ARCs are supposed to recognize upside income only after full redemption of Security Receipts (SRs), except for Management fees which is to be recognized on accrual basis.

The captioned appeals filed by the revenue in the case of the aforementioned assessee‟s are directed against the respective orders passed by the CIT(A)-32, Mumbai, each dated 30.11.2018, which in turn arises from the respective assessment orders passed by the A.O under Sec. 143(3) of the Income Tax Act 1961 (for short „Act‟). As common issues are involved in the aforementioned appeals, the same therefore are being taken up and disposed off together by way of a consolidated order. We shall take up the appeal of the revenue in ITA No. 929/Mum/2019 as the lead case. The revenue has assailed the impugned order on the following grounds of appeal before us:

1. a) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the section 167B of the IT Act is applicable on the assessee instead of section 164 (1) of the IT Act

b) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact that in this case investors/ contributors are also the beneficiaries and at the date of creation of trust, beneficiaries were not identifiable.

(c) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact of the Circular, No. 13/2014, in which board has clarified that the trusts which are non-charitable trusts where the investors name and beneficial interest are not explicitly known on the date of its creation - such information becoming available only when the funds starts accepting contribution from investors, hfwe to be treated as falling within section 164 (l) of the Act and the fund should be taxed in respect of the income received on behalf of the beneficiaries at the maximum marginal rate.

2. a) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.1,04,37,543/ - on the ground that the AO did not consider the cost of purchases of assets sold during the year.

b) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact that during the assessment proceedings the assessee has failed to submit the details of cost of purchases of the assets sold even after asked by the AO.

c) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in holding that as per the guidelines of the RBI, no upside income should be recognized till the full redemption of the entire principal security receipts and ignored the fact that as per the IT Act, the assessee has to offer for taxation any income which accrues or arises or deemed to accrue or arise in India during such year.

3. "The appellant prays that the order of the 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 created by Asset Reconstruction Company (ARC) namely, India SME Asset Reconstruction Company Ltd. (for short “ISARC”) for the purpose of liquidating/recovering/realizing the Non- Performing Assets (NPAs) taken over by ISARC. The assessee trust had e-filed its return of income on 03.08.2013, declaring its total income at Rs.nil. Subsequently, the case of the assessee trust was selected for scrutiny assessment under Sec. 143(2) of the Act. During the course of the assessment proceedings, it was observed by the A.O that ISARC was registered under Sec. 3 of the SARFAESI Act by the Reserve Bank of India with the following shareholders:

Sr. No. Name of Shareholders Percentage of equity shares held Sponsors

1. Small Industries Development Bank of India (SIDBI) 15%

2. SIDBI Venture Capital Ltd. 11%

3. Bank of Baroda 10%

4. United Bank of India 10%

Total Sponsor Shareholding (A) 46% Non-Sponsors

5. Punjab National Bank 9%

6. Punjab & Sind Bank 5%

7. Uco Bank 4%

8. Bank of Maharashtra 4%

9. Syndicate Bank 4%

10. Corporation Bank 4%

11. Dena Bank 4%

12. Union Bank of India 4%

13. Allahabad Bank 4%

14. Oriental Bank of Commerce 1.9%

15. LIC 9%

16. Kerala Financial Corporation 0.35%

17. Andhra Pradesh State Financial Corporation 0.35%

18. APITCO Ltd. 0.3%

19. Rajasthan Financial Corporation 0.1%

Total Non-sponsors Shareholding (B) 54%

Total Shareholding (A+B) 100%

On a perusal of the records, it was observed by the A.O that the assessee was created under the guidelines of the Reserve Bank of India for fast recovery of Non-Performing Assets of the Banks/FIs and principally derived income from Asset Reconstruction Activity and handling of Non-Performing Assets of Banks/financial institutions. As the assessee had receipts of Rs.3.66 crores on account of sales made during the year on which no tax was paid, the A.O therefore called upon it to explain as to on what basis the said receipts were claimed as not exigible to tax. Further, the assessee was called upon to explain as to under which head of income the receipts generated by it during the year under consideration would fall. Also, the assessee was called upon to put forth an explanation as to why its income may not be taxed in the hands of the trust/AOP.

