Broken period interest on purchase of securities is allowable as revenue expenditure

Brief Facts of the case:

First Issue:

The assessee a regional rural bank is doing banking activity in the state of undivided AP. For the AY under consideration, assessee filed its return of income on declaring total income of Rs. 36,33,59,291. During the assessment proceeding, AO noticed that assessee has claimed an amount of Rs. 1,58,65,512 as broken period interest paid on purchase of securities.

He disallowed such interest taking the view that the same is not allowable as per the Act. Being aggrieved of such disallowance, assessee preferred appeal before CIT (A).

CIT(A) after considering the submissions of assessee found that ITAT, Hyderabad Bench in case of SBH Vs. JCIT [2005] has held that broken period interest paid by assessee bank is allowable as deduction. Thus, relying on the same judgment he allowed the broken period interest. Aggrieved by the CIT(A)’s order the department preferred an appeal to ITAT.

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