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G.E. Money Financial Services Ltd. (Formerly known as GE Countrywide New Delhi Consumer Financial Services Ltd.) Versus DCIT, Circle 12 (1) , Mumbai

2015 (11) TMI 989 - ITAT DELHI

Revision u/s 263 - loss on sale of repossessed assets and loss on sale of bad loan portfolio - Held that:- In this case, the Ld.CIT has not referred to any material from which it could be said that the acceptance of the assessee’s submissions and details by the A.O. was not warranted, either in law or on facts. The Ld.CIT has not given any material or evidence which would contradict the assessee’s version and which aspect has not been adverted to by the A.O. while completing the assessment. For .....

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udicial assessment order passed by the A.O. The A.O. has not verified either (a) the allowability of the loss in principle or (b) where the claim is factually correct as quantification of the loss has not been verified by the A.O. In our opinion such exercise of powers u/s 263 of the Act is in accordance with law. Just because the Ld.CIT has come to a conclusion that in principle the loss in question is a business loss, it does not lead to a conclusion that the quantification has to be accepted .....

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ts, the Ld.CIT could have verified whether the assessee had suo moto disallowed the provision and the revision on this count would result in a double disallowance. Without coming to a firm conclusion on this issue, despite the submissions and evidences submitted by the assessee, it is wrong on the part of the Ld.CIT to simply set aside the matter to the file of the A.O. for fresh adjudication.

In any event as we have upheld the order passed u/s 263 of the Act on the first two issues, .....

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r All these appeals are filed by the assessee directed against separate orders passed u/s 263 of the Act by the CIT- Delhi IV for the Assessment Years (A.Y.) 2002-03, 2003-04 and 2004-05. ITA 2444/Del/07 is an appeal filed against the order passed by the Ld.CIT, Delhi-IV for the A.Y. 2002-03 on 21.3.2007, u/s 263 of the Act. ITA 1941/Del/2008 is directed against the order passed by the Ld.CIT-IV for the A.Y. 2003-04 on 31.3.2008 u/s 263 of the Act. ITA 2123/Del/09 is filed by the asssessee direc .....

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It filed its return of income on 31.10.2002, for the A.Y. 2002-03, declaring total income of ₹ 96,28,250/- under the normal provisions of the Act. Book profits u/s 115 JB of the Income Tax Act 1961 (the Act) was declared at ₹ 7,35,87,254/-. The assessment was completed u/s 143(3) of the Act on 25.2.2005. The Ld.CIT, Delhi -IV revised the order, passed by the Assessing Officer u/s 143(3) of the Act on 25.2.2005, by invoking his powers u/s 263 of the Act. The revision was made on the f .....

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bad loan port folio, as also for carrying out the verification of the claim that, the excess provision of ₹ 32 lakhs on securitised assets was in fact, added back to the total income of the assessee company itself and hence no further disallowance was called for. The AO was directed to dispose of these issues as per law. 3.2. Aggrieved the assessee is in appeal before us on the following grounds. 1. That on the facts and in the circumstances of the case and in law, the impugned order u/s .....

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case and in law, the Ld.CIT-IV, Delhi (CIT) erred in alleging that the assessment order u/s 143(3) of the Act was erroneous in allowing deduction of ₹ 494.77 lacs towards loss on sale of repossessed assets and ₹ 209.05 lacs towards loss on sale of loan portfolios. 3.1. That on the facts and in the circumstances of the case and in law, the Ld.CIT erred in not appreciating that the Assessing Officer, having accepted that these losses were business losses, could not be said to be in er .....

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sessee Mr.Sanjeev Sabharwal submitted as follows. (a) There is no loss to the Revenue on any of these issues on which revision has been done by the Ld.CIT for the reason that, the assessee could have claimed 100% of the debt as bad debt, but instead had claimed only a limited amount by way of loss on sale of repossessed assets and had rightly claimed business loss, on sale of bad loan portfolio. As far as the allowability of excess provision made on securitised assets is concerned, he submitted .....

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ished by the assessee. Just because the A.O. did not reflect the fact of verification, in the assessment order, it ipso facto does not lead to a conclusion that there was no enquiry by the A.O. (c) What are the proper, requisite and desired enquiries in relation to, various matters during the course of assessment proceedings is at best left to the discretion of the A.O. and the presumption is that the officer involved acted in a bonafide and diligent manner. (d) The Ld.CIT has not based his conc .....

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nquiry nor lack of application of mind and it is a possible view taken by the A.O. (f) When the A.O. has drawn inferences after making enquiries, the Ld.CIT does not have any jurisdiction u/s 263 of the Act, to cancel the assessment order. The object of S.263 of the Act is not to make rowing and endless enquiries. (g) There is a distinction between lack of enquiry and inadequate enquiry. Reliance is placed on the judgement of Hon ble Delhi High Court in the case of M/s Sun Beam Auto Ltd. in ITA .....

