OF PORTFOLIO AS PART OF PURCHASE CONSIDERATION IS DEFERRED TO THE EXTENT OF PERFORMANCE UNDER THE SALE CONTRACT 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 NO TE ON ACCOUNTING FOR SECURITIZATION ISSUED BY ICAI AND O N SUCH CONSIDERATION, HE RECORDED HIS FINDINGS/OBSERVATION S AS UNDER: A) THE TRANSACTION IS A COMPLETE BUYOUT OF LOAN PORTF OLIO BY THE BANKERS AND THE ASSET IS DERECOGNIZED FROM T HE 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 A RE 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 5 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. AND THEREBY REVENUE FROM THE ASSET. FURTHER, THE SERVICER IS NOT ENTITLED EXERCISE ANY GENERAL OR PARTICULAR OR LIEN WITH RESPECT TO A BORROWER AGAINST THE ASSIGNED RECEIVABLES. AS PER THE TERMS OF THE SERVICE AGREEMENT, THE ASSIGNEE HAS THE RIGHT TO TERMINATE THE SERVICES OF THE SERVICER AND APPOINT ALTERNATE SERVICER. THIS FURTHER PROVES THAT THE PORTFOLIO BUYOUT AND SERVICING OF THE PORTFOLIO ARE NOT LINKED. D) THE PROCEDURE PRESCRIBED FOR COLLECTION AND THE COSTS INVOLVED IN SERVICE ARE NOT MATERIAL FOR RECOGNITION OF REVENUE FROM THE SALE OF PORTFOLIO; E) THE DIFFICULTY IN ESTIMATION OF SERVICING COSTS OR OBLIGATION TO SERVICE THE PORTFOLIO ARE NOT RELEVANT FOR RECOGNITION OF REVENUE FROM SALE OF PORTFOLIO AS BOTH ARE DISTINCT AND SEPARATE FUNCTIONS PERFORMED BY THE ASSESSEE; F) THE INTEREST INCOME RECEIVED ON SALE OF PORTFOLIO H AS NO LINK WITH SERVICE COST. ALSO, THERE IS NO INTEREST STRIP OR SERVICE STRIP IN THE AGREEMENT TO SELL THE PORTFOLI O; G) KEEPING OF CASH COLLATERALS INDICATES ONLY A CONTINGENT LIABILITY. ONLY THE FIRST PART IS OUT OF THE AMOUNTS RECEIVED BY THE ASSESSEE. THE ASSESSEE IS NOT PREVENTED FROM CLAIMING TRADING LOSS, IF ANY, AS AND WHEN THE ASSIGNEE INVOKES THE GUARANTEE; H) THE ASSESSEES LIABILITY, IF ANY, ON ACCOUNT OF NPAS F DEFAULTS FROM BORROWERS IS LIMITED TO THE EXTENT OF GUARANTEE GIVEN BY THE ASSESSEE. I) AS PER THE AGREEMENT, THE ASSESSEE CAN'T CLAIM OR EXERCISE ANY RIGHT OF DEDUCTION OR LIEN (GENERAL OR SPECIFIC) OR SET OFF ON, OVER OR IN RESPECT OF ANY ASSIGNED RECEIVABLES, AMOUNTS OR WRITINGS OR THINGS HELD BY IT. 4.2. ON THE BASIS OF THE ABOVE FINDINGS/OBSERVATIO NS, THE A.O. HELD THAT THERE WAS NO REASON TO AMORTIZE EVEN PARTLY THE GAIN EARNED BY THE ASSESSEE ON ASSIGNMENT OF LO AN 6 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. PORTFOLIO. HE HELD THAT SUCH AMORTIZATION WAS CONTR ARY TO PARA- 7 OF THE RELEVANT GUIDANCE NOTE WHICH CLEARLY STATE D THAT ONCE THE ASSET WAS DERECOGNIZED, THE CONSIDERATION SHOUL D BE TREATED AS GAIN OR LOSS ARISING ON SECURITIZATION A ND DISCLOSED SEPARATELY IN THE STATEMENT OF P & L ACCOUNT. ACCOR DING TO THE A.O., THE ENTIRE GAIN OF RS.19,42,78,577 THUS WAS R EQUIRED TO BE RECOGNISED BY THE ASSESSEE AS ITS INCOME IN THE YEAR UNDER CONSIDERATION INSTEAD OF ONLY RS.3,96,88,684 DECLAR ED BY THE ASSESSEE. HE THEREFORE ADDED THE BALANCE AMOUNT OF RS.15,45,89,893 TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE ORDE R DATED 22.02.2013. 