Tribunal allows appeals, directs deletion of disallowed amortization and addition on unclaimed liabilities. Judgment on Feb 12, 2016.

The Tribunal allowed both appeals of the assessee, directing the AO to delete the disallowed amortization of premium paid on Government Securities and the addition on account of unclaimed liabilities. The judgment was pronounced on February 12, 2016.

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Issues Involved:
1. Disallowance of amortization of premium paid on Government Securities.
2. Addition on account of unclaimed liabilities.

Detailed Analysis:

1. Disallowance of Amortization of Premium Paid on Government Securities:
The assessee, a Cooperative Bank, challenged the disallowance of Rs. 15,11,333/- related to the amortization of premium paid on Government Securities categorized under HTM (Held to Maturity) by the Assessing Officer (AO). The AO treated HTM securities as capital assets, asserting that amortization of premium on such securities is not allowable under the Income Tax Act, 1961, as capital assets must be valued at cost without any part being claimed as revenue expenditure.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, leading the assessee to appeal to the Tribunal. Despite the absence of representation from the assessee, the Tribunal, after hearing the Departmental Representative and reviewing the material on record, noted that the issue had been previously decided in favor of the assessee in its own case for A.Y. 2010-11. The Tribunal cited the precedent where amortization of premium paid on HTM securities was allowed as a deductible expense, referencing decisions in similar cases like The Ahmednagar Merchants Cooperative Bank Ltd. vs. JCIT and Nagar Urban Cooperative Bank Ltd.

The Tribunal concluded that the amortization premium paid on Government Securities should be allowed as an expense incurred during the course of banking business, directing the AO to delete the addition of Rs. 15,11,333/-. Thus, the appeal on this issue was allowed.

2. Addition on Account of Unclaimed Liabilities:
For A.Y. 2011-12, the assessee contested the partial relief granted by the CIT(A) regarding the addition of Rs. 15,50,807/- made by the AO on account of unclaimed liabilities. The CIT(A) confirmed the addition to the extent of Rs. 6,03,725/-, which represented unclaimed amounts beyond the period of three years, deemed barred by limitation.

The AO observed an unclaimed amount of Rs. 45,09,479/- under 'Sundry Liabilities' in the assessee's balance sheet, which the assessee explained as reconciliable amounts due to uncleared cheques at the financial year's end. Despite this explanation, the AO added Rs. 15,50,807/- to the income. Upon appeal, the CIT(A) granted partial relief by deleting Rs. 9,47,082/- but upheld the addition of Rs. 6,03,725/-.

The Tribunal, considering the submissions and previous decisions, found that the issue was identical to one previously decided in favor of the assessee for A.Y. 2010-11. It was established that unclaimed liabilities recognized in the books of account should not be treated as income, even if they are not recoverable due to the Limitation Act, unless the assessee itself transfers these amounts through the Profit & Loss Account. Citing the Supreme Court's decision in CIT vs. Sugauli Sugar Works (P) Ltd. and other relevant cases, the Tribunal directed the AO to delete the addition of Rs. 6,03,725/-.

In conclusion, the Tribunal allowed both appeals of the assessee, setting aside the impugned orders. The judgment was pronounced on February 12, 2016.

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