In reply, it was submitted by the assessee as under:

“....The Trust is created by the assets reconstruct/op Company namely ISARC for the purpose of liquidating/recovering/realizing the Non Performing Assets, take over by the assets Reconstruction Company (which is registered under section 3 of SARFASEI act by Reserve bank of India) from banks and financial .institutions Such Trusts are pass through entity The Trust Deed and the Offer Document read together, amply make it clear that it is a revocable trust and that being the, case, the income if at all arising on acquisition of NPA and disposal thereof or recovery thereof will be taxable in the hands of the Security Receipt holders (Beneficiary) in terms of section 61 of Income Tax Act, 1961.

We invite your attention to the Notes of the Financial Statements, forming part of the annual audited accounts furnished, along with the Return of Income.

We also invite your attention to Clause 2.7.1 of the Trust Deed, which categorically states that Security Receipt holders ho/ding more than 75% may decide the termination of the Trust. This clause is binding clause and cannot be ignore. This is being the case it is a revocable trust and hence the trust has correctly filed NIL return.

We request you to consider the following facts and circumstances affecting the assessment of the entity.

1. Our Trust has been created as pass through entity under the, Guidelines of Reserve Bank of India under the SARFAESI Act, 2002.

2. Ours is a Securitization/Reconstruction Trust, created under. the Guidelines of Reserve Bank of India for fast recovery of Non-Performing Assets of the banks/ FIs. In this context, we attach RBI circular: No. RBI/2013-14/54 DNBS(PD) CC. No. 31/SCRC/26.03.001/2013-14 dated July 1, 2013. Please refer to clause 2(u) of 'The Guidance Note for Securitization and 'Reconstruction Companies" forming a part of the above-referred circular, according to which the trust is required to issue SRs only to QIBs, which are 'identifiable at all time. Please also refer to the Section 7(3) of SARFAESI Act, 2002, which empowers QIBs holding 75% or more SRs to hold a meeting and pass resolution which are binding on the company. Consistent with this, the trust deeds carry clauses facilitating revocation of the trust.

3. The Assets Reconstruction /Securitization Company and the Trusts created in terms of the guidelines of Reserve bank of India, have to follow the Guidelines issued by the Reserve Bank of India.

4. We need to draw your kind attention to the fact that ours is an asset reconstruction activity to handle non-performing assets of banks and /Financial Institutions as opposed to standard assets, for which Securitization Companies- Trusts are being created. ISARC Trust is created to handle/liquidate the non-performing assets, to' help bank/Fl,: under the guidance of Reserve bank of India.

5. Our Trust is a revocable trust, We invite your attention to Clause 5.2.1 of the Trust Deed, a copy of which is already furnished to you. Clause 5.2.1 reads as under:

The Security Receipt Holders shall be entitled to revoke the Contributions made by them, at any time during the term of this Deed, in accordance with the terms and, conditions contained herein, for any reason, including but not limited to circumstances resulting from any adverse tax consequences(for the Trust or the Security Receipt Holders) or any direction of any Statutory Authority, provided that no such revocation shall take effect unless the consent of the Security Receipt Holders holding' Security Receipts representing not less than 7591 o' of the total face value of the then outstanding Security Receipts, issued pursuant to this Deed has been obtained, in this behalf, provided that a notice of not less than 60 days of the intention to revoke the contribution, is given to the Trustee.

The above clause makes it explicitly clear that the trust is revocable and 'hence it has to be given treatment in terms of Section 61, 62 and 63 of the Income tax Act, .1961.

We produce here before Section 61 of the Income Tax Act, 1961: Section 61: All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.

6. Without prejudice to our contention that ISARC Trust a revocable trust, even if the trust is not treated as Revocable Trust, the trust is a specific trust with defined beneficiaries with defined share at any point oft/me. The Trustees do not have any discretion, to modify the beneficiary or to modify the share of beneficiaries.

7. We invite your kind attention to RBI notification no. DNBS(PD) CC No. 38/SCRC/26.03.001/2013-14 DATED 23rd April, 2014, suggesting uniform Accounting Standards at ARCs. In terms of the said Accounting Standard, RBI, in relation to Revenue Recognition, has stated as under:

(i) Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts.

(ii Upside income should be recognized only after full redemption of Security Receipts.

8. We have furnish herewith details of purchase consideration, recovery during the financial year 2011-12 & 2012-13 Management Fees paid by Trust, Other expenses Incurred by the Trust.

