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2019 (8) TMI 20 - HC - Income TaxDisallowance of Amortized Premium - HELD THAT - As decided in RAJKOT DIST. CO-OP BANK LTD. C/O. AD. VYAS AND CO. 2014 (3) TMI 110 - GUJARAT HIGH COURT the assessee as a cooperative bank was bound by the RBI directives - As per the directives, the assessee had to invest certain amounts in Government securities and to hold the same till maturity - In the process of acquisition, if there was any premium paid on the face value of the security, the loss had to be amortised - The instructions clearly provide for amortisation of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value - Such amortisation would have to be for the remaining period of maturity - This precisely the Tribunal had directed in the order - no contrary instructions of CBDT are brought to notice - The instruction in question having been issued under section 119(2) of the Income Tax Act, 1961, would bind the Revenue - Decided against Revenue.
Issues:
1. Interpretation of Income Tax Act, 1961 regarding disallowance of Amortized Premium. 2. Application of RBI guidelines and CBDT Circular on amortization of premium on securities acquisition. 3. Validity of Tribunal's decision overruling CIT (Appeals) decision. 4. Compliance with statutory directives by cooperative banks in investment activities. Issue 1: Interpretation of Income Tax Act, 1961 regarding disallowance of Amortized Premium: The Tax Appeal under section 260(A) of the Income Tax Act, 1961 questions the deletion of an addition made by the Assessing Officer concerning the disallowance of Amortized Premium amounting to ?2,80,22,415. The issue raised by the revenue is analyzed in light of a previous decision by the Gujarat High Court in the case of Commissioner of Income-tax Versus Rajkot District Co-operative Bank Limited. The Court had held that the amortization of premium paid on acquisition of securities, when acquired at a value higher than the face value, is permissible over the remaining period of maturity. The Tribunal's decision, based on this precedent, favored the assessee, emphasizing compliance with statutory regulations. Issue 2: Application of RBI guidelines and CBDT Circular on amortization of premium on securities acquisition: The respondent, a cooperative bank, claimed the amortization of premium paid on acquiring securities as a loss spread over the security's entire period. The CBDT Circular dated November 26, 2008, was pivotal in this regard, providing instructions for cooperative banks bound by RBI directives to amortize premiums on securities acquired above face value. The Circular clarified that such amortization should be for the remaining period until maturity, aligning with the Tribunal's direction in the impugned order. The Court emphasized that these instructions, issued under the Income-tax Act, would bind the Revenue, thereby dismissing the appeal. Issue 3: Validity of Tribunal's decision overruling CIT (Appeals) decision: The Tribunal's decision to allow the assessee's claim, contrary to the CIT (Appeals) decision, was based on the CBDT Circular and the RBI guidelines. The Tribunal's reliance on the Circular and the precedent set by the Bombay Bench of the Tribunal supported the amortization claim. The Court noted the absence of any contradictory instructions from the CBDT, affirming the Tribunal's decision and dismissing the appeal. Issue 4: Compliance with statutory directives by cooperative banks in investment activities: The case highlighted the statutory obligations of cooperative banks, particularly in adhering to RBI guidelines and directives related to investment activities. The Court emphasized the importance of cooperative banks following regulatory instructions, such as the CBDT Circular, to ensure compliance with statutory requirements. The decision underscored the significance of aligning investment practices with regulatory frameworks to avoid disputes and ensure adherence to legal provisions. In conclusion, the Gujarat High Court upheld the Tribunal's decision, emphasizing the compliance of cooperative banks with RBI guidelines and CBDT Circulars in amortizing premiums on securities acquisitions. The judgment reiterated the importance of following statutory directives to maintain regulatory compliance in investment activities, ultimately dismissing the Tax Appeal.
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