DCIT, TRICHY vs. THE LAKSHMI VILAS BANK LTD., KARUR

This appeal by the Revenue is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Tiruchirapalli dated 30.12.2016 in 1/Try for the assessment year 1995-96 passed u/s.250(6) r.w.s.143(3) & 254 of the Act.

The Revenue has raised several grounds in its appeal; however the crux of the issue is that:-

The brief facts of the case are that the assessee is a limited company engaged in banking business, filed its return of income for the assessment year 1995-96 on 29.11.1995 admitting total income of Rs.19,71,81,300/-. The case was taken up for scrutiny and the return was processed U/s.143(3) of the Act. Subsequently the matter was taken up before the first and second appellate authority. Thereafter the Tribunal remitted the matter back to the file of the Ld.AO. The Ld.AO in his order dated 29.12.2006 reconfirmed the addition made with respect to Section 14A of the Act. Subsequently the Ld.CIT(A) partially allowed the appeal of the assessee by following the decision of the Hon’ble Jurisdictional High Court in the case M/s. Simpson & Co. Ltd vs. DCIT, wherein it was held that addition at the rate of 2% of exempt income would suffice while dealing with Section 14A of the Act. The Revenue aggrieved by the order of the Ld.CIT(A) is in appeal before us on two counts as enumerated in the grounds of appeal herein above.

After perusing the materials on record and hearing both the parties, we are in agreement with the order of the Ld.CIT(A) who has only followed the order of the Jurisdiction High Court (supra) wherein it was held that 2% of the exempt income may be disallowed by virtue of Section 14A of the Act. It is pertinent to mention that Rule 8D was brought in by the 5th amendment rules 2008 w.e.f. 24.03.2008 i.e., from the assessment year 2008-09 onwards. In the case of the assessee, the assessment year is 1995-96, hence the Rule 8D will not be applicable. Therefore the decision of the Hon’ble Jurisdictional High Court (supra) will prevail. Further, with respect to the quantum of exempt income for computing 2% of disallowance U/s.14A of the Act, we find some merit in the submission of the Ld.DR. From the assessment order, it appears that the income from tax free bonds is Rs.6,92,18,929/-, from the grounds of appeal it appears that the tax free income is Rs.7,62,16,179/-, while as the Ld.CIT(A) has held the exempt income of the assessee at Rs.3,47,74,365/-. Therefore, the actual tax free income is not clear from the orders of the Revenue Authorities or from the materials produced before us. Hence in the 4 interest of justice, we remit this matter back to the file of Ld.AO for fresh consideration. Accordingly the first ground raised by the Revenue is devoid of merit while as the second ground raised by the Revenue with respect to exempt income earned by the assessee is remitted back for fresh consideration.

In the result, appeal of the Revenue is partly allowed for statistical purpose.