TMI Blog2015 (4) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... ition made on account of premium paid on investment in Government securities is to be deleted - Decided in favour of assessee Allowability of broken period interest Held that:- There is no difference in the amount in tax, whether one adopts the assessee's method or the Department's method. Under either method, the same amount is offered for tax. The Department has not been able to show in this case as to why the method adopted by the assessee-bank ought to be rejected. On the other hand, the Department has not been able to explain as to why broken period interest received should be taxed whereas broken period interest payment should be disallowed, See American Express International Banking Corporation Versus Commissioner Of Income-Tax [2002 (9) TMI 96 - BOMBAY High Court]- Decided against Revenue. - ITA No.1863/PN/2013, ITA No.1981/PN/2013 - - - Dated:- 29-4-2015 - MS SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ORDER PER SUSHMA CHOWLA, JM: The cross appeals filed by the assessee and Revenue are against the order of CIT(A)-IT/TP, Pune, dated 30.08.2013 relating to assessment year 2010-11 passed under section 143(3) of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (Appeals) to treat such premium as revenue expenditure merely by referring to the RBI guidelines. 6. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that under the Income-tax Act, 1961, an expenditure can be claimed and allowed as deduction only as per the provisions of the said Act and irrespective of what is stipulated in any other Act or Rules, including the RBI guidelines, unless so specifically provided in the Income-Act, 1961. 7. The learned Commissioner of Income-tax (Appeals) grossly erred in deleting the addition of ₹ 22,12,817/- which had been made by the Assessing Officer by way of disallowing the assessee's claim of deduction on account of payment of broken, period interest on investment in the Held to Maturity securities. 8. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that as the HTM securities are in the nature of investments, and not stock-in-trade, the same partake the nature of capital assets and, in the circumstances, any liability incurred or payment made for acquiring such investments could only be treated as capital expenditure not admissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply, the assessee pointed out that the said amounts represent the amounts of Demand Drafts which were purchased by the customers, but were not presented for clearing for more than six months. It was also clarified by the assessee that most of these entries were cleared in the succeeding year. The Assessing Officer perused the details and noted that the unclaimed amounts in respect of non-encashment of Demand Drafts pertain to as early 2002-03 to 2006-07 and some unclaimed amounts pertained to the period as early 1995-96. In the statement furnished for the subsequent years, the Assessing Officer noted that the assessee had paid ₹ 1,77,446/- and to that extent, the liability shown by the assessee was allowed and the balance of ₹ 26,39,605/- was added as income of the assessee on account of extinguishment of liabilities with respect to old entries. 7. The CIT(A) upheld the order of Assessing Officer since according to provisions of Limitation Act, the liability of the assessee was no longer enforceable. Reliance was placed on the ratio laid down by the Three Member Bench of Hon ble Supreme Court in CIT Vs. TVS Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act, there was no liability on the assessee to pay the said amounts. The issue arising before us is in relation to the treatment of said liability recognized by the assessee in its books of account. Once the liability has been shown and recognized by the assessee in its books of account, then even if the liability is unclaimed and relates to earlier years, does not convert it into the income of the assessee. Support in this regard is drawn from the ratio laid down by the Hon ble Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra). However, in case where the assessee on its own motion transfers the said receipts through its Profit Loss Account, then on account of such act of the assessee itself, the amount changes its character and becomes assessee s own money and the same is to be treated as income of the assessee as per the ratio laid down by the Hon ble Supreme Court in CIT Vs. TVS Sundaram Iyengar and Sons Ltd. (supra). However, in the facts of the present case, the assessee continues to recognize the liability and once the liability has been so recognized by the assessee, there is no merit in treating the same as income of the assessee though some of the amounts m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court in American Express International Banking Corporation Vs. CIT (2002) 177 CTR (Bom) 442. 15. The Revenue is in appeal against the order of CIT(A). 16. The learned Authorized Representative for the assessee pointed out that the issue of premium paid on HTM securities and its allowability is squarely covered by the order of Tribunal in assessee s own case relating to assessment year 2009-10. In respect of the second issue raised in the appeal by the Revenue vide grounds of appeal Nos.9 to 11 is squarely covered by the ratio laid down by the Hon ble Bombay High court in American Express International Banking Corporation Vs. CIT (supra). 17. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer. 18. We have heard the rival contentions and perused the record. The first issue arising in the present appeal filed by the Revenue is with regard to the allowability of amortization premium paid on HTM securities at ₹ 22,69,144/-. The Pune Bench of the Tribunal in assessee s own case in ITA No. 712/PN/2013, relating to assessment year 2009-10 vide order dated 27.11.2013 had allowed the claim of assessee, in tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried the issue before the Hon ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon ble High Court followed the decision of Hon ble Supreme Court in the case of United Commercial Bank (Supra). 15. In the case of United Commercial Bank (Supra), even the issue of valuation of the stock in trade of the investment was before the Hon ble Supreme Court. In the case of the assessee, the issue is regarding allowability of the loss on the sale of the Securities. Merely because the Securities are kept under the head till the maturity, the said Security cannot be treated as a purely investment. Law is well settled that the Securities held by the Bank are in the nature of Stock-in-Trade. We may like to quote here the decision of the Hon ble High Court of Kerala in the case of CIT Vs. Nedungadi Bank Ltd., 264 ITR 545. In the said case, the Hon ble High Court has held that the securities held by the Bank are in the nature of stock-in-trade. Both the authorities below have merely gone on the nomenclature of the head under which the Securities are held. In our considered view, nomenclature cannot be decisive for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod interest at the time of purchase of the security. Once the Department seeks to assess broken period interest under the head Business , then the Department could not have rejected the impugned adjustment in the method of accounting adopted by the bank unless the Department was in a position to prove that the method adopted by the bank did not disclose the true and proper income. Now, when the assessee bought 4-3/4 per cent GOI 1980, the purchase price was ₹ 4,92,000 and the interest on purchase was ₹ 5,871.53, which was debited to Interest Receivable Account. However, the security was purchased for ₹ 4,92,000, which was debited to Asset Account. The face value of the security receivable on redemption was ₹ 5 lakhs. This difference of ₹ 8,000 has been accounted for by the bank on a monthly basis. The date of purchase was 11th Aug., 1976. The date of redemption was 12th May, 1980, and the date of sale was 6th Nov., 1978. As stated above, the difference was ₹ 8,000 between the face value and the amount paid for the security. This difference of ₹ 8,000 has been accounted for by the bank on a monthly basis. If one totals up ₹ 118.43, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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