2015 (9) TMI 599 - AT - Income Tax

Disallowance of broken period interest - CIT(A) deleted the addition - Held that - Issue in dispute is squarely covered by the decision of the Tribunal in assessee s own case for AY 2010-11ssue in dispute is squarely covered by the decision of the Tribunal in assessee s own case for AY 2010-11 2015 (4) TMI 583 - ITAT HYDERABAD to hold that broken period interest claimed by assessee is an allowable deduction - Decided in favour of assessee. Addition on account of amortization of premium paid in excess of face value of securities - CIT(A) deleted the addition - Held that - Undisputedly, the government securities under HTM category have been held as stock-in-trade by assessee. As held by Hon ble Supreme Court in case of UCO Bank (1999 (5) TMI 3 - SUPREME Court), securities on which premium is paid, if held under HTM category are to be treated as stock-in-trade. ITAT Mumbai Bench in case of ACIT Vs. the Bank of Rajasthan Ltd. 2011 (9) TMI 961 - ITAT MUMBAI while deciding the issue relating to allowability of deduction claimed towards amortization on premium paid on excess face value of securities held under HTM category has allowed assessee s claim - Decided in favour of assessee. Disallowance of deduction claimed u/s 36(1)(viia) - Held that - Undisputedly, assessee has not made any provision for bad and doubtful debts in the books of account as required u/s 36(1)(viia). Only in computation of income filed along with return of income assessee has claimed deduction towards provision for bad and doubtful debts. On perusal of section 36(1)(viia), it is very much clear that for claiming deduction under the said provision, the mandatory requirement is assessee must have made a provision in the books of account for claiming deduction in the manner prescribed therein. Therefore, when assessee has not made any provision in the books of account in so far as bad and doubtful debts are concerned, assessee is not eligible for deduction u/s 36(1)(viia). The Hon ble P&H High Court in case of State Bank of Patiala Vs. CIT (2004 (5) TMI 12 - PUNJAB AND HARYANA High Court ) while interpreting the provisions of section 36(1)(viia) has held that unless assessee bank makes a provision for bad and doubtful debt in the books of account, no deduction is allowable. - Decided against assessee.

Summary

Issues:
1. Disallowance of broken period interest.
2. Disallowance of amortization of premium paid in excess of face value of securities.
3. Disallowance of deduction claimed under section 36(1)(viia).

Issue 1: Disallowance of broken period interest:
The dispute revolved around the addition made by the Assessing Officer (AO) on account of disallowance of broken period interest claimed by the assessee. The AO disallowed the amount, considering it not allowable as expenditure. However, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition, citing various judicial precedents and RBI guidelines supporting the allowance of broken period interest. The ITAT upheld the CIT(A)'s decision based on previous tribunal rulings and Supreme Court decisions, dismissing the revenue's appeal.

Issue 2: Disallowance of amortization of premium paid in excess of face value of securities:
The AO disallowed the amortization claimed by the assessee on premium paid for government securities, stating it was not in accordance with Section 35D. However, the CIT(A) allowed the deduction, considering the securities as stock-in-trade and relying on relevant legal precedents. The ITAT upheld the CIT(A)'s decision, emphasizing that premium amortization should be allowed based on RBI guidelines and previous tribunal rulings, dismissing the revenue's appeal.

Issue 3: Disallowance of deduction claimed under section 36(1)(viia):
The AO disallowed the deduction claimed by the assessee under section 36(1)(viia) for bad and doubtful debts, as no provision was made in the books of account. The CIT(A) upheld the disallowance, citing the requirement for a provision in the books of account as per legal interpretations. The ITAT agreed with the CIT(A), referencing the P&H High Court judgment and the mandatory provision requirement under section 36(1)(viia), dismissing the assessee's appeal.

In conclusion, both the revenue's and assessee's appeals were dismissed based on detailed analysis and legal interpretations provided by the ITAT, upholding the decisions of the CIT(A) in each issue.