ASST CIT CIR 3, KALYAN vs. DOMBIVLI NAGARI SAHAKARI BANK LTD, DOMBIVALI

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ITA 7444/MUM/2013Status: DisposedITAT Mumbai28 October 2015AY 2010-115 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that amortization of premium paid on HTM securities is allowable as a deduction, following RBI guidelines and previous decisions in the assessee's own case and other High Court rulings.

What were the facts?

The assessee bank claimed a deduction for amortization of premium paid on securities classified as 'Held to Maturity' (HTM). The Assessing Officer disallowed this deduction, treating HTM securities as capital assets. The CIT(A) deleted the addition, allowing the deduction.

What were the issues?

Whether amortization of premium paid on securities classified under the HTM category is an allowable business expense or a capital loss.

Which sections of the Income-tax Act were involved?

Section 5

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI “D” BENCH, MUMBAI

Before: SHRI SHAILENDRA KUMAR YADAV, JUDICIAL & SHRI RAJESH KUMAR.

Hearing: 07.10.2015Pronounced: 28.10.2015

BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. (Assessment Year:2010-11) Asstt. Commissioner of Income-tax, Circle-3, 2nd Floor, Rani Mansion, Murbad Road, Kalyan (W) - 421301 Appellant Vs. Dombivli Nagari Sahakari Bank Ltd., P/52, Madhukunj, MIDC, Phase-II, Sonarpada, Dombivli (east) 421 204 Respondent PAN: AAATD3444K अपीलाथ� क� ओर से /By Appellant : Shri Vivek Anand Ojha, D.R. ��यथ� क� ओर से/By Respondent : Shri R. K. Mulchandani, A.R. सुनवाई क� तार�ख/Date of Hearing : 07.10.2015 घोषणा क� तार�ख/Date of Pronouncement : 28.10.2015 ORDER PER SHAILENDRA KUMAR YADAV, J.M: This appeal has been filed by Revenue against the order of Commissioner of Income-Tax (Appeals)-II, Thane, dated 21.10.2013 for A.Y. 2010-11 on following grounds:

A.Y. 10-11 [ACIT vs. Dombivli Nagari Sahakari Bank Ltd.] Page 2 “1. Whether on the facts & in the circumstances of the case and in law, the Hon’ble CIT(A) erred in deleting the addition of Rs.99,45,910/- being amortization of premium paid on purchase of securities classified under the HTM category.

2. Whether on the facts & in the circumstances of the case and in law, the Hon’ble CIT(A) erred in holding that amortization of premium paid on purchase of securities classified under the HTM category is an ascertained and determined loss for the bank and the same is required to be allowed while computing the business income of the Assessee bank.

3.

Whether on the facts & in the circumstances of the case and in law, the Hon’ble CIT(A) failed to consider the fact that the Assessee had held the securities as investments. Therefore, when such securities are sold and encashed at the time of maturity, the profit/loss arising thereon is to be considered under the head Capital Gains, and the amortization claimed by the Assessee on investments held in the permanents category cannot be allowed to be deducted while computing the total income.”

2.

Assessee bank is engaged in business of banking as defined u/s.5 of the Banking Regulation Act, 1949. During year under consideration it had claimed deduction of Rs.1,11,27,736/- on account of amortization of premium paid on Government securities held as HTM. Assessing Officer after considering the submission of assessee observed that entire investment portfolio of Bank including SLR securities and non- SLR securities should be classified under three categories viz. ‘Held to Maturity’, ‘Available for Sale’ & ‘Held for Trading’. The securities categorized as Held to Maturity (HTM) are acquired with intention to hold them upto maturities while other two A.Y. 10-11 [ACIT vs. Dombivli Nagari Sahakari Bank Ltd.] Page 3 securities are acquired with intention to trade by taking advantage of short term price/interest rate movements. In view of these fact, Assessing Officer was of the view that HTM securities are in nature of capital asset and not stock in trade and hence should be valued only at the cost of market price, whichever is lower and ultimately, held that amortization claimed by assessee and investment held in permanent category cannot be allowed to be deducted while computing taxable income.

3. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) granted relief to assessee. Same has been opposed on behalf of Revenue, inter alia stating that CIT(A) erred in deleting the addition of Rs.99,45,910/- being amortization of premium paid on purchase of securities classified under the HTM category. Accordingly, order of CIT(A) be set aside and that of Assessing Officer be restored. On other hand, learned Authorized Representative supported the order of CIT(A).

4.

After going through rival submissions and material on record, we find that amortization of premium paid on HTM securities have been allowed as deduction by CIT(A) in earlier years in assessee’s own case for A.Y. 2009-10. Learned Authorized Representative pointed out that Tribunal has upheld the order of CIT(A) by observing as under: A.Y. 10-11 [ACIT vs. Dombivli Nagari Sahakari Bank Ltd.] Page 4

“2.3 We have head the submissions of the DR and have perused the material before us. We find that assessee bank is a cooperative bank and it has to follow the guidelines issued by the RBI. It has to maintain SLR and has to invest in securities as per the directions of the Federal Bank. Valuation of securities classified as HTM has to be done in a particular manner. Co-operative banks, as compared to private banks, function differently. We find that as per the RBI guidelines (dated 16.10.2000) the investment portfolios of the banks are required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS), that investments classified under HTM category are not to be treated as ‘marked to market’ and are to be carried at acquisition cost unless these are more than the face value, that in such cases, that premium has to be amortised over the period remaining to maturity, that the depreciation / appreciation is to be aggregated scrip-wise and only net depreciation is required to be provided for in the accounts. We also find that CBDT, vide its Circular No.17 dt.26.11.2008 (para vii) has dealt the issue of HTM (Held to Maturity) category securities in the following manner:

"As per RBI guidelines dated 16th October, 2000, the investment portfolio of the bank is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and re 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. In the case of HFT and AFS securities forming stock in trade and of the bank, the depreciation / appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be preferred to for allowing any such claims". From the above it is clear that the assessee-bank was following the guidelines and instruction issued by the RBI and the treatment given by it in the books of accounts to the A.Y. 10-11 [ACIT vs. Dombivli Nagari Sahakari Bank Ltd.] Page 5 securities was also as per the above referred circular of the CBDT. Cases relied upon by the DR are about private banks or institutions. Therefore, confirming the order of the FAA, we decide effective Ground of appeal against the AO.

As a result, appeal filed by AO stands dismissed.”

Facts being similar, so, following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has rightly deleted the addition of Rs.99,45,910/- being amortization of premium paid on purchase of securities classified under HMT category. Our this view is fortified by the decision of Hon’ble Bombay High Court in case of CIT vs. HDFC Bank Ltd. [2014] 89 CCH 0185 (Mum HC).

5.

As a result, appeal filed by Revenue is dismissed.

Pronounced in the open Court on this the 28th day of October, 2015.

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