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2016 (4) TMI 897 - AT - Income TaxDisallowance in the nature of amortization of premium paid on Held to Maturity(HTN) government securities - Held that - There can hardly be any dispute that the assessee has to mandatorily comply with market regular RBI s circulars issued from time to time including those dealing with the instant issue of investments in securities, their classification and other procedural aspects. There is further no dispute about the assessee having held its HTM securities as per the master circular dated 01-07-2009 on investments by Primary (Urban) Co-operative Banks. We are conscious of the fact that noncompliance thereof entails penal consequences which are nowhere forthcoming or discussed by the lower authorities. The assessee files before us its statement of details of govt. security for the purpose of maintaining service lending ratio right from financial year 2005-06 to 2009-10 along with its relevant Board s resolution classifying the same to be in permanent category. We have already recorded that it has been allowed the impugned relief throughout without any disallowance being made. Copies of the assessment orders for assessment year 2007-08 to 2009-10 form part of the records. We come to the CIT(A) s findings under challenge alleging the assessese as not to have filed the relevant details. We are of the opinion that once the above extracted portion comprises a tabulation chart of permanent category security right from financial year 2005-06 to 2009-10, no such case of non-furnishing of relevant details can be stated to have arisen in the impugned assessment year. The CIT(A) s reasoning is therefore not sustainable. We find that the hon ble jurisdictional high court in CIT vs. Rajkot Dist. Central Cooperative Bank (2014 (3) TMI 110 - GUJARAT HIGH COURT) takes note of circular no. 17 dated 26-11-2008 wherein the said assessee had purchased govt. securities at a price higher than their face value for holding that the relevant premium paid thereupon has to be amortized for remaining period of maturity. - Decided in favour of assessee
Issues Involved:
1. Disallowance of amortization of premium paid on Held to Maturity (HTM) government securities. 2. Compliance with Reserve Bank of India (RBI) guidelines and Central Board of Direct Taxes (CBDT) instructions. 3. Verification of categorization and intention to hold securities till maturity. 4. Adherence to procedural requirements for shifting investments between categories. Issue-wise Detailed Analysis: 1. Disallowance of Amortization of Premium Paid on HTM Government Securities: The assessee, a cooperative bank, challenged the disallowance of Rs. 2,60,99,875/- and Rs. 82,44,601/- towards the amortization of premium paid on HTM government securities for the assessment years 2010-11 and 2012-13. The CIT(A) confirmed the disallowance, stating that the assessee did not follow RBI guidelines, and thus, the securities could not be classified as "Held for Maturity." The CIT(A) noted that the assessee failed to prove the securities were held till maturity and did not comply with the RBI and CBDT circulars. 2. Compliance with RBI Guidelines and CBDT Instructions: The RBI issued a master circular on 01-07-2009, prescribing the categorization of investment portfolios into HTM, Available for Sale (AFS), and Held for Trading (HFT). The circular stipulated that securities held under HTM need not be marked to market and should be carried at acquisition cost, with any premium paid to be amortized over the remaining period to maturity. The CBDT's instruction no. 17 of 2008 also emphasized the need for banks to classify their investment portfolios under these categories and to amortize the premium paid on HTM securities. 3. Verification of Categorization and Intention to Hold Securities Till Maturity: The CIT(A) found that the assessee did not provide adequate documentation to verify the categorization of securities at the time of acquisition. The assessee submitted manually prepared details of investments under HTM and current categories for the period from FY 2006-07 to FY 2009-10. However, the CIT(A) observed that the assessee did not hold the securities till maturity, as evidenced by the sale and conversion of several securities within a few years. The CIT(A) concluded that the intention to hold the securities till maturity was not demonstrated. 4. Adherence to Procedural Requirements for Shifting Investments: The RBI circular allowed shifting of investments to/from HTM with the Board of Directors' approval once a year, typically at the beginning of the accounting year. The CIT(A) noted that the assessee did not provide evidence of Board approval for shifting investments and observed multiple sales within a single year, indicating non-compliance with the circular's procedural requirements. Tribunal's Findings: The tribunal noted that the assessee had consistently followed the RBI guidelines and had been allowed amortization of premium in previous assessment years without disallowance. The tribunal found that the CIT(A)'s reasoning of non-furnishing relevant details was unsustainable, as the assessee had provided a tabulation chart of permanent category securities from FY 2005-06 to FY 2009-10. The tribunal referred to the Gujarat High Court's decision in CIT vs. Rajkot Dist. Central Cooperative Bank, which held that the premium paid on government securities should be amortized over the remaining period to maturity as per RBI guidelines. The tribunal concluded that the assessee was entitled to amortize the premium paid on government securities and deleted the disallowance. Conclusion: The tribunal allowed the assessee's appeals for both assessment years, holding that the assessee was entitled to amortize the premium paid on HTM government securities as per RBI guidelines. The disallowance of Rs. 2,60,99,875/- for AY 2010-11 and Rs. 82,44,601/- for AY 2012-13 was deleted. Order Pronouncement: The order was pronounced in the open court on 26-02-2016.
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