2019 (11) TMI 643 - AT - Income Tax

Addition of amortization of premium paid on investment - amortization expenditure on government securities held as HTM - HELD THAT - Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. This was explained by the CBDT vide Instruction No. 17 of 2008 dated 26.11.2008 according which investment of banks clarified under HTM category need not be marked to market and are carried at cost unless these are more than face value, in which case, the premium should be amortized over the period remaining to maturity. The Tribunal in the case of State Bank of Saurashtra Bhavnagar v. DCIT 2004 (12) TMI 285 - ITAT AHMEDABAD-A , Catholic Syrian Bank Ltd. v. ACIT 2009 (8) TMI 858 - ITAT COCHIN held that in view of Instruction dated 26.11.2008, deduction of amortized expenditure on premium on Government Securities is allowable as expenditure. In the case of CIT-Rajkot-2 v. Rajkot District Co-Operative bank Ltd. . 2014 (3) TMI 110 - GUJARAT HIGH COURT wherein it was held that in terms of Circular No. 17 dated 26.11.2008, where Co-operative Bank Ltd. purchases certain Government Securities in order to maintain statutory liquidity ratio (SLR) at a price higher than their face value, premium so paid has to be amortized for remaining period of maturity. In the light of above facts and circumstances, we are of the considered opinion, the amortization expenditure on government securities held as HTM are allowable as deduction. - Decided in favour of assessee Unexplained investment in Multi/National Stock Exchange - CIT-A deleted the addition - HELD THAT - Addition is made without providing information to the assessee for rebuttal and details of transactions nature and company in which investment is made. Therefore, we do not find any error in the order of ld.CIT(A), accordingly same is upheld. Therefore, these grounds of appeal is therefore dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of amortization of premium paid on investment.
2. Deletion of addition on account of unexplained investment in Multi/National Stock Exchange.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Amortization of Premium Paid on Investment:

The Revenue contested the deletion of ?1,66,57,951/- related to the amortization of premium paid on investment. The Assessee had purchased government securities classified under the "held to maturity" (HTM) category and claimed the premium paid over the face value as a deduction. The Assessing Officer (AO) disallowed this claim on the grounds that there is no provision in the Income Tax Act, 1961 for such amortization.

The CIT(A) allowed the deduction, referencing Section 36(1)(vii) of the Act and CBDT Instruction No. 17 of 2008, which permits amortization of premium paid on HTM securities over the period remaining to maturity. The CIT(A) noted that the AO ignored these guidelines, which are binding.

The Tribunal upheld the CIT(A)'s decision, citing precedents from the Ahmedabad Tribunal, Cochin Tribunal, and Gujarat High Court, which supported the allowance of amortized expenditure on government securities. The Tribunal concluded that the amortization expenditure on government securities held as HTM is allowable as a deduction, dismissing the Revenue's appeal.

2. Deletion of Addition on Account of Unexplained Investment in Multi/National Stock Exchange:

The AO added ?3,97,000/- to the Assessee's income based on AIR information indicating an investment in National/Multi Commodity Exchange not reflected in the balance sheet. The Assessee argued that no proof of such investment was provided.

The CIT(A) deleted the addition, stating that the AO relied solely on AIR information without providing specific details to the Assessee. The CIT(A) emphasized that without complete transaction details, the Assessee could not explain the alleged investment.

The Tribunal agreed with the CIT(A), noting that the addition was made without giving the Assessee an opportunity to rebut the information. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

Conclusion:

The Tribunal dismissed both appeals by the Revenue, affirming the CIT(A)'s decisions to delete the additions related to the amortization of premium paid on investments and the unexplained investment in the Multi/National Stock Exchange. The Tribunal's decision was based on adherence to established legal guidelines and precedents.