2013 (9) TMI 1058 - AT - Income Tax

Claim of the assessee on account of amortization of premium on investments allowed See ACIT Vs. Pune Peoples Cooperative Bank Ltd. 2013 (8) TMI 922 - ITAT PUNE

Summary

Issues Involved:
1. Whether the amortization of premium on Government Securities held to maturity (HTM) should be treated as capital expenditure or revenue expenditure.

Detailed Analysis:

Issue 1: Amortization of Premium on Government Securities (HTM)
The primary issue in this case is whether the amortization of premium on Government Securities classified as Held to Maturity (HTM) should be considered as a capital expenditure or revenue expenditure.

Facts of the Case:
The assessee, a cooperative society engaged in banking, claimed a deduction of Rs. 24,57,800/- for the amortization of premium on HTM securities. The Assessing Officer (AO) disallowed this claim, treating it as capital expenditure. The AO's decision was based on the RBI guidelines, which classify HTM securities as capital assets, thereby implying that the premium paid should not be allowed as a revenue expense.

Assessee's Argument:
The assessee argued that the amortization of premium on HTM securities is a standard practice as per RBI guidelines and should be treated as a revenue expense. They cited previous favorable decisions, including one from the CIT(A) in the case of Bharat Sahakari Bank Ltd. and another from the ITAT Mumbai Bench.

Assessing Officer's Decision:
The AO rejected the assessee's explanation, stating that the expenses related to the amortization of HTM securities are capital in nature and therefore not allowable as revenue expenditure. Consequently, the AO disallowed the claim and added Rs. 24,57,800/- to the total income.

CIT(A)'s Decision:
On appeal, the CIT(A) reversed the AO's decision, holding that the investment in HTM securities is made in the normal course of banking business and is required to comply with the Statutory Liquidity Ratio (SLR) requirements. The CIT(A) noted that the RBI guidelines and CBDT instructions clearly allow for the amortization of premium on HTM securities as a business expenditure. Therefore, the CIT(A) directed the AO to allow the deduction claimed by the assessee.

Tribunal's Analysis:
The Tribunal reviewed the arguments and previous decisions, particularly the Pune Bench's decision in the case of ACIT vs. Pune Peoples Cooperative Bank Ltd., which allowed similar claims. The Tribunal also considered the Mumbai Bench's decision in the case of Nahsik Merchant Cooperative Bank Ltd., which held that amortization of premium on HTM securities is allowable as revenue expenditure.

Tribunal's Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the amortization of premium on HTM securities is an allowable business expenditure as per RBI guidelines and CBDT instructions. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Summary:
The Tribunal concluded that the amortization of premium on Government Securities held to maturity (HTM) is an allowable business expenditure. The decision was based on RBI guidelines and CBDT instructions, which classify such amortization as a revenue expense. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal and allowing the deduction claimed by the assessee.