9. You will observe that the trust acquires a pool of assets / accounts '(NPAs) for a lump sum consideration and the assets/loans are gradually realized or recovered or one time settlement done or recovery through Debt Recovery Tribunal or recovery through Official Liquidator or restructuring. Further every year the trust has to pay management fees for maintenance of the assets and certain other direct expenses for realization of the NPA.

10. In response to your letter we have to state that Trust is a pass though entity and as such the receipt of Rs. 3.66 crores' as stated in your letter to be sales proceeds of financial assets, is not at all an income of the Trust.

11. In fact the said receipt of Rs.66,30,005/- is the sales proceeds/ recovery of the financial assets (non-performing assets taken over from banks) over the two years period i.e. 2011-12 and 2012-13. The Purchase Consideration for the financial assets('non-performing assets taken over from banks) were Rs.27,92,04,000/-.

12. During the year.2011-12 the Trust had realized Sum of R. 32, 00, 000/- and for which the Trust had paid Recovery Commission of Rs. 1,32875/- in the year 2011-12 apart from trust management fees paid to Asset. Management Company namely India SME Asset Reconstruction Company Limited a sum of Rs. 35,53,409/-.

Further, you must consider the fact that the trust had Incurred other expenses of Rs. 6,54,458/- during the year 2011-12, the details of which have already been furnished to you under the cover of our letter dated 22/07/2015.

13. Similarly, for the year 2012-131 the Trust had realized a sum of Rs. 3,34,30,005/- and for which Trust had paid Recovery Commission of Rs. 9,89,051/- in the year 2012-13 apart from Trust Management Fees paid to Asset Management Company namely India 'SME Asset Reconstruction Company Limited a sum of Rs. 45,31,593/-. Further, you must consider the fact that the trust had incurred other expenses of Rs.5,37,989/- during the year 2012-13, the details of which have already been furnished to you under the cover of our letter dated 22.07.2015.

14. Since the beneficiaries of the Trust are definite and identifiable with definite shares at all the times, question of making the trust liable for tax, does not arises.

15. The trust deed has been properly executed and as such the Return filed in earlier established as per Guidelines issued by Reserve Bank of India and SARFAESI Act....”

However, the aforesaid reply of the assessee did not find favor with the A.O. It was inter alia observed by the A.O that the assessee was an AOP and not a trust. Alternatively, the A.O held a conviction that even if for the sake of argument the assessee was to be accepted as a trust, the same being a non-revocable trust would fail to get the benefit of Sec. 61 to Sec. 63 of the Act. Further, it was observed by the A.O, that the assessee being an indeterminate trust would thus be subject to the provisions of Sec. 164(1) of the Act. Lastly, the A.O observed,that the assessee had merely relied on the „form‟ of the transactions and the artificial device created by it to generate income and avoid taxability, while for the „substance‟ of the transactions was that the assessee had carried on business from the contributions of various beneficiaries with a common motive to earn income. To sum up, the contentions advanced by the assessee were rejected by the A.O, who culled out the reasons for not subscribing to the claim raised by the assessee as regards the multiple issues therein involved by summarizing his view in the assessment order, as under:

“8. Summary of Arguments

1. Whereas in the case of the trust, settlor, contributor and beneficiaries, all have to be independent and distinct In the case of the .assessee the contributors are the beneficiaries themselves, therefore, the assessee cannot be treated as a trust, but as an AOP having 19 members in the form of QIB5 and financial institution.

2 After its creation, the so-called trust entered into contribution assignment/offer document on 28.06.2011 for the sole purpose of taking NPAs for sale at a profit. Such an entity can be at best be classified as an AOP created jointly by several persons for earning profits.

3. Capital contribution is a revocable transfer by the transferors, but the income 'arising out of the activities of the fund is an ascertained income and the contributors have no control over it, and in the strict sense of the terms, the provisions of section 61 & 63 of the Act are not applicable to the assessee's case.

4. The Clause relied Upon by the assessee makes it clear that individual contributors cannot revoke their contribution on their own and revocation can occur only if the contributors holding 75% of the units consent together, then only can the contributions be revoked. Such restrictions point out to the fact that the entity is not a 'revocable trust'. The members lack any direct power or revocation under the instrument of transfer.

5. Any claim of assessee to the effect that the income has been taxed in the hand of the beneficiaries would not help. Income has to be taxed in the right hands, at the right rates of taxation. The sums earned by the assessee on account of various investment / activities has been shown as its income, therefore, it is rightly and appropriately taxable in its own hands and the trust is legally bound, to include in the same in the computation of its income.”

