2013 (8) TMI 1117 - AT - Income Tax

Tribunal rules on premium amortization, business income, and special fund expenses, remanding capital gains issue.

Dy. Commissioner of Income-tax, Circle-2, Surat Versus Prime Co-operative Bank

The Tribunal upheld the deletion of additions on account of premium amortization expenses and disallowance of Special Long Term Finance Fund expenses. ... - Issues Involved:1. Deletion of addition on account of premium amortization expenses.2. Deletion of addition on account of disallowance of Special Long Term Finance Fund expenses claimed u/s 36(1)(viii).3. Deletion of addition on account of reclassification of capital gains as business income.Summary:1. Deletion of Addition on Account of Premium Amortization Expenses:The first issue pertains to the deletion of an addition of Rs. 10,49,919/- made on account of premium amortization expenses. The assessee, a Co-operative Society engaged in banking, claimed these expenses following RBI guidelines, which require amortization of the premium paid on Government Securities over their maturity period. The Assessing Officer (AO) disallowed this claim, arguing that the Income Tax Act does not provide for such amortization. However, the CIT(A) deleted the addition, referencing CBDT Instruction No. 17 of 26.11.2008 and various Tribunal decisions that support the allowability of such expenses u/s 36(1)(vii). The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's ground.2. Deletion of Addition on Account of Disallowance of Special Long Term Finance Fund Expenses Claimed u/s 36(1)(viii):The second issue involves the deletion of an addition of Rs. 50,09,000/- related to the disallowance of Special Long Term Finance Fund expenses claimed u/s 36(1)(viii). The AO disallowed the claim, stating that the assessee failed to prove that the amount set aside constituted 20% of the profits derived from eligible business. The CIT(A) found that the assessee had provided the necessary details and computations, which the AO ignored. The CIT(A) concluded that the claim was valid and allowable. The Tribunal upheld this decision, dismissing the revenue's ground.3. Deletion of Addition on Account of Reclassification of Capital Gains as Business Income:The third issue concerns the deletion of an addition of Rs. 53,89,699/- made by reclassifying capital gains as business income. The AO argued that the gains from the sale of securities should be treated as business income, given their connection to the banking business. The CIT(A) disagreed, noting that the assessee maintained separate accounts for SLR and non-SLR securities, treating non-SLR securities as investments. The CIT(A) held that gains from these investments should be classified as capital gains. However, the Tribunal noted that the CIT(A) did not consider the Supreme Court decision in the case of Sardar Indra Singh & Sons Ltd. The Tribunal remanded the matter back to the CIT(A) for fresh adjudication in light of the Supreme Court decision.Conclusion:The revenue's appeal is partly allowed for statistical purposes, with the first two grounds dismissed and the third ground remanded for further consideration.