Revenue's Claim of Loss on Finance Receivables Dismissed by Tribunal

The Revenue's appeal against the deletion of an addition of Rs. 15,98,86,715/- on account of a claim of loss on the sale of finance receivables for Assessment Year 2011-12 was dismissed. The Learned Commissioner of Income Tax (Appeals) relied on precedent and found the transactions were in line with regulations and commercial practices. The Tribunal upheld the decision, noting the lack of evidence supporting the Revenue's claim of tax avoidance. The appeal by the Revenue was dismissed, affirming the deletion of the addition.

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Issues Involved:
1. Deletion of addition of Rs. 15,98,86,715/- on account of claim of loss on sale of finance receivables.

Summary:

1. Deletion of Addition of Rs. 15,98,86,715/- on Account of Claim of Loss on Sale of Finance Receivables:

The Revenue appealed against the order of the Learned Commissioner of Income Tax (Appeals)-22, New Delhi (Ld. CIT(A)), dated 29.10.2018 for Assessment Year 2011-12, which deleted the addition of Rs. 15,98,86,715/- made on account of claim of loss on sale of finance receivables. The Ld. Departmental Representative argued that the Ld. CIT(A) erred in deleting the addition and relied on the assessment order u/s 143(3) read with Section 144C of the Act.

The Assessee's Representative countered that the Ld. CIT(A) had correctly relied on the order of the Co-ordinate Bench of the Tribunal in the case of GE Money Financial Services Pvt. Ltd. for Assessment Year 2002-03 to 2005-06, which supported the deletion of the disallowance.

Upon review, it was found that the Ld. CIT(A) had indeed relied on the Co-ordinate Bench's order. The assessee, an NBFC, had assigned finance receivables to Shri Ram Transport Finance Company Limited (STFCL), resulting in a loss debited to the Profit and Loss account. The AO disallowed the loss, citing incomplete transfer of loan facilities. However, the Ld. CIT(A) noted that the assignment agreements were completed within the year, and the transactions were in line with RBI guidelines and commercial practice.

The Ld. CIT(A) observed that the transactions were completed, supported by bank certificates and transfer of underlying documents. The indemnification clause was for breach of representation or warranty, not affecting the loss claim. The Ld. CIT(A) also noted that the sale of finance receivables was a commercial decision to minimize business loss, allowable u/s 28 of the Act. Additionally, the loss could be considered as bad debts, fulfilling conditions u/s 36(1)(vii) read with section 36(2)(i).

The Ld. CIT(A) referenced the Hon'ble Jurisdictional ITAT's decision in the case of GE Money Financial Services Pvt. Ltd., where similar issues were decided in favor of the assessee. The Hon'ble Delhi High Court had also upheld the ITAT's decision. The AO's allegation of the transaction being a collusive device to avoid tax was unsupported by evidence.

Respectfully following the Co-ordinate Bench's decision, the Tribunal found no error in the Ld. CIT(A)'s order. The grounds of appeal by the Revenue were dismissed, and the appeal filed by the Revenue was dismissed.

Order pronounced in open Court on 19th July, 2023

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