5. AGAINST THE ORDER PASSED BY THE A.O. UNDER SECT ION 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEF ORE THE LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE B Y THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECOR D, THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.15,45,89,893 MA DE BY THE A.O. ON ACCOUNT OF GAIN ON ASSIGNMENT OF LOAN PORTF OLIO 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 APPELLAN T HAS ALREADY RECOVERED THE NET GAIN OF RS.19,42,78,577 /- HAS TO OFFER THE SAME TO TAX. TH E 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 7 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. INTEREST ON BEHALF OF THE BANK. THESE TWO ACTIVITIE S ARE TOTALLY DIFFERENT. BY WAY OF SELLING THE LOAN PORTFOLIO THE NET GAIN OF RS.19,42,78,577/- WAS ALREADY RECEIVED BY TL1E APPELLANT. EVEN IN THE WORST SCENARIO, WHERE THE APPELLANT FAILS TO RECOVE R THE LOANS DUE FROM THE BORROWERS, HIS RISK IS RESTRICTED TO THE EXTENT OF COLLATERAL GIVEN TO THE BANKS. EVEN IF THE BORROWERS DEFAULT, IF THE RECOVERIES ARE ADJUSTED AGAINST COLLATERAL DEPOSITS , AS AND WHEN SUCH EVENTUALITY ARISES SUCH CLAIM CAN BE MADE U/S.36(1)(VII). IN ANY CASE, THE FEARS EXPRESSED BY THE APPELLANT WITH REFERENCE TO RECOVERY ARE MERELY HYPOTHETICAL AND IRRELEVANT, IN SUMMARY, FOR THE REASONS MENTIONED IN THE ABOVE PARAS, I FIND NO REASON AS TO WHY THE TAXING OF RS.15,45,89,893/- IS TO BE POSTPONED FOR A.Y. 2011- 12. THEREFORE, THE ADDITION MADE BY THE A.O. IS SUSTAINED. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH THE S IDES, THIS ISSUE INVOLVED IN THE APPEAL OF THE ASSESSEE IS SQU ARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE B Y THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN AS SESSEES OWN CASE FOR THE A.Y. 2009-2010 RENDERED VIDE ITS O RDER DATED 30.01.2015 PASSED IN ITA.NO.137/HYD/2013. A COPY OF THE SAID ORDER IS PLACED ON RECORD BEFORE US AND PERUSA L OF THE SAME SHOWS THAT SIMILAR ISSUE HAS BEEN DECIDED BY T HE TRIBUNAL AGAINST THE ASSESSEE FOR THE FOLLOWING REA SONS 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.2 5,75,50,626/- OUT OF WHICH DISCOUNT WAS GIVEN TO AN EXTENT OF RS.1,41,74,070/- AND MAINLY ON FUTURE INTEREST RECE IVABLES. THUS, OUT OF THE INTEREST RECEIVABLES OF RS.2,96,16 ,526/- AS FUTURE INTEREST, ASSESSEE DISCOUNTED THE SAME FOR A N AMOUNT OF RS.1,41,74,070/- AND RECEIVED THE GAIN OF RS.1,54,4 2,456/-. THUS, SHORT OF THE ACCOUNTING ENTRIES MADE, THE BAS IC PRINCIPLE INVOLVED IN THIS SALE OF PORTFOLIO IS THAT AS FAR A S PRINCIPAL 8 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. AMOUNT IS CONCERNED, NO DISCOUNT WAS CONSIDERED AS THE ENTIRE PORTFOLIO WAS GIVEN AT THE BOOK VALUE ONLY. ONLY I NTEREST RECEIVABLE SOLD TO THE PURCHASER, HOWEVER, WAS DISC OUNTED. 