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2014 (1) TMI 754 - AT - Income TaxAmortization of premium paid on Government Securities – Held that:- As per RBI guidelines dated 16th October, 2000, the investment portfolio of the banks 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 are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade 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 Reserve Bank of India norms in respect of Schedule Urban Co-operative Banks had, on 02/09/2004 allowed the shifting of SLR securities to not more than 25% of NDTL provided that the depreciation on such shifting should be fully provided - In view of the difficulties being faced by the urban co-operative banks in meeting the provisioning requirement, the Reserve Bank of India, vide No.UBD(PCB).Cir.41/16.20.200/2004-05 dated 28/03/2005 allowed the amortization of cost over a maximum period of five years commencing from the year 2005 - The claim made by the appellant is in accordance with the extant Reserve Bank of India guidelines providing for provisioning requirement between the book value and the face value. As per the Circular No. 599 (F.No.201/29/87/ITA.II), dated 24th April, 1991 issued by CBDT - Securities held by banks must be regarded as their stock-in-trade and the claim of loss, if debited in the books of account, should be given the same treatment as is normally given to the stock-in-trade. It was also clarified that the interest paid for broken-period on the purchase of securities must be regarded as revenue payment and allowed accordingly. Following ACIT vs. The Bank of Rajasthan Ltd [2010 (12) TMI 894 - ITAT, Mumbai] - In case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium - Decided against Revenue.
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