2012 (11) TMI 336 - AT - Income Tax

Amortization of premium on purchase of Government securities - Held that - Amortization was made as per the prudential norms of the RBI. Following the Tribunal decision in the assessee s own case and considering that the assessee bank is following consistent and regular method of accounting system, there is no justification in interfering with the order of the Commissioner of Income-tax (Appeals) on this issue of amortization of premium on government securities. - Decision in M/s. Sir M. Visweswaraya Cooperative Bank Ltd., Versus Joint Commissioner of Income-tax, Range-3, Bangalore 2012 (9) TMI 774 - ITAT, BANGALORE followed. Further, Premium amortized is claimed to be in respect of securities held under the category held to maturity . The Assessing Officer has taken them as long term investments. In other words, he has accepted the assessee s claim that the securities are held to maturity . That being so and having regard to the CBDT Instruction No.17 of 2008 dated.26.11.2008 as reproduced herein above, the premium paid on such government securities is required to be amortized over the period remaining to maturity - assessee is entitled to claim this deduction appeal of assessee is allowed.

Summary

Issues:
- Disallowance of amortization of premium paid on investment made in GOI Bonds/Government securities as per RBI circular.

Analysis:
The appeal was filed by a cooperative bank against the disallowance of Rs.22,44,300 as amortization of premium paid on investments in GOI Bonds/Government securities. The issue revolved around whether the AO erred in disallowing this amount. The appellant contended that the disallowed amount was allowable as a deduction as per RBI circular, CBDT instructions, and judicial precedents. The CIT(A) upheld the disallowance, stating that income should be computed as per the Income-tax Act, not RBI provisions. However, the Tribunal, considering relevant case laws and consistent accounting practices, allowed the appellant's claim. The Tribunal cited precedents like Catholic Syrian Bank Ltd and Khanapur Co-op Bank Ltd to support its decision. The Tribunal concluded that the appellant was entitled to the deduction, thus allowing the appeal and annulling the AO's order disallowing the amount.

The appellant, a cooperative bank, engaged in providing long-term finance, initially claimed the amortization of Rs.22,44,300 on GOI securities in its return of income. Due to confusion, it filed a revised return disallowing the amount but later withdrew the revised return. However, the AO disallowed the claim without considering the withdrawal. The CIT(A) upheld the disallowance, emphasizing the computation of income as per the Income-tax Act. The Tribunal, after considering the facts, materials, and relevant precedents, allowed the appellant's claim based on consistent accounting practices and RBI norms. The Tribunal's decision was influenced by case laws such as Corporation Bank v. ACIT and Khanapur Co-op Bank Ltd, supporting the deduction of amortization of premium on government securities. Consequently, the Tribunal allowed the appeal, annulling the AO's disallowance of the amount.

The Tribunal's decision was based on the interpretation of relevant RBI circulars, CBDT instructions, and judicial precedents regarding the deduction of amortization of premium on government securities. The Tribunal emphasized the consistent accounting practices of the appellant and cited cases like Catholic Syrian Bank Ltd and Khanapur Co-op Bank Ltd to support its decision. By aligning with previous Tribunal decisions and considering the totality of facts and materials, the Tribunal concluded that the appellant was entitled to the deduction. The Tribunal's decision was influenced by the principle that premium paid on government securities should be amortized over the remaining period to maturity, as per CBDT instructions. Consequently, the Tribunal allowed the appeal, overturning the CIT(A)'s decision and annulling the AO's disallowance of the claimed amount.