DEPUTY COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN , MUMBAI vs. JANAKALYAN SAHAKARI BANK LTD, MUMBAI

We have heard the relevant materia respect of amortizati Government Securiti assessee has claime government securit government securitie Officer is of the view nature of the investm said expenditure onl was contested by amortization premiu norms following the Assessing Officer rel cited in the assess assessee. But the Ld under: “7.1.1 The ap in disallowing under Held to Income Tax A it has investm securities and guidelines, b residual perio value of the i allowable d classification norms and a CBDT Instru Disclosure s Janaka ITA rival submissions of the parti als on record. The sole issue i ion of the premium paid by t ies over the period of the mat ed premium paid over the fac ties as revenue expenditure es as stock-in-trade. Whereas, w that said government secur ment and therefore, the assesse ly at the time of the sale of su the assessee that said tre um expenses has been given e ICDS Rules issued by the C lying on the decision of the va sment order, rejected the con d. CIT(A) has deleted the additio ppellant in its Ground of Appeal No. 1 as g the claim for amortization of premium o maturity category of Rs. 2,72,78,950/ Act, 1961. The appellant bank in his reply ments in Held To Maturity (HTM) categor d classified the same as per Reserve B by amortizing premium on HTM securi od of maturity if acquisition cost is higher investments. The said amortized premiu eduction while calculating taxable and valuation of these securities is don also accepted by Income Tax departme uctions and also ICDS VIll (Income standards) which states that securit lyan Sahakari Bank Ltd 4 A No. 3988/MUM/2024 ies and perused in dispute is in the assessee on turity. Thus the ce value of the e treating the , the Assessing rities are in the ee is entitled for ch securities. It atment of the under the RBI CBDT. But the arious decisions ntention of the on observing as ssailed the AO on investment /- u/s 37(1) of y claimed that ry Government Bank of India ities over the r than the face m is taken as income. The ne as per RBI ent by issuing Computation ties shall be classified, re guidelines iss respect of th Government S of the manda judgment of t Bank (supra). Supreme Cou Appellants ca made in resp basis of facts 7.1.2 The AO securities, the inconsistent w the face value is booked as is more than sale but is sp held as inves till such time are held as s suffered on s loss of the ye amount can b further relied judgment deli Technologies assessee whi in terms of RB was claimed has held that AO disallowe in respect of H the appellant. 7.1.3 The rep relied upon b appellant's cl delivered by I September 20 "assessee's cl of Governmen prudential no acquisition of has been und Janaka ITA ecognized and measured in accordan sued by the RBI. The claim made by A he amortization of premium paid on Securities classified under HTM category ate of the RBI, a proposition which is sup the Hon'ble Bombay High Court in the c . Thus, the appellant claimed that decis urt in Southern Technologies Ltd. is not ase. The appellant requested to delete pect of amortized premium on HTM sec mentioned by him in his reply. O in assessment order noted that in re e assessee follows two different system with each other. When the purchase pric e at which the security is ultimately sold. profit only in the year of sale. But when the face value, the loss is not booked pread over the period of holding. If the tment, there is no question of allowance o as they are sold or redeemed. Even if th tock-in-trade, as per RBI's guidelines, wh sale of redemption of securities that will ear in which they are sold or redeemed. In be allowed under the provisions of section d on findings given by Hon'ble Supre ivered in January, 2010 in the case of M BI guidelines was debited to Profit & Loss in the Income Tax Return. The Hon'ble S t the above provision is not allowable. Ac ed and added back the amount of premi HTM securities of Rs. 2,72,78,950/- in t . ply of the appellant, assessment order a by the appellant and the AO has been co laim is considered in the background of ITAT Mumbai in case Kalyan Janata Sah 015, it was discussed as following: laim for amortization of premium paid on nt securities classified as HTM is consis orms issued by the RBI. It is also unden f the Government securities under the H dertaken by the assessee in the course lyan Sahakari Bank Ltd 5 A No. 3988/MUM/2024 nce with the Appellant is in acquisition of on the ground pported by the case of HDFC ion of Hon'ble t applicable in e the addition curities on the espect of HTM ms which are ce is less than the difference the cost price in the year of securities are of any amount hese securities hatever loss is constitute the In between, no n 145. The AO eme