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2014 (1) TMI 1805 - AT - Income TaxDisallowance of amortization of premium on investment - Held that - As in the case of United Commercial Bank Vs. CIT (1999 (9) TMI 4 - SUPREME Court) the issue of valuation of stock-in-trade of securities held by the Bank was referred to the Hon ble Supreme Court and it is held that it is open to the assessee to value it at the cost or market value whichever is lower and method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the Department authority. The Law is well settled that all the securities held by the Bank are part of the stock-in-trade irrespective of the fact how the classification is made. Thus following the decision in the case of Bank of Rajasthan Ltd. (2010 (12) TMI 894 - ITAT, Mumbai ) and the Latur Urban Co-op. Bank Limited (2015 (3) TMI 920 - ITAT PUNE ) wherein held all the securities held by the Bank form part of the stock-in- trade respective of the classification made as per the RBI guidelines. We, allow the appeal filed by the assessee and delete the addition made by the Assessing Officer. Assessee s appeal is allowed.
Issues:
Disallowance of amortization of premium on investment debited to profit and loss account. Analysis: The appellant challenged the disallowance of Rs. 1,49,57,000 made by the Assessing Officer regarding the amortization of premium on investment. The Assessing Officer based the disallowance on RBI guidelines categorizing securities as Held to Maturity (HTM), Available for Sale (AFS), and Held for Trading (HFT). The AFS and HFT securities are treated as stock in trade, while HTM securities are considered capital assets. The Assessing Officer referred to the decision in Vijaya Bank Ltd. vs. Addl. CIT 187 ITR 541 (SC) to justify the disallowance. The appellant's claim was rejected by the Ld. CIT(A), leading to the current appeal. The ITAT, Pune referred to the decision in the case of Bank of Rajasthan Ltd. where it was held that all investments are stock in trade, as per the Supreme Court's decision in UCO Bank. The Tribunal emphasized that securities under HTM category can be sold at any time, treating them as stock in trade, not capital assets. The CBDT instruction also supported the amortization of premium on securities under HTM category. Consequently, the ITAT directed the Assessing Officer to allow the appellant's claim of Rs. 65,51,826 based on RBI guidelines and CBDT instructions. Moreover, the ITAT, Pune cited the decision in the case of Latur Urban Co-op. Bank Limited, where it was established that all securities held by the Bank are part of stock-in-trade regardless of RBI guidelines' classifications. The Tribunal emphasized that securities held by banks are considered stock-in-trade, as per various court decisions. The Tribunal allowed the appeal and deleted the addition made by the Assessing Officer, following precedents and legal principles. In conclusion, the ITAT ruled in favor of the appellant, allowing the appeal and deleting the disallowance made by the Assessing Officer. The decision was based on the interpretation of RBI guidelines, CBDT instructions, and legal precedents establishing securities held by banks as stock-in-trade, not capital assets, justifying the amortization of premium on investments under HTM category.
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