In the backdrop of his aforesaid deliberations the A.O assessed the total income of the assessee at Rs.2,73,71,772/- under the head „Income from business and profession‟.

3. Aggrieved, the assessee assailed the assessment order in appeal before the CIT(A). After deliberating on the contentions advanced by the assessee the CIT(A) was of the view that issues therein involved in the appeal before him had already been decided by his predecessor in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13 vide his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017. Relying on the aforesaid order, the CIT(A) concluded that the A.O in the case of the assessee before him had rightly taken the status of the assessee as that of an AOP. Further, it was observed by the CIT(A), that in the aforesaid case before his predecessor though the assessee was formed as a trust, in substance, it was held as not a trust since the settlor and the beneficiaries remained the same. Observing, that as the fact situation in the case before him in the present appeal remained the same, the CIT(A) followed the view that was earlier taken by his predecessor in his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017. As for the alternative view taken by the A.O, that even if the assessee was to be held to be a trust, it being an irrevocable trust the provisions of Sec. 61 to Sec. 63 would not be applicable in its case, the CIT(A) relied on the order passed by his predecessor in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017 found no infirmity in the said observation of the A.O and upheld the same. As regards the view taken by the A.O that the assessee being an indeterminate trust its surplus was to be assessed at the maximum marginal rate as per the provisions of Sec. 167B by treating it as an AOP, the CIT(A) relied on the view taken by his predecessor under identical facts in his order passed Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017, and approved the same. To sum up, the CIT(A) following the view that was taken by his predecessor while disposing off the appeal in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13, vide his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017, wherein identical facts were involved, therein concluded that the A.O had rightly assessed the income of the assessee in the status as that of an AOP, i.e at the maximum marginal rate.

4. As for the quantification of the income of the assessee was concerned, it was observed by the CIT(A) that the A.O had assessed the total income of the assessee at Rs. 2,73,71,372/- as against the nil income declared by it. On a perusal of the assessment order, it was observed by the CIT(A) that the A.O had computed the income of the assessee by considering the receipts of Rs. 3,34,30,005/- on liquidation of NPAs and the expenses to the tune of Rs. 60,58,633/- as shown in the profit & loss account. As noticed by the CIT(A), the assessee had submitted that it was a pass through entity, and thus, the receipts had to be first applied towards the redemption of the SRs of the investors who had funded the acquisition of the NPAs, and also, to meet the expenses and management fees. As such, it was the claim of the assessee that the surplus after meeting the aforesaid obligations was to be transferred to the SR holders, viz. ISARC and PNB. After deliberating on the contentions advanced by the assessee,it was observed by the CIT(A) that his predecessor while disposing off the appeal in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13, had vide his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017 observed, that the income of the assessee before him was to be assessed at Rs.nil for the reason, viz. (i) that the A.O had not considered the purchase consideration while bringing the realization (net of expenses) during A.Y. 2012-13 of Rs.3.12 crores to tax; and (ii) that there was no „upside income‟ accrued to the assessee during the year. It was observed by the CIT(A), that his predecessor while concluding as hereinabove had relied on the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, which laid down the Uniform Accounting Standards at ARCs, and therein provided the guidelines for revenue recognition by ARCs, which read as under (relevant extract):

“Revenue Recognition

i). Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts.

ii). Upside income should be recognized only after the full redemption of Security receipts.

iii). Management fees may be recognized on accrual basis.....”

It was observed by the CIT(A) that the facts involved in the appeal of the present assessee for the year under consideration i.e A.Y. 2013-14 remained the same as were there before his predecessor in the case of ISARC SIDBI-2, sister concern,for A.Y. 2012-13, that was disposed off by him vide his order passed in appeal no. CIT(A)-32/IT-211/23(1)(2)/2015-16, dated 08.02.2017. Accordingly, relying on the aforesaid order of his predecessor, and also, the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the CIT(A) concluded that in the case before him no upside income could be recognized in the hands of the assessee company, as there was a shortfall of recovery over purchase consideration till 31.03.2013 of Rs.24.26 crores. Also, as observed by the CIT(A) there was no receipt of management fees as per the profit and loss account. Accordingly, it was observed by the CIT(A) that since there was no upside/or surplus in terms of the guidelines issued by the RBI vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the income therefore arising during the year to the assessee was to be assessed at Rs.nil. On the basis of his aforesaid observations, the CIT(A) directed the A.O to assess the income of the assessee at Rs. Nil.

5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal it was submitted by the ld. Authorized representative (for short “A.R”) for the assessee,that the issues involved in the present appeal were squarely covered by the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & others, vide order dated 04.09.2019 (copies placed on record). As a perusal of the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & Others revealed, that both the assessee and revenue had assailed the order of the CIT(A) before the Tribunal, therefore, a query was raised by the bench to the ld. counsel for the assessee that as to whether any cross-appeal was filed by the assessee against the impugned order. However, no reply was filed by the Ld. A.R. Accordingly, in the backdrop of the aforesaid facts, we proceed with the adjudication of the present appeal of the revenue before us. Admittedly, the observations of the A.O, viz. (i) that the status of the assessee was an AOP; (ii) that even if the assessee was held to be a trust it being an irrevocable trust would thus not be governed by the provisions of Sec. 61 to Sec.63 of the Act; (iii) that though the assessee had formed a trust, but in substance it could not be treated as a trust since the settlor and the beneficiaries were the same; and (iv) that as the shares of the members were non-determinate the surplus was therefore to be taxed in the hands of the assessee as an AOP at maximum marginal rate, as per the provisions of Sec.167B of the Act, were upheld by the CIT(A) by relying on the view taken by his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for A.Y.2012-13, vide his order passed while disposing off its appeal, viz. Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017. Accordingly, the contentions which were advanced by the assessee assailing the aforesaid observations of the A.O were dismissed by the CIT(A). As the assessee had not assailed the aforesaid observations of the CIT(A) any further in appeal before us, the same thus had attained finality.

6. As observed by us hereinabove, the controversy raised by the revenue in the present appeal is regarding the quantification of the income of the assessee at,Rs. Nil by the CIT(A). We find that the CIT(A) had observed that as there was no upside/or surplus, in terms of the RBI guidelines, therefore, the income arising during the year to the assessee was to be assessed at Rs. Nil. As is discernible from the appellate order, we find that the CIT(A) had relied on the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, which is regarding the Uniform Accounting Standard and the guidelines for revenue recognition by ARCs. As observed by us here in above, the guidelines issued by the RBI for revenue recognition by the ARCs, reads as under (relevant extract) :

“Revenue Recognition”

(i) Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts.

(ii) Upside income should be recognized only after the full redemption of Security Receipts.

(iii) Management fees may be recognized on accrual basis....”

As observed by the CIT(A), his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for A.Y.2012-13, vide his order dated 08.02.2017 passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, had after drawing support from the aforesaid RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014 observed, that the income of the assessee before him was to be assessed at Rs.nil, for the reason,viz. (i) that the A.O had not considered the purchase consideration while bringing the realization (net of expenses) during A.Y. 2012-13 of Rs.3.12 crores to tax; and (ii) that there was no „upside income‟ accrued to the assessee during the year.

Accordingly, the CIT(A) was of the view that in the present appeal before him no upside income could be recognized in the hands of the assessee company as there was a shortfall of recovery over purchase consideration till 31.03.2013 amounting to Rs.24.26 crores. Further, it was noticed by the CIT(A) that there were also no receipts of management fees as per the profits and loss account.

After considering the view taken by his predecessor, and also, the guidelines issued by the RBI for recognizing of revenue for ARCs, vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, the CIT(A) concluded that the income of the assessee was to be assessed at Rs. Nil.

7. We have given a thoughtful consideration to the aforesaid observations of the CIT(A) and find ourselves to be in agreement with the view therein taken by him. In our considered view, the A.O while framing the assessment had not reduced the cost of acquisition of the non-performing assets from the sale proceeds of Rs. 3,24,40,954/-. In fact, the A.O had after reducing the expenses incurred by the assessee during the year in connection with sales, viz. management fees, professional fees, audit fees, conveyance & travel expenses and miscellaneous expenses amounting to Rs. 50,69,582/-, had treated the net sales receipts of Rs. 2,73,71,372/- (forming part of the NPAs out of the pool of assets acquired), as the income of the assessee. We have deliberated at length on the issue under consideration and are persuaded to subscribe to the claim of the assessee that the A.O ought to have been guided by the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, which though was issued after the relevant financial year, but could be referred for understanding the guiding principles laid down for recognition of revenue by ARCs. As observed by the CIT(A), and rightly so, the ARCs are supposed to recognize upside income only after full redemption of Security Receipts (SRs), except for the Management fees which is to be recognized on accrual basis. As in the case before us, the redemption of the relevant SRs had not taken place till 31.03.2012, therefore, the CIT(A) had rightly concluded that no upside income/surplus could have been recognized in the hands of the assessee for the year under consideration. As for the management fees, we find, that no income on the said count had accrued to the assessee during the captioned year.

We thus in the backdrop of our aforesaid observations concur with the view taken by the CIT(A), that as neither any upside income nor any management fess had accrued to the assessee during the year in question, therefore, its income was to be assessed at Rs. Nil. In fact, we find that the issues raised by the revenue in present appeal before us are squarely covered the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & others, vide its order dated 04.09.2019, as had been relied upon by the ld. A.R before us. (copies placed on record). To sum up, we uphold the view taken by the CIT(A), to the extent he had concluded that as there was a shortfall of recovery over purchase consideration till 31.03.2013 of Rs.24.26 crores, and there was also no receipt of management fees as per the profit and loss account, hence no upside income could have been recognized in the hands of the assessee in terms of the guidelines laid down in the Circular No. RBI/2013-14/571 DNBS (PD) CC No.38/SERC/26.03.002/2013-14,dated 23.04.2014, issued by the RBI, therin providing the Uniform Accounting Standard for revenue recognition for ARCs, and also in the backdrop of the view taken by his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern, for A.Y.2012-13, vide his order dated 08.02.2017 passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16. Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold his order.

8. The appeal of the revenue is dismissed.

9. We shall now advert to the appeal of the revenue in ITA 926/Mum/2019 in the case of ISARC SIDBI-2/2009-10.

10. Briefly stated, the assessee had e-filed its return of income for A.Y. 2014-15 on 29.11.2014, declaring its total income at Rs.nil. The assessment was completed on 19.12.2016 under Sec. 143(3) of the Act determining its total income at Rs. 6,33,02,640/- in the status as that of an AOP. The A.O while framing the assessment made an addition under the head “income from business or profession” of Rs.6,32,072/- and “income from other sources” of Rs. 96,565/-.

11. Aggrieved, the assessee carried the matter in appeal before the CIT(A). As is discernible from the records, the A.O while framing the assessment had not reduced the cost of acquisition of the non-performing assets from the sale proceeds of Rs. 6,62,05,368/-. In fact, the A.O had after reducing the expenses incurred by the assessee during the year amounting to Rs. 29,99,296/-, had treated the net sales receipts of Rs. 6,32,06,072/- (forming part of the NPAs out of the pool of assets acquired), as the income of the assessee under the head “Income from business and profession”, and treated the interest income of Rs. 96,565/- as its income under the head “Income from other sources”. After deliberating on the contentions advanced by the assessee, it was observed by the CIT(A) that his predecessor while disposing off the appeal in the assessee‟s own case for A.Y 2012-13, had vide his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017 observed, that the income of the assessee before him was to be assessed at Rs. nil for the reason ,viz. (i) that, the A.O had not considered the purchase consideration while bringing the realization (net of expenses) during A.Y. 2012-13 of Rs.7.11 crores to tax; and (ii) that there was no „upside income‟ accrued to the assessee during the year. It was observed by the CIT(A), that his predecessor while concluding as hereinabove had relied on the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, which provided the Uniform Accounting Standards at ARCs, and therein laid down the guidelines for revenue recognition by ARCs, which read as under (relevant extract):

“Revenue Recognition

i). Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts.

ii). Upside income should be recognized only after the full redemption of Security receipts.

iii). Management fees may be recognized on accrual basis.....”