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loss is uncalled for, as the A.O. relied upon the audited accounts of the assessee for quantification and this cannot be faulted with. (j) The Ld.CIT has not specified anywhere in his order passed u/s 263 of the Act, as to what is the prejudice caused to the interest of the Revenue and hence the revision is bad in law. (k) For the A.Y. 2004-05 one more issue arises i.e. the allowability of the claim for depreciation @ 15% of lease hold improvements, instead of the rate of 10% allowable on the p .....

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Cola Beverages P.Ltd. vs. DCIT in ITA 2274/Del/07 and 2038/Del/08 - ITAT Delhi Bench order dt. 25.8.2009 (v) CIT vs. Citi Financial Consumer Finance Ltd. Reported in 335 ITR 29 (Del.) (vi) Malabar Industrial Co.Ltd. vs. CIT reported in 243 ITR 83 (S.C.) 5. Smt.Sulekha Verma, Ld.CIT, D.R. on the other hand vehemently controverted the submissions of Shri Sanjeev Sabharwal, the Ld.Senior Counsel for the assessee. She argued that: (a) The Ld.CIT has not in principle, accepted that the loss on sale .....

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th the Notes thereto, has not been examined by the A.O. That the A.O. has simply collected replies but has not applied his mind to the issues in question and had simply accepted the replies of the assessee. That the A.O. has kept mum on the reply given by the assessee and hence it is a case of no enquiry due to non application of mind. (d) That before the Ld.CIT, voluminous data has been filed by the assessee, the Ld.CIT cannot by himself come to a conclusion and hence the matter was remanded ba .....

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of claim on depreciation of improvements to lease hold property it was submitted that the A.O. has not conducted any verification and hence there is no application of mind and the assessee should have no grievance as it is an open remand to the A.O. (f) It was further submitted that the Ld.CIT has come to a conclusion that the order of the AO is erroneous and prejudicial to the interest of the Revenue for the reason that, these claims have been allowed either without verification or without due .....

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lied on the orders of the Ld.CIT u/s 263 of the Act for all the three A.Ys and prayed that the same be upheld. 6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, on perusal of material available on record, orders of lower authorities and case laws cited, we hold as follows. 7. We first take up the appeals for the A.Y. 2004-05 and 2005-06. Before we go into the legal arguments on the correctness of the action of the Ld.CIT, in invoking his powers u/ .....

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actions the company does not claim any depreciation and reflects the hire purchase receivables from the hirers in the balance sheet as hire purchase receivables (refer schedule 10 of the audited accounts on record). In case of hire purchase, in the event the hirer defaults in payment of instalments, the company repossesses the stock given by it on hire purchase. Similarly in case of auto or consumer loans the loan is hypothecated against the auto/two wheeler or the consumer durable as a security .....

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ble income. Thereafter, assessee taking a commercially prudent decision sells these repossessed assets to interested buyers. On sale the excess/shortfall of the sale proceeds vis a vis the amount recoverable from the hirers is booked as business profit/loss in the profit and loss account under Schedule 21: operating expenses under the head loss on sale of repossessed assets. The unsold repossessed stock lying in the possession of the company in the year end continues to form part of current asse .....

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of the assessee company which is to provide financial assistance to the customers in acquiring wide range of consumer and auto products besides selling vehicles and other consumer products under hire purchase scheme and giving assets on lease. In his report furnished vide his letter F.No.DCIT/Cir.12(2)/2006-07/1702 dt. 7.2.2007, the A.O., DCIT 12(1), New Delhi has also expressed similar view. The fact, however, remains that it does not emerge from a perusal of the assessment records that as to w .....

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essee company itself as is being claimed in the present proceedings before me. Accordingly, the assessment order dt. 25.2.2005 u/s 143(3) of the Act for the AY 2002-03 is held to be erroneous and prejudicial to the interests of revenue. In the circumstances, it is considered fair and reasonable to set aside the assessment on the limited point for verification of correctness of deductions claimed at ₹ 497.77 lacs on account of loss on sale of repossessed stocks and of ₹ 209.05 lacs on .....

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e-possessed assets and loss on sale of bad loan portfolio per se, as a business loss, is not disputed by the Ld.CIT. He only doubts whether the quantification of the claim is correct or not. This is because the A.O. has not enquired into these aspects during the course of assessment proceedings. Thus he sets aside the assessment to the file of the A.O. for the limited purpose of verification of the correctness of the quantification of the deduction claimed. Hence we need not labour much on the i .....