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 ASSES SEE'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 A N AMOUNT ACCRUED DURING THE YEAR AND SO, THE SAME IS DEFERRE D TO LATER YEAR. IT IS THIS AMOUNT WHICH IS UNDER DISPUTE. AS THIS TRANSACTION GIVEN AS AN EXAMPLE ABOVE HAS OCCURRED ON 19 TH MARCH 09 AND AS NO INTEREST IS RECEIVABLE DURING TH AT MONTH, ASSESSEE HAS DEFERRED THE ENTIRE AMOUNT OF GAIN TO THE LATER YEAR. THERE ARE MANY SUCH TRANSACTIONS ENTERED REG ULARLY BY ASSESSEE DURING THE COURSE OF YEAR AND TO THE EXTEN T 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 I S MORE OR LESS SIMILAR TO THE BILL DISCOUNTING SYSTEM, WHI CH IS GENERALLY FOLLOWED BY MANY IN THE BUSINESS. IN THE BILL DISC OUNTING SYSTEM, A PERSON WHO DISCOUNTS THE BILL TAKES THE I NTEREST 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 SAL E CONSIDERATION. EVEN THOUGH, THERE ARE CERTAIN DEPO SITS KEPT WITH THE BANKS FOR THE PURPOSE, THE FACT IS THAT OU T 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 O F SALE OF PORTFOLIO, THERE IS A GAIN OF RS.1.54 CRORES. THIS AMOUNT RECEIVED BY ASSESSEE IS IN A WAY DISCOUNTED INTERES T ON THE FUTURE RECEIVABLES. SINCE THIS AMOUNT IS ALREADY R ECEIVED BY ASSESSEE, QUESTION OF POSTPONING THE ACCRUAL DOES N OT ARISE. HAD ASSESSEE BEEN ACCOUNTING THE INTEREST RECEIVABL ES AS AND WHEN ACCRUED, WITHOUT SALE OF THE PORTFOLIO, IT HAS TO BE ADMITTED THAT FUTURE INTEREST CANNOT BE TAKEN AS IN COME. 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 ABO VE EXAMPLE, OUT OF THE TOTAL AMOUNT OF RS.2,96,16,526/- RECEIVA BLE 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 T OTAL 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 9 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. WAY, OUT OF THE BOOK VALUE OF RS.22.79 CRORES OF PO RTFOLIO, ASSESSEE DID RECEIVE RS.24.33 CRORES THEREBY HAVING THE GAIN OF RS.1.54 CRORES. SINCE THE TRANSACTION HAPPENED O N 19 TH MARCH, THE ENTIRE AMOUNT IS TO BE ACCOUNTED AS INCO ME ON THAT TRANSACTION AS A GAIN. 13. SIMILAR ISSUE WAS CONSIDERED BY THE HON'BLE MAD RAS 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: '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 ENGA GED IN LEASE, HIRE PURCHASE, BILLS DISCOUNTING AND MORTGAG E 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 CLAIM ED 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 I S COMPLETE AT THE MOMENT THE CUSTOMER IS GIVEN 90 PER CENT OF THE VALUE OF THE BILL. THE DISCOUNT IS EQUIVALENT TO THE INTEREST A ND IT ACCRUED AT THAT POINT. (II) THAT THE DEBTS WERE SHOWN AS WRITTEN OFF ON TH E BASIS OF THE FORMULA GIVEN BY THE RESERVE BANK OF INDIA. WRITIN G OFF THE DEBT AS BAD REQUIRES JUDGMENT ON THE PART OF THE PE RSON CARRYING ON THE BUSINESS BUT IN THE PRESENT CASE, T HE DEBTS HAD BEEN 'WRITTEN OFF' MERELY ON THE BASIS OF THE RBI N ORMS AND NOTHING MORE. THUS, THEY WERE NOT DEDUCTIBLE UNDE R SECTION 36. 