Mahindra and Mahindra Financial Services Ltd Vs DCIT (ITAT Mumbai)
Reversal of Earlier Disallowed Provisions Not Taxable Because No Prior Deduction Was Allowed; ITAT Deletes Addition on Securitisation Provision Write-Back Due to Double Taxation Risk; Book Reversal Alone Cannot Create Taxable Income; ITAT Allows Reduction of Securitisation Provision Reversal From Taxable Income; Double Taxation Avoided Because Earlier Securitisation Provisions Were Already Disallowed; ITAT Upholds Relief on Securitisation Provision Reversal Due to Documentary Evidence.
The Income Tax Appellate Tribunal (ITAT), Mumbai, in Mahindra and Mahindra Financial Services Ltd. vs DCIT, considered whether reversal of previously disallowed provisions relating to securitisation transactions could again be taxed upon being written back in later assessment years. The dispute involved Assessment Years (AYs) 2013-14 and 2014-15.
The assessee, a registered Non-Banking Financial Company (NBFC), was engaged in providing financial services and securitisation transactions. Under these transactions, loan receivables were sold to banks and investors for immediate cash consideration, and the loans were derecognised in the books of account. At the time of entering into securitisation arrangements, the assessee estimated future losses arising from customer defaults and estimated expenses likely to be incurred for recovery of loans. Based on historical rates and past experience, provisions for estimated loss on securitisation and estimated expenses on securitisation were created in AYs 2009-10 and 2010-11.
