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TMI Blog2013 (8) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has claimed expenses on account of amortization of premium on investments to the tune of Rs. 45,67,178/- in the profit and loss account. On being questioned by the Assessing Officer to justify the same the assessee explained that as per Banking Regulation Act and Guidelines of RBI, investment held in Government Securities are to be categorised as per the principles and guidelines of RBI and any premium paid on acquisition of such investment is allowable on pro-rata basis. Referring to the provisions of section 36(iii)(a) and 37 of the Income Tax Act it was argued that such amortization was not a capital expenditure. It was explained that the expenditure was incurred during the course of carrying on banking activity by the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case. 2. The learned Commissioner of Income-tax (Appeals) grossly erred in allowing the assessee's appeal instead of confirming the Assessing Officer's order. 3. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that the amortization of the premium paid on securities was an allowable expenditure u/s 37 of the Income-tax Act, 1961. 4. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the securities held by the assessee falling in the HTM category were capital asset and, therefore, were subject to capital gains or loss at the time of redemption and the premium paid on these securities, by no means, was an expenditure of revenue nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s.80P(2)(a)(i) from this total income. However, the cooperative society should now be entitled to be assessed as normal banking company. The clause (4) inserted in section 80P has taken away the benefit of the erstwhile deduction available to cooperative society in carrying on business of banking or providing credit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the banks is required to be classified under 3 categories viz., Held the maturity HTM), Held for Trading (HFT) and Available for Sale (AFS). The value of each kind of investment is to be done in the following manner: Sr.No. Classification Valuation Norms of Investment. 1. HTM These are carried at acquisition cost unless the cost is more than the face value, in which case the premium should be amortised over the period remaining to maturity. The premium is required to be amortised over the period remaining to maturity. This apart, any permanent diminution in value shall FV shall go on to reduce cost of the investment. 2. AFS The individual scrips in the Available for Sale category will be marked to market at quarterly or at m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 paid in excess of face value of securities held to maturity (HTM) category or period remaining till matu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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