14. SINCE, PRINCIPLES OF BILL DISCOUNTING AND ACCOU NTING ENTRIES ARE SIMILAR TO THE PORTFOLIO SALE/SECURITIZ ATION OF LOAN PORTFOLIOS, BEING THE METHOD INVOLVED BEING SAME, W E UPHOLD THE ORDERS OF ASSESSING OFFICER AND CIT(A) ON THE I SSUE. IN FACT, BOTH ASSESSING OFFICER AND CIT(A) ANALYZED THE ACCO UNTING PRINCIPLES, AGREEMENTS AND CAME TO CONCLUSION THAT THE AMOUNTS HAVE ACCRUED AT THE TIME OF SALE OF PORTFOL IO. WE AFFIRM THE SAME AND HOLD THAT THE AMOUNT OF RS.13,09,44,31 5/- BEING THE AMOUNT OF DISCOUNTED FUTURE INTEREST RECEIVED B Y ASSESSEE 10 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. DURING THE YEAR IS TAXABLE IN THE YEAR. ACCORDINGL Y, WE UPHOLD THE ORDERS OF ASSESSING OFFICER AND REJECT THE GROU ND OF ASSESSEE. 6.1. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS REL EVANT THERETO ARE SIMILAR TO A.Y. 2009-2010, WE RESPECTFULLY FOLL OW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL R ENDERED FOR A.Y. 2009-2010 AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE ADDITION OF RS.15,45,89,893 M ADE BY THE A.O. ON ACCOUNT OF GAIN ON ASSIGNMENT OF LOAN PORTF OLIO BY THE ASSESSEE. GROUND NO.2 OF THE ASSESSEES APPEAL IS A CCORDINGLY DISMISSED. 7. 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). 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL A VAILABLE ON RECORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASS ESSEE, 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 PREVIOU S YEAR RELEVANT TO A.Y. 2007-2008. HE HAS SUBMITTED THAT A LTHOUGH 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 ASSESSE E UNDER SECTION 35D. HE HAS SUBMITTED THAT THE ASSESSEE HAS DISPUTED THE DISALLOWANCE MADE UNDER SECTION 35D IN A.Y. 200 7-2008 IN THE APPEAL FILED BEFORE THE LD. CIT(A) WHICH IS STI LL PENDING. HE HAS CONTENDED THAT SINCE THE ISSUE RELEVANT TO THE ASSESSEES 11 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. CLAIM FOR DEDUCTION UNDER SECTION 35D AS INVOLVED I N THE YEAR UNDER CONSIDERATION IS CONSEQUENTIAL TO THE SIMILAR ISSUE INVOLVED IN THE INITIAL YEAR I.E., A.Y. 2007-2008 F OR WHICH THE APPEAL IS PENDING BEFORE THE LD. CIT(A), THE SAME M AY BE REMITTED BACK TO THE LD. CIT(A) FOR DECIDING THE SA ME AFRESH DEPENDING ON HIS DECISION ON A SIMILAR ISSUE FOR TH E INITIAL YEAR. SINCE THE LEARNED D.R. HAS ALSO NOT RAISED AN Y 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 ASSESSEES OWN CASE FOR A .Y. 2007- 2008 FOR WHICH THE APPEAL IS PENDING WITH HIM. GROU ND NO.3 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALL OWED FOR STATISTICAL PURPOSES. 9. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED GROUND NO.4 RAISED BY THE ASSESSEE IN THIS APPEAL. THE SAME IS ACCORDINGLY DISMISSED A S NOT PRESSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREAT ED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05.06.2 015. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 05 TH JUNE, 2015. VBP/- 12 ITA.NO.990/HYD/2014 ASMITHA MICROFIN LTD., HYDERABAD. COPY TO 1. ASMITHA MICROFIN LTD., HYDERABAD. C/O. MR. S. RAMA RAO, ADVOCATE, 102, SHRIYAS ELEGA NCE, 3-6-643, STREET NO.9, HIMAYATNAGAR, HYDERABAD. 2. ADDL. COMMISSIONER OF INCOME TAX, RANGE-1, HYDER ABAD. 3. COMMISSIONER OF INCOME TAX (APPEALS)-II, HYDERAB AD. 4. COMMISSIONER OF INCOME TAX-I, HYDERABAD. 5. D.R. I.T.A.T. B BENCH, HYDERABAD. 6. GUARD FILE