ITO Vs. Scheme A1 of ARCIL CPS (ITAT Mumbai)
Reversal of the impairment provision created by the assessee in the earlier years in respect of the financial asset was merely a book entry without any corresponding amount payable by anybody or any possibility of receiving any benefit or money or money’s worth. We are of a strong conviction that a write-back of a provision can be made taxable only if the same was claimed as a deduction in the earlier year when it was created. We have perused the observations of the CIT(A), and are in agreement with the view therein taken by him. Accordingly, concurring with the view taken by the CIT(A) that the write-back of the impairment provision of Rs.59,76,25,576/- could not have been treated as the income of the assessee, we uphold the same.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-33, Mumbai, dated 03.01.2018, which in turn arises from the assessment order passed by the A.O under Sec. 143(3) of the Income Tax Act 1961 (for short „Act‟), dated 15.03.2016 for A.Y. 2013-14. The revenue has assailed the impugned order on the following grounds of appeal before us:
1. “Whether on the facts and circumstances of the case and in law, the Ld CIT(A) is justified in not appreciating the action of the AO in treating the assessee as AOP on the basis of the nature of activity carried out by the assessee and “the high yield/profit earned by it from NPA purchased at a very low/nominal cost and several other reasons discussed in the Assessment order?”
2. “Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in ignoring the fact that the assessee actually earned the income on low cost NPAs purchased by it indicating thereby that it is engaged in business activity with a profit motive?”
3. “Whether on facts and circumstances of the case and in law, the Ld CIT(A) was justified in deleting the entire addition of Rs.57,56,60,600/-, made on account of surplus from income and expenditure account holding that it is a result of write-back of impairment provision of Rs.59,76,25,576/-, without appreciating the fact that there was interest income of Rs.23,90,228/- and other (income of Rs.4598/- and out of total assets of Rs.460,OO,52,378/- assets of Rs.96,91,64,749.71 were realized during AY 2013-14 and cumulatively over the years assets of Rs.248,60,41,676.40 were realized while the acquisition expense during the year under consideration was merely Rs.223.14?”
4. “Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in not appreciating the action of the AO in holding that the assessee trust is not a revocable trust since contributors have practically no control over the income arising out of the activities of the fund and the contribution can be revoked only with the consent of the contributors holding 75% of the units and thus the assessee will not be eligible for the benefit of section 61 to 63 of the Income Tax Act, 1961 not being a revocable trust. The Ld. CIT(A) has also erred in not appreciating the action of the AO in regard that the section 61 to 63 of the Income Tax Act, 1961 are anti-avoidance provisions to plug any leakage or diversion of legitimate income?”
5. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the action of the AO in this regard that the section 61 to 63 of the Income Tax Act, 1961 are anti-avoidance provisions to plug any leakage or diversion of legitimate income?”
6. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee trust and the beneficiaries have joined in a common purpose or common action, the object of which was to produce income, profit and gains and therefore, the assessee is liable to be categorized as an AOP and has to be taxed accordingly?”
7. “Whether on facts and circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition made by the AO amounting to Rs. 57,56,60,600/-, being surplus of income over expenditure in the revenue account of the assessee?”
8. “The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the assessing officer be restored.”
2. Briefly stated, the assessee is a trust called “Scheme A1 of Arcil CPS002 xi Trust” set up by the Asset Reconstruction Company (India) Ltd. (for short „ARCIL‟) on 27th December, 2007 in pursuance to the provisions of Securitization and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002 (SARFAESI Act) and the guidelines of RBI to acquire financial assets of the borrowers classified as non-performing assets (NPAs). ARCIL is registered with RBI under Sec. 3 of SARFAESI Act as a Securitization and Reconstruction Company. ARCIL acts as a trustee of the assessee in pursuance to the provisions of the aforesaid Act and the RBI guidelines. Accordingly, ARCIL acquires stressed financial assets that are classified as NPAs from the banks/FIs. The assessee had filed its return of income for A.Y. 2013-14 on 13.09.2013, declaring its total income at Rs. Nil. The return of income filed by the assessee trust was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
3. During the course of the assessment proceedings, it was observed by the A.O that the assessee trust that was set up for the purpose of liquidating/recovering/realizing the non-performing assets (NPAs) which were taken over by the assessee was registered under Sec. 3 of the SARFAESI Act, 2002 by the RBI, and had the following partners/members/shareholders:
