NBFC Securitizing vehicle mortgage receivables - losses thereto allowability

Facts:

Assessee a NBFC was in the business of truck and equipment leasing. It had securitized and spun out a portion of its truck financing loan receivables in favour of Shriram Transport Finance Limited another NBFC. In the process of securitization there were losses sustained by the assessee to the extent of Rs. 15.98 Crores by receiving lesser proceeds vis a vis the receivable book exposure. Plea of the revenue was the loan receivables were securitized on recourse basis and the vehicles still stood the name of the assessee entity even after securitization. Accordingly the claim of loss or bad debt under Section 36(1)(vii) was disallowed by the AO. CIT(A) allowed the same on grounds that a Power of Attorney has been executed for conferring ownership of the hypothecated vehicles and the assignment agreement of the receivables was also perused and found to be in tandem with RBI guidelines for securitization. Recourse provision was also a standard norm to protect the downside of the recipient of the securitized debts. Aggrieved revenue went in higher appeal to ITAT -

Held against the revenue that the securitization loss was an allowable business expenditure either as a business loss or a bad debt under Section 36(1)(vii)

Applied:

GE Money Finance Service Pvt. Ltd. for Assessment Year 2002-03 to Assessment Year 2005-06, in ITA No. 4235/Del/2011, ITA No. 4206/Del/2011 and ITA No.13/Del/2012 (Del ITAT)

Case: ACIT v. Clix Finance India (P) Ltd. 2023 TaxPub(DT) 4400 (Del-Trib)