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ch were registered in the name of hire purchaser and the repossessed assets sold were not taken into the assessee s stock in trade. The assessee had claimed loss on revaluation and not loss on actual sale. Under such circumstances the Hon ble High Court held that any loss in revaluation of the said vehicles did not arise. The Hon ble Court was considering the allowability of the estimated possible loss on revaluation of these repossessed assets. In the case on hand the assessee has repossessed t .....

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oss incurred on sale of loan portfolio, the claim of the assessee is that, this is in the nature of bad debts written off and hence allowable u/s 36(1)(vii) r.w.s.36(1) of the Act. It was submitted that out of business prudence and commercial expediency, the assessee sold part of its loan portfolio consisting mainly of non-performing assets, as otherwise the assessee would have suffered higher losses. The loss incurred on sale of loan portfolio represents the outstanding dues from defaulting cus .....

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.O. vide order sheet entry dt. 17th August, 2006 had raised a specific query in respect of allowability of loss on sale of repossessed assets amounting to ₹ 11,14,37,000/-. The assessee vide reply dt. 4th October,2006, made detailed factual and legal submissions on the allowability of the claim. A copy of these are furnished as part of the paper book. We have perused the same. 8.3. After considering these submissions of the assessee in response to the query which included, party wise detai .....

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e case of CIT vs. Sunbeam Auto Ltd. (supra) has held as follows. Held, dismissing the appeal, : (i) That the AO allowed the claim on being satisfied with the explanation of the assessee. Such decision of the A.O. could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. The AO had called for explanation on the very item from the assessee and the assessee had furnished its explanation. This fact was conceded by the Commissioner himself i .....

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the machines. They needed constant replacement, as their life was not more than a year. The assessee also explained that since the parts were manufactured for the automobile industry, which had to work on complete accuracy at high speed for a longer period, replacement of the arts at short intervals becomes imperative to retain the accuracy. With the replacement of tools and dies no new asset comes into existence nor was their benefit of enduring nature. They did not even enhance the life of the .....

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5 ITR 83 (Del) has held as follows. Held, dismissing the appeal, that the present case would not be one of lack of inquiry even if the inquiry was termed inadequate. The Tribunal found that complete details were filed before the AO and that he applied his mind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The Tribunal held that the Ld.CIT in proceedings u/s 263 also had all these details and material available before him, but .....

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f chit fund. Assuming this to be so, this might make the order erroneous, but how it was prejudicial to the interest of the Revenue had not been stated by the Ld.CIT as he did not deal with the explanation given by the assessee in the course of S.263 proceedings. The Commissioner observed in his order that the assessee had not filed certain documents on the record at the time of assessment. Assuming this was so it did not justify the conclusion arrived at by the Commissioner that the AO had shir .....

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valid. 8.7. Applying the propositions laid down in the above judgements, we hold that this is not the case of lack of enquiry. The Ld.CIT cannot invoke his powers u/s 263 of the Act on the ground that, in his opinion it is a case of of inadequate enquiry. 8.8. On this sole ground itself these orders passed u/s 263 of the Act for both the A.Ys have to be quashed. 8.9. Further more, in our opinion, the Ld.CIT has not demonstrated as to what is the prejudice caused to the Revenue in the above cases .....

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or both the A.Ys is bad in law on the issue of (a) loss on sale of repossessed assets; (b) loss on sale of bad loan portfolio. 10. Coming to the issue that arises, only in the A.Y. 2004-05 i.e. depreciation on improvements to leasehold assets, we find that the Ld.CIT has gone on a wrong presumption that the depreciation is claimed for renovation of building. When the clarification has been given by the assessee that it is only depreciation of furniture and fixtures he remanded the issue to the f .....

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has been passed purportedly without application of mind would itself confer jurisdiction upon the A.O. who reopen the proceedings without anything further, the same would amount to be a prejudicial authority exercising quasi judicial function to take the benefit of its own wrong. 10.2. In this case, the Ld.CIT has not referred to any material from which it could be said that the acceptance of the assessee s submissions and details by the A.O. was not warranted, either in law or on facts. The Ld .....

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ome to a definite conclusion that the loss in question is a business loss. This does not mean that the lack of enquiry by the A.O. would not be considered as erroneous and prejudicial assessment order passed by the A.O. The A.O. has not verified either (a) the allowability of the loss in principle or (b) where the claim is factually correct as quantification of the loss has not been verified by the A.O. In our opinion such exercise of powers u/s 263 of the Act is in accordance with law. Just bec .....

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of the assessee and on the second issue, set aside the order for fresh adjudication. 10.3. For this year the decision of the Hon ble Delhi High Court in the case of Duggal & Co. Reported in (supra) is squarely applicable. The Hon ble Delhi High Court in the case of Duggal & Co. (supra) held as follows. Held, the Commissioner is perfectly competent to exercise his powers u/s 263 whenever he has found, prima facie, that there is need to enquire, if the interest of the revenue has suffered .....

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