TMI Blog2014 (1) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... ct - The amount in question was not actually returned as bad or business loss during the year and it was only notional provision or loss for diminution of value, if any which could not be allowed as deduction either u/s. 37 of I.T Act or u/s. 28 of I.T Act which has been rightly disallowed by Assessing Officer - Decided against assessee. Amortization of premium paid on purchase of 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. Following The Catholic Syrian Bank Ltd. Versus The Addl. Commissioner of Income-tax, Range-1, Thri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is provision was made on 31.03.2008 pending reconciliation of inter branch and inter bank accounts. As per advise of RBI, the assessee did not taken into account the said entries as income either in current year or in preceding year. The stand of the assessee has been that it has been carrying on banking business wherein cash is working capital of the bank and amount of advance having been paid out of the working capital, loss of working capital is of revenue nature and allowable u/s. 37 of the I.T. Act as any other expenditure in relation to the business. The CIT(A) has observed that provision is an expenditure relating to particular accounting period, but not falling due on date of financial statement. Since the expenditure relate to particular financial period, a provision was made against revenue generated in said accounting period, failing which financial statement could not be said to be shown free and fair view. A provision for expenditure could be allowed as deduction only if liability accrued as on date of making of provision and it is not a contingent liability. Even mercantile law accrual system of account, a provision for expenditure could be made only when liability ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending reconciliation of inter branch and inter bank accounts. As per advise of Reserve Bank of India, the assessee did not take into account the said entry as income either in current year or in preceding year. Revenue authorities observed that provision is an expenditure relating to a particular account period but not falling due on date of filing financial statement. Since the expenditure relates to particular financial year, a provision was made against revenue generated in said accounting period failing which financial statement could not be shown free and fair view. The provision for expenditure could be allowed as deduction only if liability accrued as on date of making provision and it is not a contingent liability. In case before us pending reconciliation of said inter branch and inter bank entries, assessee has made a provision as on 31-03-2008 for outstanding untraceable inter branch and inter bank adjustments. In this situation provision so made was pre-matured. It was only contingent liability or notional loss which could not be allowed as an expenditure under provisions of I.T Act. The amount in question was not actually returned as bad or business loss during the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit facility to its members. The new clause (4) inserted by the Finance Act, 2006 w.e.f. 01-04-2007 reads as under : "The provision of the section was not in relation to any cooperative bank other than agricultural credit society or primary cooperative agricultural and rural development bank". 5. The intention of the provision may be derived more precisely from relevant Para 166 of the budget speech which stated that : "Co-operative banks, like any other bank, are lending institutions and should pay tax on their profits, Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Bank (PCARDB) stand on a special footing and will continue to be exempt under section 80P of the Income Tax Act. However, I propose to exclude all other co-operative banks from the scope of that section". Accordingly, section 80P is to be amended to give effect to the above proposal. It is also proposed to amend section 2(24) to provide that profits and gains of business of banking (Including providing credit facilities) carried on by a co- operative society with its members shall be included in the definition of 'income' (with effect from 1st April, 2007)" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 latest guidelines of the RBI may be referred to for allowing any such claims." 8. The ITAT, Mumbai Bench, in the case of ACIT vs. The Bank of Rajasthan Ltd. (2011) TIOL-35-ITAT-Mumbai, has held that 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. It has also been held in the case of Catholic Syrian Bank Ltd. Vs. ACIT that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium ..... X X X X Extracts X X X X X X X X Extracts X X X X
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