It was observed by the CIT(A) that the facts involved in the appeal of the present assessee for the year under consideration i.e A.Y. 2014-15 remained the same as were there before his predecessor in its own case for A.Y. 2012-13, that was disposed off by his predecessor vide his order passed in appeal no. CIT(A)-32/IT-211/23(1)(2)/2015-16, dated 08.02.2017. Accordingly, relying on the aforesaid order of his predecessor, and also, the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the CIT(A) concluded that in the case before him no upside income could be recognized in the hands of the assessee company as there was a shortfall of recovery over purchase consideration till 31.03.2014 of Rs. 1/-. Also, as observed by the CIT(A),there was no receipt of management fees as per the profit and loss account. Accordingly, it was observed by the CIT(A) that since there was no upside/or surplus in terms of the guidelines issued by the RBI vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the income therefore arising during the year to the assessee was to be assessed at Rs.nil. On the basis of his aforesaid observations, the CIT(A) directed the A.O to assess the income of the assessee at Rs. Nil.

12. The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. As the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in ITA No. 929/Mum/2019 in the case of ITO-23(1)(2), Mumbai, Vs. ISARC-FA-41-I/2011-12 Trust, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal of the revenue in ITA No.926/Mum/2019. Accordingly, on the basis of the reasoning given by us while disposing off the appeal of the revenue in ITA No.929/Mum/2019, the present appeal of the revenue is dismissed.

13. The appeal filed by the revenue is dismissed.

14. We shall now take up the appeal of the revenue in the case of the aforementioned assessee in ITA No. 927/Mum/2019 for A.Y. 2014-15.

15. Briefly stated, the assessee which is a trust created by Asset Reconstruction Company (ARC) namely India SME Asset Reconstruction Company Ltd. (ISARC) for the purpose of liquidating/recovering/realising the Non-Performing Assets (NPAs), taken over by ISARC, is registered under Sec.3 of the SARFAESI Act by the Reserve Bank of India. The assessee had e-filed its return of income for A.Y. 2014-15 on 29.11.2014, declaring its total income at Rs.nil.

Subsequently, the income of the assessee was assessed by the A.O under Sec. 143(3) vide his order dated 19.12.2016, assessing its total income at Rs.1,39,51,099/-. At this stage, we may herein observe that the A.O while computing the income of the assessee had allowed expenses to the tune of Rs.21,16,630/- against its receipts of Rs.1,60,67,729/-, and brought the balance amount of Rs.1,39,51,099/- to tax in its hands under the head „Income from business and profession‟.

16. Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was observed by the CIT(A) that the issues involved in the appeal before him were covered by the order that was passed by his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for A.Y.2012-13,vide his order dated 08.02.2017 in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16,, wherein it was held that assessee‟s income was to be assessed at Rs. Nil for the reasons viz.(i) that the A.O had not considered the purchase consideration while bringing the realisation (net of expenses) during A.Y. 2012.13 of Rs.0.59 crore to tax; and (ii) that there was no „upside income‟ accrued to the assessee during the year. Also, the CIT(A) relied on the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, which laid down the Uniform Accounting Standard at ARCs for recognition of revenue. Relying on the aforesaid circular, it was observed by the CIT(A) that ARCs recognised the upside income only after full redemption of security receipts. Observing, that as in the case before him there was a shortfall of recovery over purchase consideration till 31.03.2014 of Rs. 2,54,23,611/-, the CIT(A) was of the view that no upside income could be recognised in the hands of the assessee. Also, it was noticed by him that no receipt of management fee was reflected in the profit and loss account. Accordingly, relying on the aforesaid order of his predecessor ,and also, the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC /26.03.002 /2013-14, dated 23.04.2014, the CIT(A) concluded that the income arising to the assessee for the year under consideration was to be assessed at Rs.nil. As such, the CIT(A) deleted the additions made by the A.O and directed him to assess the mtotal income at Rs.nil.

17. The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. As the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in ITA No. 929/Mum/2019 in the case of ITO-23(1)(2), Mumbai, Vs. ISARC-FA-41-I/2011-12 Trust, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal of the revenue in ITA No.927/Mum/2019. Accordingly, on the basis of the reasoning given by us while disposing off the appeal of the revenue in ITA No.929/Mum/2019, the present appeal of the revenue is dismissed.

18. The appeal filed by the revenue is dismissed.

19. Resultantly, the appeals filed by the revenue in the case of the captioned assesses viz. ITA No.929/Mum/2019 (A.Y.2013-14), ITA No.926/Mum/2019 A.Y. 2014-15 and ITA No.927/Mum/2019 A.Y. 2014-15 are dismissed.

Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.

Sd/- Sd/-

PRAMOD KUMAR RAVISH SOOD

(VICE-PRESIDENT) (JUDICIAL MEMBER)

Mumbai, Date: 12.10.2020