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2016 (4) TMI 897 - ITAT AHMEDABAD

2016 (4) TMI 897 - ITAT AHMEDABAD - TMI - Disallowance in the nature of amortization of premium paid on Held to Maturity(HTN) government securities - Held that:- There can hardly be any dispute that the assessee has to mandatorily comply with market regular RBIís circulars issued from time to time including those dealing with the instant issue of investments in securities, their classification and other procedural aspects. There is further no dispute about the assessee having held its HTM securi .....

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rmanent category. We have already recorded that it has been allowed the impugned relief throughout without any disallowance being made. Copies of the assessment orders for assessment year 2007-08 to 2009-10 form part of the records. We come to the CIT(A)ís findings under challenge alleging the assessese as not to have filed the relevant details.

We are of the opinion that once the above extracted portion comprises a tabulation chart of permanent category security right from financial .....

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evant premium paid thereupon has to be amortized for remaining period of maturity. - Decided in favour of assessee - ITA Nos. 3268-3269 /Ahd/2015 - Dated:- 26-2-2016 - Shri N.K. Billaiya, Accountant Member and Shri S. S. Godara, Judicial Member For The Revenue : Smt. Usha Shrote, Sr. D.R. For The Assessee : Shri A.C. Shah, A.R. ORDER PER : S. S. GODARA, JUDICIAL MEMBER:- These two assessee s appeals for A.Y. 2010-11 & 2012-13, arise from order of the CIT(A)-2, Ahmedabad dated 26-10-2015 in a .....

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s. Both parties are ad-idem that facts of two assessment years in question qua the above stated amortization issue are identical. We treat ITA 3268/Ahd/2015 for assessment year 2010-11 as the lead case. 3. We come to relevant facts first. This appears to be second round of litigation between the parties. The assessee is a cooperative bank governed by state co-operative laws. There can hardly be a dispute that it is bound by Reserve Bank of India guidelines being the market regulator on accountin .....

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rity category. The regulator bank issued further clarification that profit on sale of investments in above stated category would be first taken to the P & L account and thereafter the same shall be appropriated to the investment fluctuation reserves and losses arising from sale thereof would be recognize in the profit and loss account. Clause 15.5 permitted shifting of investments from Held to Maturity category with the Board of Directors approval once in a year. It emerges that the Central .....

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RBI s master circular and Board s instructions hereinabove. The assessee debited the impugned sum of ₹ 2,60,99,875/- towards premium on investments right of during the year. The Assessing Officer observed in assessment order dated 22- 03-2013 that it had not sold the investments and therefore, the above stated write off would not be allowable. The assessee filed its reply inter alia stating that it had purchased its investments and when the premium is paid, the same is required to be amor .....

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on in debiting from P & L account the amount in question was not an actual expenditure to be allowable. He quoted case law of UCO Bank vs. CIT 240 ITR 355 by distinguishing facts of the two cases that this bank had written off premium paid on securities on remaining life thereof as against the premium being paid to be written off and again revaluation of securities to claim loss. He held that both these benefits of premium writing off and notional loss would not be simultaneously allowable. .....

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r dated 07-03-2014 remitted the issue back to the CIT(A) for fresh adjudication as per RBI guidelines with respect to valuation, accounting treatment and other procedural requirement to be followed in dealing with the impugned securities. The CIT(A) again affirms the Assessing Officer s action in his consequential order reading as under:- 5. Decision: I have carefully considered the facts of the case and submissions of the appellant. The AO has disallowed the claim of amortization expenses of th .....

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rification to prove that those securities were held for maturity and also in absence of following as well as violation of the guidelines given in the RBI circular and the CBDT circular, the claim of amortization made by the appellant was denied. The appellant has totally failed to prove that the said claim was in respect of securities Held for Maturity". The appellant was unable to prove that it had the portfolio of the government securities under the category of Held for Maturity. 5.1. In .....

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to Maturity (HTM) (ii) Available for Sale (AFS) (iii]Held for Trading (HFT) Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals. 15.2 Held to Maturity 15.2.1 Securities acquired by the banks with the intention to hold them up to maturity will be classified under "Held to Maturity" category. 15.2.2 The investments included under "Held to Maturity" category should not exceed 25 per cent o .....

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bonds of PSUs and shares (as permitted by RBI) should be classified under 'Held to Maturity' category but these will not be counted for the purpose of specified ceiling under this category. 15.2.4 Profit on sale of investments in this category should be first taken to the P&L Account and thereafter be appropriated to the Investment Fluctuation Reserve. Loss on sale will be recognised in the P&L A/c. 15.3 Held for Trading 15.3.1 Securities acquired by the banks with the intention .....

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ale 15.4.1 Securities which do not fall within the above two categories will be classified under Available for Sale 'category. 15.4.2 Banks have the freedom to decide on the extent of holdings under 'Available for Sale' category. This may be decided by them considering various aspects such as basis of intent, trading strategies, risk management capabilities, tax planning, manpower skills, capital position, etc. (Profit or loss on sale of investments in HFT & AFS categories should .....

