2014 (2) TMI 932 - AT - Income Tax

Appellate Tribunal upholds amortization of premium on Government Securities by assessee.

ACIT, Circle-1, Sangli Versus Hutatma Sahakari Bank Ltd.

The Appellate Tribunal upheld the CIT(A)'s decision to allow the amortization of premium paid on Government Securities by the assessee. The Tribunal cited ... Amortization of premium paid on Government Securities - revenue or capital expenditure – Held that:- As per RBI guidelines dated 16th October, 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation/ appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. Decisions in DCIT Vs. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. [2014 (1) TMI 754 - ITAT PUNE] and ACIT vs. The Bank of Rajasthan Ltd. [2010 (12) TMI 894 - ITAT, Mumbai] followed.- In case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium - Nothing contrary was brought to our notice against the order of the Tribunal, therefore, we find no infirmity in the order of the CIT(A) and Tribunal deleting the disallowance – Decided against Revenue. Issues:1. Allowance of amortization of premium paid on Government Securities by the assessee.2. Valuation of capital assets and treatment of premium paid on Government Securities as revenue expenditure.Issue 1: Allowance of amortization of premium paid on Government Securities by the assessee:The appeal filed by the Revenue challenged the order of the CIT(A) allowing the amortization of premium paid on Government Securities by the assessee. The AO disallowed an amount on account of amortization of premium paid on Government Securities, but the CIT(A) decided the issue in favor of the assessee based on a previous order related to a cooperative bank. The Tribunal upheld the CIT(A)'s decision citing similar cases and legal principles. The Tribunal emphasized that the deduction for amortization was justified as per RBI guidelines and CBDT directions, concluding that the appeal filed by the Revenue was dismissed.Issue 2: Valuation of capital assets and treatment of premium paid on Government Securities as revenue expenditure:The Revenue contended that all capital assets should be valued at cost only, and no part thereof can be claimed as revenue expenditure. The Tribunal referred to the RBI guidelines classifying investments under different categories and the treatment of premium paid on Government Securities. It noted that the premium should be amortized over the period remaining to maturity for securities held to maturity (HTM) category. The Tribunal highlighted previous judgments supporting the amortization claim based on prudential norms of the RBI. It upheld the CIT(A)'s decision to delete the disallowance of the amount towards amortization of Government Securities, emphasizing that the claim was reasonable and in line with legal and factual findings. The Tribunal dismissed the appeal filed by the Revenue, citing consistency with previous decisions and absence of contrary material against the CIT(A)'s order.In conclusion, the Appellate Tribunal upheld the CIT(A)'s decision to allow the amortization of premium paid on Government Securities by the assessee, based on relevant legal principles, RBI guidelines, and previous judgments. The Tribunal emphasized the reasonableness of the claim and the consistency with past decisions, ultimately dismissing the appeal filed by the Revenue.