2014 (3) TMI 531 - AT - Income Tax

Assessee's appeal allowed for fresh examination by CIT(A) following Tribunal's directive

The appeal of the Assessee was allowed for statistical purposes, with the issue remitted back to the CIT(A) for fresh examination and decision. The ... Allowability of amortization - Premium of securities sold before the maturity date – Held that:- The CIT(A) has noted that certain requirements as stated in the RBI circular is required to be followed by an Assessee for conversion of security from HTM to other category - to ascertain as to whether the Assessee has correctly classified the securities as HTM and followed the guidelines prescribed by RBI, the Assessee was asked to furnish the details, which the Assessee failed to furnish - CIT(A) has noted that the Assessee has failed to follow the RBI guidelines - In view of the contrary submissions of both the parties, the issue needs to be re-examined more so with respect to following by the Assessee of the applicable guidelines prescribed by RBI with respect to the valuation, accounting treatment and other procedural requirements – thus, the matter is remitted back to the CIT(A) for fresh adjudication – Decided in favour of Assessee. Issues Involved:1. Disallowance of amortization of premium paid on government securities.2. Classification of government securities as 'Held to Maturity' (HTM).3. Interpretation and adherence to RBI guidelines and Instruction No. 17 dated 26-11-2008.Detailed Analysis:1. Disallowance of Amortization of Premium Paid on Government Securities:The primary issue in this appeal is the disallowance of Rs. 2,60,99,875 claimed by the Assessee as amortization of the premium paid on government securities. The Assessee, a Co-operative Society engaged in banking and insurance agency business, filed its return of income for A.Y. 2010-2011, showing a total income of Rs. 2,25,37,550/-. However, the assessment was framed under section 143(3), determining the total income at Rs. 4,86,37,430/-. The Assessee's claim for amortization was disallowed by the A.O. on the grounds that the premium on investments was written off and claimed as expenses without actual expenditure since there was no sale of investment.2. Classification of Government Securities as 'Held to Maturity' (HTM):The Assessee argued that the securities were classified as HTM in accordance with RBI guidelines, which necessitated the amortization of the premium paid. However, the CIT(A) found that the Assessee failed to provide sufficient evidence that the securities were indeed classified and held as HTM. The CIT(A) noted variations in the investment in state and government securities over the years, indicating that the Assessee had been selling securities from this account, which contradicts the HTM classification. The balance sheet did not clearly indicate that the securities were HTM, and the Assessee's actions, such as selling securities multiple times within the year, violated RBI guidelines.3. Interpretation and Adherence to RBI Guidelines and Instruction No. 17 dated 26-11-2008:The Assessee contended that the amortization of premium was in line with RBI guidelines and Instruction No. 17 dated 26-11-2008, which should be allowable as a deduction. The CIT(A) held that the Assessee did not follow the RBI guidelines correctly, as the securities were not held to maturity and were sold before their maturity dates. The CIT(A) also pointed out that the Assessee failed to furnish complete details necessary to verify the proper classification and adherence to RBI guidelines. The CIT(A) distinguished the judicial pronouncements cited by the Assessee, stating that the facts in those cases were different and did not support the Assessee's claim.Conclusion:The Tribunal, after hearing the rival submissions and perusing the material on record, observed that the issue revolves around the allowability of amortization of premium on securities sold before maturity but held under the HTM category. The Tribunal noted that CIT(A) had found that the Assessee did not follow the RBI guidelines and failed to provide necessary details. In the interest of justice, the Tribunal remitted the issue back to the CIT(A) for re-examination, specifically regarding the Assessee's adherence to RBI guidelines and the decisions relied upon by the Assessee. The CIT(A) was directed to grant adequate opportunity of hearing to both parties and decide the issue afresh as per law. The Assessee was also directed to cooperate by submitting the necessary details promptly.Final Order:The appeal of the Assessee was allowed for statistical purposes, with the issue remitted back to the CIT(A) for fresh examination and decision.Order pronounced in Open Court on 07-03-2014.