Cooperative bank wins case on unclaimed liability, premium deduction, and interest disallowance

The Tribunal ruled in favor of the assessee, a cooperative bank, in a case involving the addition of unclaimed liability, disallowance of deduction for premium paid on Government securities, and disallowance of deduction for broken period interest on Government securities. The Tribunal held that the unclaimed liability should not be treated as income, citing relevant case laws. It also allowed the deductions for premium paid on Government securities and broken period interest, emphasizing compliance with RBI guidelines. As a result, the Revenue's appeal was dismissed.

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Issues Involved:
1. Addition of unclaimed liability of Rs. 26,39,605/-.
2. Disallowance of deduction on account of premium paid on investment in Government Securities.
3. Disallowance of deduction on account of payment of broken period interest on investment in Government Securities.

Issue-Wise Detailed Analysis:

1. Addition of Unclaimed Liability of Rs. 26,39,605/-:
The assessee, a cooperative bank, had shown Rs. 27,57,051/- as unclaimed liability under 'Sundries' in its Balance Sheet, representing unclaimed Demand Drafts not presented for clearing for more than six months. The Assessing Officer (AO) added Rs. 26,39,605/- to the income of the assessee, considering it as extinguished liabilities. The CIT(A) upheld this addition, relying on the Limitation Act and the Supreme Court's decision in CIT Vs. TVS Sundaram Iyengar and Sons Ltd. The Tribunal, however, concluded that once the liability is recognized by the assessee in its books, it does not convert into income even if it is unclaimed and relates to earlier years. The Tribunal directed the AO to delete the addition, citing the Supreme Court's decision in CIT vs. Sugauli Sugar Works (P) Ltd. and other relevant case laws.

2. Disallowance of Deduction on Account of Premium Paid on Investment in Government Securities:
The assessee had debited Rs. 22,69,144/- as premium paid on Government securities in its Profit & Loss Account. The AO disallowed this, treating the securities as investments (capital assets) rather than stock-in-trade. The CIT(A) allowed the deduction, following the Tribunal's decisions in similar cases, including Latur Urban Co-operative Bank Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by its earlier decision in the assessee's own case for the assessment year 2009-10. The Tribunal reiterated that amortization of premium paid on HTM securities is an allowable deduction as per RBI guidelines.

3. Disallowance of Deduction on Account of Payment of Broken Period Interest:
The assessee had also claimed a deduction of Rs. 22,12,817/- for broken period interest paid on Government securities. The AO disallowed this, treating the securities as investments. The CIT(A) allowed the deduction, relying on the Bombay High Court's decision in American Express International Banking Corporation Vs. CIT. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Department could not disallow the deduction for broken period interest paid while taxing the broken period interest received. The Tribunal found no merit in the AO's order and dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal allowed the appeal of the assessee regarding the addition of unclaimed liability and upheld the CIT(A)'s decisions allowing deductions for premium paid on Government securities and broken period interest. Consequently, the appeal of the Revenue was dismissed.

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