2016 (3) TMI 633 - AT - Income Tax

Disallowance of the premium paid - Held that - Since the assessee has ignored the premium paid on purchase of bonds and claimed premium portion also as interest, the Assessing Officer has not accepted and therefore, the difference of income payable of ₹ 20,35,000/- was added to the income of the assessee under the head income from other sources . After considering the submissions of the assessee and also considering the facts of the case, the ld. CIT(A) has observed that the assessee has already paid the interest component of ₹ 0.24 crores and ₹ 1.14 crores along with the face value and premium on the date of maturity, the assessee has received an amount equal to the immaturity value of the bonds. Since the assessee has already paid interest to the previous bond holders, the difference amount between the interest received by the assessee on the maturity date and interest paid on the purchase date by the assessee was treated as income in the hands of the assessee. Further, while redeeming the bonds, the ICICI Ltd. has also done TDS on the maturity value minus face value. Since the assessee has ignored the premium paid on purchase of bonds and claimed the same also as interest, the ld. CIT(A) has rightly observed that it is not an allowable expenditure. Accordingly, the ld. CIT(A) correctly sustained the addition made by the Assessing Officer. Under the above facts and circumstances, we find no infirmity in the order passed by the ld. CIT(A). - Decided against assessee

Summary

Issues Involved:
Confirmation of disallowance of premium paid and treatment of premium as purchase cost of the bond.

Confirmation of Disallowance of Premium Paid:
The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of the premium paid of Rs. 20,35,000. The assessee argued that the premium should be treated as the purchase cost of the bond and deducted from the maturity value. The Assessing Officer observed that the assessee purchased bonds from an intermediary holder on a cum-interest price basis. The difference in purchase value included accrued interest and premium on the bonds. The Assessing Officer calculated the income based on the interest received by the assessee on the maturity date minus the interest paid on the purchase date. The ICICI Ltd. deducted tax at source on the maturity value minus face value without recognizing the purchase price of the assessee. The Assessing Officer added Rs. 20,35,000 to the assessee's income under "income from other sources." The Commissioner upheld this decision, stating that the premium paid should not be considered an allowable expenditure. The Tribunal found no issue with the Commissioner's order and dismissed the assessee's appeal.

Treatment of Premium as Purchase Cost of the Bond:
The assessee also raised an alternative plea to treat the premium paid as the purchase cost of the bond and deduct it from the maturity value. This issue was not raised before the lower authorities. The Tribunal remitted this issue to the Assessing Officer for examination and decision in accordance with the law, providing an opportunity for the assessee to be heard. The appeal was partly allowed for statistical purposes. The Tribunal's order was pronounced on 3.2.2016.

This detailed analysis covers the confirmation of disallowance of premium paid and the treatment of premium as the purchase cost of the bond, as discussed in the legal judgment by the Appellate Tribunal ITAT CHENNAI.