ITAT asks Govt to bring out Mechanism to ensure Tax Recovery from ARCs/Banks on Sale of Security Assets [Read Order]

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The Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench asked the Government to bring out Mechanism to ensure Tax Recovery from Asset Re construction Companies (ARCs)/Banks on sale of Security Assets.

The assessee, Abbasbhai A. Upletawala was a director of M/s Abid Steels Co Ltd (ASCL) and the assessee had given his personal guarantee to, on behalf of the ASCL and in respect of its commercial borrowings from, the State Bank of India. The assessee owned land measuring 2291.9 square meters of land and had purchased the property for Rs 2 lakhs.

As a collateral security this property was given to the State Bank of India. The State Bank of India recalled the credit facilities given to ASCL, and invoked the personal guarantee given by the assessee. The assessee was also made a party, to the recovery proceedings before the Debts Recovery Tribunal.

The State Bank of India entered into an assignment agreement with Asset Reconstruction Co India Ltd (ARCIL), a company registered as a securitization and asset reconstruction company pursuant to Section 3 of Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.

The assessee was a confirming party to this sale transaction between the ARCIL and ADPL. The Assessing Officer noted that in the sale deed, the confirming party has surrendered all his rights, title and interest to the vendor and proceeded to tax the entire amount of Rupees two crores as a long-term capital gain. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without success.

A Bench consisting of Pramod Kumar (Vice President), and Pavan Kumar Gadale (Judicial Member) observed that “It is an undesirable situation, and it is time that the Government seriously considers protecting its legitimate interests by ensuring some mechanism to ensure that the tax liability on the capital gains is duly recovered from the borrower whose property is sold, and when it is not possible to do so on account of the borrower’s genuine financial difficulties, from the person who receives the proceeds of the sale of such assets.

The Tribunal also pointed out that “With the increasing number of cases in which recovery measures are enforced by selling properties, held by the bankers and ARCs as collateral securities, and inevitable liquidity or bankruptcy issues with such borrowers, there must already be good amount of such avoidable losses to the revenue. Such a position must not continue.”

Remitting back the matter to the file of CIT(A), the Tribunal said “We deem it fit and proper to remit the matter to the file of the CIT(A) for recording a specific finding in this regard, after giving a due and reasonable opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order.”

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Abbasbhai A. Upletawala vs Income Tax Officer Ward 16(1)(1)

Counsel for Appellant:   Madhur Agarwal and Fenil Bhat and Kiran Mehta

Counsel for Respondent:   Shailja Rai and Manoj Sinha


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