Tax Tribunal: Gain from loan portfolio assignment fully taxable in year received. Section 35D deduction issue remitted.

The Tribunal upheld the addition of Rs. 15,45,89,893 to the total income of a microfinance institution, ruling that the entire gain from the assignment of the loan portfolio should be taxed in the year of receipt. The Tribunal also remitted the issue of deduction under section 35D back to the CIT(A) for fresh consideration, while dismissing general grounds and unpressed grounds. The appeal was partly allowed for statistical purposes.

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Issues Involved:
1. Confirmation of addition of Rs. 15,45,89,893 on the gain from the assignment of the loan portfolio.
2. Disallowance of deduction under section 35D amounting to Rs. 4,00,000.
3. General grounds and other grounds not specifically adjudicated.

Detailed Analysis:

Issue 1: Confirmation of Addition of Rs. 15,45,89,893
The assessee, a microfinance institution, filed a return of income declaring Rs. 90,79,46,733. During the year, it sold a portion of its loan portfolio to banks, receiving Rs. 19,42,78,577 as net gain from the assignment under Type-1 model. The assessee recognized Rs. 3,96,88,684 as income for the year and amortized the remaining Rs. 15,45,89,893 for the next assessment year (A.Y. 2011-2012). The AO, upon examining the deeds of assignments, found that the assessee sold the loan portfolio outright and received the purchase consideration. He concluded that the entire net gain should be taxed in the year of receipt rather than allowing amortization, citing the guidance note on accounting for securitization by ICAI. Consequently, the AO added Rs. 15,45,89,893 to the total income.

The CIT(A) confirmed this addition, stating that there was no reason to amortize the gain and that the entire amount should be taxed in the year of receipt. The CIT(A) emphasized that the sale of the loan portfolio and the collection agent agreement were distinct activities, and the risk to the assessee was limited to the extent of collateral provided to the banks.

The Tribunal upheld the CIT(A)'s order, referencing a similar decision in the assessee's case for A.Y. 2009-2010. The Tribunal noted that the assessee's method was akin to bill discounting, where the income accrues at the time of discounting. The Tribunal concluded that since the assessee received the discounted amount as part of the sale consideration, the gain should be recognized in the year of receipt.

Issue 2: Disallowance of Deduction under Section 35D
The AO disallowed the assessee's claim for deduction under section 35D amounting to Rs. 4,00,000, which was confirmed by the CIT(A). The assessee argued that the relevant expenditure was incurred in the previous year related to A.Y. 2007-2008, and although initially allowed, the AO subsequently reopened the assessment and disallowed the deduction. The assessee's appeal against this disallowance was pending before the CIT(A).

The Tribunal remitted this matter back to the CIT(A) for fresh consideration, depending on the decision in the appeal for A.Y. 2007-2008. The Tribunal allowed this ground for statistical purposes.

Issue 3: General Grounds and Other Grounds
Ground Nos. 1 and 5 were general in nature and did not call for specific adjudication. Ground No. 4 was not pressed by the assessee during the hearing and was dismissed as not pressed.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal upholding the addition of Rs. 15,45,89,893 and remitting the issue of deduction under section 35D back to the CIT(A) for fresh consideration. The general grounds and unpressed grounds were dismissed. The order was pronounced in the open Court on 05.06.2015.

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