2015 (6) TMI 553 - AT - Income Tax

Amortization of premium paid on Government securities disallowed - Held that - Amortization premium paid on Govt. Securities debited to Profit and Loss Account, as per RBI guidelines has to be allowed being expenses incurred during the course of business of banking. See case of Latur Urban Coop. Bank Ltd. 2015 (3) TMI 920 - ITAT PUNE - Decided in favour of assessee

Summary

Issues:
Challenge to disallowance of expenses under amortization of premium paid on government securities.

Analysis:
The appeal challenges the order of the Ld CIT(A)-I Pune dated 5-9-2011, regarding the disallowance of expenses under the head amortization of premium paid on government securities debited to P & L a/c. The assessee, a society in banking and insurance business, made investments in government securities classified as Held to Maturity (HTM) and Available For Sale (AFS). The claim of Rs. 15,11,333 under 'Premium paid on government securities' was explained as excess acquisition cost over available funds for certain HTM securities, written off based on unexpired maturity period. The Assessing Officer disallowed this amortization, treating HTM securities as capital assets. The CIT(A) upheld this decision, leading to the current appeal.

The issue was found in favor of the assessee by the ITAT Pune Bench in a related case. The Tribunal's decision emphasized that securities held by banks are in the nature of stock-in-trade, not purely investments. Citing precedents like CIT Vs. Bank of Baroda and UCO Bank Vs. CIT, the Tribunal allowed the claim for loss on sale of securities held under HTM category. The method of valuation and the nature of securities were crucial in determining the allowability of the claimed expenses. The Tribunal's decision aligned with established legal principles regarding the treatment of securities by banks.

Additionally, other co-ordinate Benches, such as the Bangalore Bench of the Tribunal, decided similar cases in favor of the assessee. These decisions reinforced the understanding that securities held by banks are akin to stock-in-trade and not merely investments. By setting aside the CIT(A)'s order and allowing the claim of the assessee, the Tribunal reiterated the revenue nature of the loss on the sale of securities held under HTM, emphasizing the distinction between investment assets and stock-in-trade assets for banking entities.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the revenue nature of the claimed expenses related to the amortization of premium paid on government securities held under HTM category. The decision was based on established legal principles and precedents regarding the treatment of securities by banks as stock-in-trade, ensuring consistency in the interpretation of relevant laws and regulations governing such transactions.