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with the approval of their Board of Directors. In case of exigencies, such shifting may be done with the approval of the Chief Executive of the Bank, but should be ratified by the Board of Directors. 15.5.3 Shifting of investments from 'Held for Trading' category to 'Available for Sale' category is generally not allowed. However, it will be permitted only under exceptional circumstances such as mentioned in paragraph 15.3.2 above, subject to depreciation, if any, applicable on t .....

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he following categories: (i) Government securities (ii) Other approved securities (iii) Shares (iv) Bonds of PSUs (v) Others 16 Valuation of investments 16.1 Valuation Standards 16.1.1 Investments classified under 'Held to Maturity' category need not be marked to market and will be carried at acquisition cost unless it is more than the face value, in which case the premium should be amortised over the period remaining to maturity. 16.1.2 The individuals scrip in the 'Available for Sa .....

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No. 17 of 2008 dated 26/11/2008 on this issue on which the appellant has relied upon is also reproduced as under- "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 ca .....

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ith separate manually prepared details of the investment in government securities under two heads i.e. one permanent category security which is claimed to "Held for Maturity" and another current category security which is claimed to be "Held for trading / available for sale" for the period from F. Y. 2006-07 to F. Y. 2009-10. The summary of the same is as under:- Image No. 1 5.4. The appellant has mainly relied upon the RBI Circular and also on the decisions / judgments of va .....

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) (i) As per the clause No. 15.1, the said circular states that the bank should decide the category of the investment at the time of acquisition itself and the decision should be recorded on the investment proposals. It is worth here to mention that the appellant at the first time during the present set aside appellate proceedings has submitted the manual details of the securities "Held to Maturity" under the head permanent category security and the AFS and HFT under the category of cu .....

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d in the first round of appeals before the then CIT(A)'s in spite of various requisitions made during those proceedings. Whether the securities shown under the head of permanent category i.e. HTM are belonging to that category only or not is totally unverifiable. As noted above, that the appellant ought to have recorded in writing the category of the investment at the time of acquisition thereof as decided by the bank on the investment proposals itself, but the appellant has not provided cop .....

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gorizations of the securities in the balance sheets of the aforesaid years which could establish the claim of the appellant. (ii) As per the Clause 15.2.1 of circular, the securities acquired by the bank with the intention to hold them up to the maturity would have to be classified under the head to maturity category. The appellant has not submitted any details and documents, demonstrating the facts that the details of the permanent category security i.e. HTM, submitted and reproduced in the tab .....

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investment made therein up to F. Y. 2007-08 at ₹ 25 crores were reduced in the subsequent year i.e. F. Y. 2008-09 to ₹ 10 crores. Thus, there was sale of these securities to the extent of ₹ 5 crores and the conversion of those in to current category at ₹ 10 crores (Ref. Sr. No. B-5 of table). Even this conversion of ₹ 10 crores was also sold in the subsequent year i.e. F. Y. 2009-10. Likewise, the permanent category security at SI. No. A.5 (i.e. 6.30GOI 2023), whic .....

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(Ref. B-2 in table). Thereafter, in subsequent year i.e. F. Y. 2007-08, the total investment in permanent category at ₹ 5 crore was sold leaving no balance. Likewise in current category, investment of ₹ 7 crores was sold leaving the balance of ₹ 5 Crores. From all the aforesaid instances, it is very much clear that the appellant has not held these securities till their maturity date, rather within a span of 2 - 3 years time, the same have been sold directly or sold after conver .....

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shifting to / from this category will be allowed during the remaining part of that accounting year. From the details submitted and depicted in the aforesaid table, it is found that, in the permanent category security at Sr. No. A.4 i.e. 6.35 GOI 2020 and at Sr. No. A.5 i.e. 6.30 GOI 2023 and Sr. No. A.6 i.e. 6.05 GOI 2019, conversion has taken place in F. Y. 2008-09, F. Y. 2007-08 & in F. Y. 2006-07 respectively. However, for such conversion, the appellant has not given any details and evid .....

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ellant relied upon itself has not been followed in toto. 5.5. Even the CBDT Circular on which appellant relied upon also emphasized that the investment portfolio of the bank is required to be classified under three categories i.e. STM, HFT and AFS. But, by not classifying these securities by the appellant in the balance sheet or the annexed records / documents, the provisions of the said CBDT Circular is not complied with by the appellant. Thus, it was not in accordance to the CBDT Circular. 5.6 .....

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ot applicable over the facts of the appellant's case. 5.7. In view of the aforesaid discussion, the claim of the amortization of the premium asked for by the appellant has correctly been disallowed by the AO, and therefore, the same is confirmed. 6. We have heard rival submissions. There can hardly be any dispute that the assessee has to mandatorily comply with market regular RBI s circulars issued from time to time including those dealing with the instant issue of investments in securities, .....

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