2016 (3) TMI 633 - AT - Income Tax

Appellate Tribunal disallows premium paid by assessee, adding it to income. Issue remitted for further examination.

The Appellate Tribunal upheld the decision to disallow the premium paid by the assessee as an allowable expenditure, adding it to the assessee's income ... Disallowance of premium on purchase of bond - treatment of premium as purchase/capital cost of bond - income from other sources - distinction between accrued interest and premium - reassessment proceedings and reopening of assessment - remand for fresh consideration after allowing opportunity of hearingDisallowance of premium on purchase of bond - income from other sources - distinction between accrued interest and premium - Whether the premium portion paid on purchase of ICICI bonds could be allowed as interest expense or required to be added back to income. - HELD THAT: - The Tribunal accepted the concurrent finding of the authorities below that the assessee purchased bonds on a cum-interest basis from an intermediary and paid both accrued interest and a separate premium component. On redemption the assessee received maturity proceeds and TDS was made on the gross interest element; however the assessee had ignored the premium paid and included it within interest claimed. The authorities concluded that the premium portion is not an allowable interest expenditure and therefore the premium amount representing difference between interest received and interest paid was rightly treated as income under the head 'income from other sources.' The Tribunal, after reviewing the assessment and the CIT(A)'s reasoning, found no infirmity in sustaining the addition made by the Assessing Officer and dismissed the ground raised by the assessee. [Paras 6]Addition of Rs. 20,35,000 on account of premium sustained and ground dismissed.Treatment of premium as purchase/capital cost of bond - remand for fresh consideration after allowing opportunity of hearing - Whether the premium paid should be treated as part of the purchase cost of the bond and allowed as a deduction from the maturity value (alternative plea). - HELD THAT: - The Tribunal noted that this alternative plea was not raised before the lower authorities. Consequently, rather than deciding the matter on merits, the Tribunal remitted the issue to the Assessing Officer for examination and decision in accordance with law, directing that the assessee be afforded an opportunity of hearing. [Paras 7]Alternative plea remitted to the Assessing Officer for fresh examination and decision after hearing the assessee.Final Conclusion: The appeal is partly allowed inasmuch as the alternative ground is remitted to the Assessing Officer for fresh consideration after hearing; on merits the addition of Rs. 20,35,000 as income was sustained and that ground is dismissed. Issues Involved:Confirmation of disallowance of premium paid and treatment of premium as purchase cost of the bond.Confirmation of Disallowance of Premium Paid:The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of the premium paid of Rs. 20,35,000. The assessee argued that the premium should be treated as the purchase cost of the bond and deducted from the maturity value. The Assessing Officer observed that the assessee purchased bonds from an intermediary holder on a cum-interest price basis. The difference in purchase value included accrued interest and premium on the bonds. The Assessing Officer calculated the income based on the interest received by the assessee on the maturity date minus the interest paid on the purchase date. The ICICI Ltd. deducted tax at source on the maturity value minus face value without recognizing the purchase price of the assessee. The Assessing Officer added Rs. 20,35,000 to the assessee's income under 'income from other sources.' The Commissioner upheld this decision, stating that the premium paid should not be considered an allowable expenditure. The Tribunal found no issue with the Commissioner's order and dismissed the assessee's appeal.Treatment of Premium as Purchase Cost of the Bond:The assessee also raised an alternative plea to treat the premium paid as the purchase cost of the bond and deduct it from the maturity value. This issue was not raised before the lower authorities. The Tribunal remitted this issue to the Assessing Officer for examination and decision in accordance with the law, providing an opportunity for the assessee to be heard. The appeal was partly allowed for statistical purposes. The Tribunal's order was pronounced on 3.2.2016.This detailed analysis covers the confirmation of disallowance of premium paid and the treatment of premium as the purchase cost of the bond, as discussed in the legal judgment by the Appellate Tribunal ITAT CHENNAI.