2015 (4) TMI 1088 - AT - Income Tax

Addition made on account of unclaimed liability appearing in the Balance Sheet - Held that - The assessee continues to recognize the liability and once the liability has been so recognized by the assessee there is no merit in treating the same as income of the assessee though some of the amounts may not be recoverable by application of provisions of Limitation Act. - Decided in favour of assessee Addition on account of premium paid on Government securities - Held that - The issue before the Tribunal in assessee s own case in assessment year 2009-10 and following the same parity of reasoning we uphold the order of CIT(A) in allowing the deduction on account of amortization premium paid on Government securities to hold the Securities held by the Bank are in the nature of Stock-in-Trade Both the authorities below have merely gone on the nomenclature of the head under which the Securities are held. In our considered view nomenclature cannot be decisive for the assessee Bank. We therefore hold that Addition made on account of premium paid on investment in Government securities is to be deleted - Decided in favour of assessee Allowability of broken period interest Held that - There is no difference in the amount in tax whether one adopts the assessee s method or the Department s method. Under either method the same amount is offered for tax. The Department has not been able to show in this case as to why the method adopted by the assessee-bank ought to be rejected. On the other hand the Department has not been able to explain as to why broken period interest received should be taxed whereas broken period interest payment should be disallowed See American Express International Banking Corporation Versus Commissioner Of Income-Tax 2002 (9) TMI 96 - BOMBAY High Court - Decided against Revenue.

Summary

Issues Involved:
1. Addition of unclaimed liability of Rs. 26,39,605/-.
2. Disallowance of deduction on account of premium paid on investment in Government Securities.
3. Disallowance of deduction on account of payment of broken period interest on investment in Government Securities.

Issue-Wise Detailed Analysis:

1. Addition of Unclaimed Liability of Rs. 26,39,605/-:
The assessee, a cooperative bank, had shown Rs. 27,57,051/- as unclaimed liability under 'Sundries' in its Balance Sheet, representing unclaimed Demand Drafts not presented for clearing for more than six months. The Assessing Officer (AO) added Rs. 26,39,605/- to the income of the assessee, considering it as extinguished liabilities. The CIT(A) upheld this addition, relying on the Limitation Act and the Supreme Court's decision in CIT Vs. TVS Sundaram Iyengar and Sons Ltd. The Tribunal, however, concluded that once the liability is recognized by the assessee in its books, it does not convert into income even if it is unclaimed and relates to earlier years. The Tribunal directed the AO to delete the addition, citing the Supreme Court's decision in CIT vs. Sugauli Sugar Works (P) Ltd. and other relevant case laws.

2. Disallowance of Deduction on Account of Premium Paid on Investment in Government Securities:
The assessee had debited Rs. 22,69,144/- as premium paid on Government securities in its Profit & Loss Account. The AO disallowed this, treating the securities as investments (capital assets) rather than stock-in-trade. The CIT(A) allowed the deduction, following the Tribunal's decisions in similar cases, including Latur Urban Co-operative Bank Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by its earlier decision in the assessee's own case for the assessment year 2009-10. The Tribunal reiterated that amortization of premium paid on HTM securities is an allowable deduction as per RBI guidelines.

3. Disallowance of Deduction on Account of Payment of Broken Period Interest:
The assessee had also claimed a deduction of Rs. 22,12,817/- for broken period interest paid on Government securities. The AO disallowed this, treating the securities as investments. The CIT(A) allowed the deduction, relying on the Bombay High Court's decision in American Express International Banking Corporation Vs. CIT. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Department could not disallow the deduction for broken period interest paid while taxing the broken period interest received. The Tribunal found no merit in the AO's order and dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal allowed the appeal of the assessee regarding the addition of unclaimed liability and upheld the CIT(A)'s decisions allowing deductions for premium paid on Government securities and broken period interest. Consequently, the appeal of the Revenue was dismissed.