Cooperative bank wins appeal to amortize premium on government securities. Disallowed amounts deleted.

The tribunal allowed the cooperative bank's appeals for the assessment years, holding that it was entitled to amortize the premium paid on Held to Maturity (HTM) government securities as per RBI guidelines. The disallowance of Rs. 2,60,99,875/- for one assessment year and Rs. 82,44,601/- for another was deleted.

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Issues Involved:
1. Disallowance of amortization of premium paid on Held to Maturity (HTM) government securities.
2. Compliance with Reserve Bank of India (RBI) guidelines and Central Board of Direct Taxes (CBDT) instructions.
3. Verification of categorization and intention to hold securities till maturity.
4. Adherence to procedural requirements for shifting investments between categories.

Issue-wise Detailed Analysis:

1. Disallowance of Amortization of Premium Paid on HTM Government Securities:
The assessee, a cooperative bank, challenged the disallowance of Rs. 2,60,99,875/- and Rs. 82,44,601/- towards the amortization of premium paid on HTM government securities for the assessment years 2010-11 and 2012-13. The CIT(A) confirmed the disallowance, stating that the assessee did not follow RBI guidelines, and thus, the securities could not be classified as "Held for Maturity." The CIT(A) noted that the assessee failed to prove the securities were held till maturity and did not comply with the RBI and CBDT circulars.

2. Compliance with RBI Guidelines and CBDT Instructions:
The RBI issued a master circular on 01-07-2009, prescribing the categorization of investment portfolios into HTM, Available for Sale (AFS), and Held for Trading (HFT). The circular stipulated that securities held under HTM need not be marked to market and should be carried at acquisition cost, with any premium paid to be amortized over the remaining period to maturity. The CBDT's instruction no. 17 of 2008 also emphasized the need for banks to classify their investment portfolios under these categories and to amortize the premium paid on HTM securities.

3. Verification of Categorization and Intention to Hold Securities Till Maturity:
The CIT(A) found that the assessee did not provide adequate documentation to verify the categorization of securities at the time of acquisition. The assessee submitted manually prepared details of investments under HTM and current categories for the period from FY 2006-07 to FY 2009-10. However, the CIT(A) observed that the assessee did not hold the securities till maturity, as evidenced by the sale and conversion of several securities within a few years. The CIT(A) concluded that the intention to hold the securities till maturity was not demonstrated.

4. Adherence to Procedural Requirements for Shifting Investments:
The RBI circular allowed shifting of investments to/from HTM with the Board of Directors' approval once a year, typically at the beginning of the accounting year. The CIT(A) noted that the assessee did not provide evidence of Board approval for shifting investments and observed multiple sales within a single year, indicating non-compliance with the circular's procedural requirements.

Tribunal's Findings:
The tribunal noted that the assessee had consistently followed the RBI guidelines and had been allowed amortization of premium in previous assessment years without disallowance. The tribunal found that the CIT(A)'s reasoning of non-furnishing relevant details was unsustainable, as the assessee had provided a tabulation chart of permanent category securities from FY 2005-06 to FY 2009-10. The tribunal referred to the Gujarat High Court's decision in CIT vs. Rajkot Dist. Central Cooperative Bank, which held that the premium paid on government securities should be amortized over the remaining period to maturity as per RBI guidelines. The tribunal concluded that the assessee was entitled to amortize the premium paid on government securities and deleted the disallowance.

Conclusion:
The tribunal allowed the assessee's appeals for both assessment years, holding that the assessee was entitled to amortize the premium paid on HTM government securities as per RBI guidelines. The disallowance of Rs. 2,60,99,875/- for AY 2010-11 and Rs. 82,44,601/- for AY 2012-13 was deleted.

Order Pronouncement:
The order was pronounced in the open court on 26-02-2016.

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