2015 (4) TMI 662 - AT - Income Tax

Dis-allowance of amortisation of premium paid on HTM securities - Treatment of Investment fluctuation fund as contingent liability - Held that - Cooperative bank unlike other commercial banks are subjected to dual control from both RBI as well as from state cooperative department. The accounting treatment for a cooperative bank is therefore a result of guidelines from both the controlling authorities. Ordinarily a deduction is not available to an assessee unless specifically provided under the Act. This is irrespective of accounting treatment provided by the assessee in its books of accounts. But at the same time it was well settled that deduction expressly mentioned under the Act are not exhaustive and profit is to be derived according to ordinary commercial principles. As per the extant RBI guidelines dated 01-07-2009 the investment portfolio of the banks is required to be classified under 3 categories viz., Held the maturity HTM), Held for Trading (HFT) and Available for Sale (AFS). The ITAT, Mumbai Bench, in the case of The Bank of Rajasthan Ltd. 2010 (12) TMI 894 - ITAT, Mumbai , has held that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. It has also been held in the case of Catholic Syrian Bank Ltd. 2013 (1) TMI 129 - ITAT COCHIN that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till maturity was found reasonable by the CIT(A). Accordingly addition of ₹ 17,91,659/- made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted. This reasoned factual and legal finding of the CIT(A) needs no interference from our side. Accordingly, the disallowance of ₹ 2,20,68,302/- made by the Assessing Officer claimed as amortization of premium expenditure for HTM securities by payment of premium over and above the face value of such securities is directed to be allowed. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of amortization expenditure for HTM securities.
2. Disallowance of provision for Investment Fluctuation Fund.
3. Justification of levy of interest under sections 234A, 234B, and 234C.

Issue 1: Disallowance of amortization expenditure for HTM securities:
The appeal challenged the disallowance of Rs. 2,20,68,302 claimed as amortization of premium expenditure for HTM securities. The appellant argued that various judicial precedents supported the allowance of such expenditure. The Hon'ble Bombay High Court and ITAT Pune 'A' Bench rulings favored the assessee's position. The RBI guidelines and CBDT instructions also supported the amortization claim. The Tribunal upheld the CIT(A)'s decision to delete the addition, citing that the amortization was as per RBI norms and was justifiable. Consequently, the disallowance was directed to be allowed.

Issue 2: Disallowance of provision for Investment Fluctuation Fund:
The CIT(A) confirmed the disallowance of Rs. 20,00,000 as a contingency provision for the Investment Fluctuation Fund. The appellant argued that this fund aimed to protect SLR securities and should not be considered a contingent liability. However, the appellant later withdrew this ground during the hearing. Hence, this issue was dismissed as not pressed.

Issue 3: Justification of levy of interest under sections 234A, 234B, and 234C:
The appellant contested the levy of interest under the mentioned sections, claiming it was unjustified. However, no detailed arguments or legal basis were provided in the judgment regarding this issue. As a result, it can be inferred that the Tribunal did not find merit in the appellant's arguments challenging the levy of interest, and the appeal did not succeed on this ground.

In conclusion, the Tribunal partially allowed the appeal by directing the allowance of the disallowed amortization expenditure for HTM securities. The other issues regarding the provision for Investment Fluctuation Fund and the levy of interest under sections 234A, 234B, and 234C were either dismissed or not pressed. The judgment provided a detailed analysis of the legal precedents, RBI guidelines, and CBDT instructions supporting the appellant's position on the disallowance of amortization expenditure for HTM securities.