2014 (5) TMI 806 - AT - Income Tax

Deletion of claim of expenses - Amortization of premium on investment Held that - The AO from the P&L account of bank, observed that an amount was debited under the head Investment Premium Amortization - Following ACIT Vs. Bank of Rajasthan Ltd. 2010 (12) TMI 894 - ITAT, Mumbai - in the case of bank premium paid in excess of the face value of investments classified under HTM category which has been amortized over a period till maturity is allowable as revenue expenditure since the claim is as per RBI guidelines and CBDT has also directed to allow the said premium - instruction and guidelines issued by the CBDT and RBI, amortization of premium paid on government securities is allowable expenditure - CIT(A) was justified in deleting the disallowance Decided against Revenue. Disallowance of expenses claimed under education fund Held that - The assessee is a cooperative bank, has paid contribution to the Education Fund of State Government as per guidelines of Commission of Cooperative Department - The contribution fund is mandatory on the part of every cooperative bank registered in the State of Maharashtra - The assessee has demonstrated that as per Cooperative Society Act, any order or instruction issued by the Govt. of Maharashtra is mandatory on the part of cooperative society / cooperative bank - the bank has to work under the control of Commissioner of Cooperation, Maharashtra - the order issued by the Commissioner is obligatory on the bank - CIT(A) rightly held that the contribution paid by bank is a business expenditure wholly exclusively incurred for the purpose of business and accordingly, allowable u/s.37(1) of the Act the reasoned finding of CIT(A) has deleted the addition made on account of contribution to the Education Fund Decided against Revenue.

Summary

Issues:
1. Disallowance of expenditure towards amortization of premium on investment held till maturity.
2. Disallowance of expenses claimed under the head Education fund.

Analysis:
1. The first issue pertains to the disallowance of Rs. 3,73,600/- on account of amortization of premium on government securities held till maturity. The Assessing Officer made this addition, but the CIT(A) granted relief to the assessee. The ITAT Pune, after considering the submissions and relevant circulars, upheld the CIT(A)'s decision. Referring to RBI guidelines and CBDT instructions, the ITAT concluded that the amortization of premium paid on government securities is an allowable expenditure. Citing a previous Mumbai Bench decision, the ITAT affirmed that the premium amortized over the period till maturity is a revenue expenditure, as per regulatory directives.

2. The second issue revolves around the disallowance of Rs. 10,60,882/- claimed as a contribution to the Education Fund. The Assessing Officer questioned the nature of this expense, as it was not directly related to the bank's business. Despite the explanation provided by the assessee, the Assessing Officer disallowed the expenditure. However, the CIT(A) ruled in favor of the assessee, highlighting that the contribution to the Education Fund was mandatory for cooperative banks in Maharashtra as per government guidelines. The ITAT Pune concurred with the CIT(A), emphasizing that the contribution was a business expenditure wholly and exclusively incurred for the purpose of the bank's operations. Therefore, the ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 10,60,882/-, as it was allowable under Section 37(1) of the Income Tax Act.

In conclusion, the ITAT Pune dismissed the appeal filed by the revenue, affirming the CIT(A)'s decisions on both issues. The judgment provides a detailed analysis of the regulatory framework, emphasizing compliance with RBI guidelines and CBDT instructions in determining the allowability of specific expenditures in the context of cooperative banking operations.