2015 (3) TMI 1324 - AT - Income Tax

Nature of expenditure - capital expenditure or revenue expenditure - amortization of premium paid for acquisition of securities categorized as Held to Maturity (HTM) - Held that - The issue arising in the present appeal is identical to the issue decided in the case of Pune District Central Cooperative Bank Ltd. (2015 (4) TMI 662 - ITAT PUNE) and in the case of HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT) and following the same parity of reasoning we hold that the assessee is entitled to the deduction being the premium on Amortization of Securities. We hereby affirm the action of CIT(A) in deleting the disallowance representing amortization of premium paid on Government Securities under the HTM category. - decided against revenue

Summary

Issues: Disallowance of amortization of premium paid for acquisition of securities categorized as Held to Maturity (HTM) for assessment year 2008-09.

The judgment pertains to an appeal by the Revenue against an order of the Commissioner of Income Tax (Appeals)-IT/TP, Pune regarding the disallowance of &8377; 11,38,171/- made by the Assessing Officer on account of amortization of premium paid for acquisition of securities categorized as Held to Maturity (HTM) for the assessment year 2008-09. The assessee, a Co-operative Bank, claimed deduction for amortization of premium paid on such securities, which was initially disallowed by the Assessing Officer on the basis that these securities are capital in nature. However, the CIT(A) deleted the addition following a Tribunal decision in a similar case. The Revenue challenged this decision before the ITAT Pune. The ITAT noted that similar issues had been decided in favor of the assessee by the Pune Bench of the Tribunal and the Hon'ble Bombay High Court in related cases. The ITAT upheld the CIT(A)'s decision, emphasizing that the premium paid in excess of face value of investments under HTM category, amortized till maturity, is allowable as revenue expenditure as per RBI guidelines. The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

The judgment extensively discusses the treatment of premium paid for acquisition of securities categorized as Held to Maturity (HTM) by a Co-operative Bank. It highlights the importance of RBI guidelines in determining the allowability of amortization of premium as a revenue expenditure. The decision underscores that the deduction claimed by the assessee aligns with commercial principles and regulatory directives, making it a legitimate business expense. The judgment also references previous Tribunal decisions and the Hon'ble Bombay High Court's rulings on similar issues, emphasizing consistency in allowing such deductions for Co-operative Banks. The judgment reiterates that the RBI guidelines play a crucial role in determining the treatment of premium paid on securities under the HTM category, supporting the assessee's claim for deduction.

The judgment further elaborates on the regulatory framework governing Co-operative Banks and the specific provisions related to the treatment of premium paid for securities under different categories. It emphasizes the dual control these banks are subjected to from RBI and state cooperative departments, leading to a unique accounting treatment. The judgment clarifies that while deductions under the Income-tax Act are typically specific, they are not exhaustive, and profits should be derived following commercial principles. The ITAT's decision to uphold the CIT(A)'s order is based on the alignment of the assessee's claim with RBI guidelines and previous legal precedents, ensuring consistency in allowing such deductions for Co-operative Banks.

In conclusion, the judgment affirms the CIT(A)'s decision to delete the disallowance of &8377; 11,38,171/- representing amortization of premium paid on Government Securities under the HTM category for the assessment year 2008-09. It emphasizes the importance of regulatory compliance, commercial principles, and legal precedents in determining the allowability of such deductions for Co-operative Banks. The ITAT's ruling in favor of the assessee underscores the significance of adhering to RBI guidelines and established legal interpretations in tax matters concerning premium amortization on securities held to maturity.