Court in M/s. Southern 37/ 2003, the for NPA, which s Account and Supreme Court ccordingly, the ium amortized total income of and case laws onsidered. The f the decision hakari Bank in n the purchase stent with the niable that the HTM categories of carrying on the 'banking predominant statutory liqu Direct Taxes provides that constitute stoc determined, i RBI from time refer to the ju Nedungadi B securities held banking woul said society. which is also banking, the considered as considering th RBI, the amo classified und while comput point, it woul Hon'ble Juri Ltd. [2014] 3 (Mag.) (Bom.) deduction wi acquisition of the mandate aforesaid jud supports the affirm. In view of the the case of taxmann.com for amortizati category of R deleted The g 4.1 In view of the characterized the na trade in view of guide relied on the decisio the case of CIT v. HD Janaka ITA business' under the mandate of RBI. O motive to purchase securities is to idity ratio prescribed by the RBI. The Ce s vide its circular No.665 dated 5/1 t the question as to whether any particu ck-in-trade or investment in the case of a inter-alia, having regard to the guidelin e to time. In this background, it would udgment of the Hon'ble Kerala High Court Bank Ltd. (supra), wherein it has be d by a Co-operative society engaged in th ld constitute the 'stock-in-trade' of the bu Therefore, in the context of the prese o a Cooperative society engaged in the impugned Government securities are s the stock-in-trade of its business of b he aforesaid fact-situation and also the m ortization of premium paid on purchase der HTM category is liable to be allowed a ting the business income of the assessee ld also be appropriate to refer to the jud dictional High Court in the case of C/T v 366 ITR 505/49 taxmann.com 335/226 ), wherein the assessee bank was hel ith respect to the amortization of prem f securities classified as HTM category on by RBI guidelines, In our considered dgment of the Hon'ble Bombay High inference reached by the CIT(A), whic e clear finding of Hon'ble Juri ictional CIT v. HDFC Bank Ltd. [2014] 366 m 335/226 Taxman 132 (Mag.) (Bom.), a ion of premium on investment under He s. 2,72,78,950/- U/s 37(1) of Income Tax grounds of appeal is allowed.” above decision, the ld cIT(A ature of the government securit elines issued by the RBI. The ld on of the Hon’ble Juri ictiona DFC Bank Ltd. (supra). Further, lyan Sahakari Bank Ltd 6 A No. 3988/MUM/2024 Ostensibly, the maintain the ntral Board of 10/1995 also ular securities bank shall be nes issued by be relevant to t in the case of een held that he business of usiness of the ent assessee, e business of liable to be banking. Thus, mandate of the e of securities as a deduction e bank. At this dgment of the v. HDFC Bank Taxman 132 ld entitled for mium paid on n the ground of d opinion, the Court clearly ch we hereby High Court in ITR 505/49 addition made ld to maturity ax Act, 1961 is A) has correctly ties as stock in d CIT(A) has also l High Court in the Ld. counsel for the assessee also Hon’ble High Court o Co-operative Bank wherein Circular dat referred and Hon’ble bank purchases cert statutory liquidity rat premium so paid h maturity. In the inst been purchased by t ratio. Further the Ld decision of the Hon’b National Bank [2024 held that security un its redemption/matu security over and ab those securities, it w the holding period. T case of DCIT v. M/s 3501/M/2018 for a finding. Respectfully, of the Tribunal as di the order of the Ld. we uphold the sam accordingly dismissed Janaka ITA o supported the finding of ld C of Gujarat in the case of CIT v. Ltd. [2014] 43 taxmann.com ted 26.11.2008 issued by the C e High Court held that where ain government securities in or tio (SLR) at a price higher than has to be amortized for rema tant case also the government the assessee for maintaining sta d. counsel for the assessee als ble High Court of Delhi in the 4] 169 taxmann.com 620 (Delh nder HTM category are those th urity and premium was paid for bove the face value or the redem would be apposite to amortize t The Co-ordinate Bench of the s Yes Bank Ltd. in ITA No. 323 assessment year 2014-15 also , following the finding of the Co- iscussed above, we do not find CIT(A) on the issue in dispute me. The ground raised by th d. lyan Sahakari Bank Ltd 7 A No. 3988/MUM/2024 CIT(A) relying on . Rajkot District m 161 (Gujarat) CBDT has been e a co-operative rder to maintain their face value, aining period of securities have atutory liquidity so relied on the case of Punjab hi) wherein it is hat are held till r acquiring said mption value of he same during Tribunal in the 39/M/2018 and gave a similar -ordinate Bench any infirmity in and accordingly he Revenue are 5. In the result appea Order pronoun (RAJ KUMAR C JUDICIAL M Mumbai; Dated: 30/01/2025 Rahul Sharma, Sr. P.S.