Essilor India Pvt Ltd vs The Deputy
2022 Latest Caselaw 1274 Kant

                                1



      IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 28TH DAY OF JANUARY 2022

                            PRESENT

          THE HON'BLE MR. JUSTICE ALOK ARADHE

                              AND

THE HON'BLE MR. JUSTICE SHIVASHANKAR AMARANNAVAR

                   I.T.A. NO.1001 OF 2017

 BETWEEN:

 ESSILOR INDIA PVT. LTD.,
 NO.71/1, BRIGADE PLAZA
 6TH FLOOR S.C. ROAD
 GANDHINAGAR
 BENGALURU-560 009
 REPRESENTED HEREIN BY
 ITS DIRECTOR
 MR. J. SHIVKUMAR
 PAN:AAACE4623J.
                                            .... APPELLANT
 (BY MR. SURYANARAYANA T, SR. COUNSEL FOR
    MRS. TANMAYEE RAJKUMAR, ADVOCATE)

 AND:

 1.    THE DEPUTY COMMISSIONER OF
       INCOME-TAX, CIRCLE- 3 (1) (2)
       BENGALURU
       RASHTROTHANA
       BHAVAN 6TH FLOOR
       NURPATHUNGA ROAD
       BENGALURU-560 001.

 2.    THE COMMISSIONER OF INCOME TAX-2
       BMTC BUILDING
       KORAMANGALA 6TH BLOCK
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    BANGALORE-560 095

                                                       ... RESPONDENTS
(BY MR. K.V. ARAVIND, ADVOCATE)
                           ---

      THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 07.07.2017 PASSED
IN ITA NO.1657/BANG/2016, PRAYING TO (i) FORMULATE THE
SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE.
      (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE
TRIBUNAL       DATED      07.07.2017   PASSED     IN    ITA
NO.1657/BANG/2016       (ANNEXURE-F),   TO    THE    EXTENT
QUESTIONED HEREIN. (c) PASS SUCH OTHER OR SUITABLE
ORDERS AS THIS HON'BLE COURT DEEMS FIT TO PASS ON THE
FACTS AND IN THE CIRCUMSTANCES OF THE CASE.

     THIS I.T.A. COMING ON FOR HEARING,                        THIS   DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                            JUDGMENT

This appeal under Section 260-A of the Income Tax

Act, 1961 (hereinafter referred to as 'the Act', for short) has

been filed by the assessee. The subject matter of the appeal

pertains to the Assessment Year 2008-09. The appeal was

admitted by a Bench of this Court on the following

substantial question of law:

         The   tribunal     was    right     in   upholding     the
         disallowance under Section 14A of the Act
         read with Rule 8D of the Rules, although no
         satisfaction     had     been     recorded      by     the
         assessing      officer   to   the    effect    that    the




          disallowance   proposed    to   the   extent   of

Rs.1,61,035/- by the appellant was incorrect?

2. Facts leading to filing of this appeal briefly stated are

that the assessee is engaged in the business of processing

and trading of ophthalmic lenses. The assessee received

dividend of Rs.36,97,500/- from its subsidiary viz., GKB RX

Lens Pvt. Ltd. in which assessee held 50% shares. The

assessee filed its return of income for assessment Year 2008-

09 in which assessee claimed the aforesaid dividend income

which was received during assessment year 2008-09 as

exempt under Section 10(34) of the Act. The Assessing

Officer passed an order of assessment dated 28.10.2010 and

disallowed a sum of Rs.34,21,059/- under Section 14A of the

Act read with Rule 8D of the Income Tax Rules, 1962

(hereinafter referred to as 'the Rules' for short) as being

expenditure which was incurred towards earning the exempt

income.

3. The Commissioner of Income Tax (Appeals) by

an order dated 27.07.2012 dismissed the appeal. Being

aggrieved, the assessee filed an appeal before the tribunal.

The tribunal remitted the matter back to the file of Assessing

officer to examine the disallowance under Section 14A of the

Act afresh with a direction to examine the contention of the

assessee that no expenses were incurred by it in earning the

exempt income. In the proceeding initiated to give effect to

the order of the tribunal, the assessee made a voluntary

disallowance of Rs.1,61,035/- under Section 14A on the basis

of proportionate allocation of salary and travel costs of

employees traveling through GKB RX Pvt. Ltd to attend Board

Meetings.

4. The assessing officer however, by an order dated

09.02.2015 again made a disallowance to the extent of

Rs.34,21,059/- under Section 14A of the Act read with Rule

8D of the Rules. The Commissioner of Income tax (Appeals)

by an order dated 05.07.2016 upheld the order passed by

the assessing officer. The appeal filed by the assessee was

dismissed by the tribunal by an order dated 07.07.2017. In

the aforesaid factual background, this appeal has been filed.

5. Learned Senior counsel for the assessee

submitted that no further disallowance beyond the

disallowance of Rs,1,61,035/- under Section 14A read with

Rule 8D of the Rules could be made. It is further submitted

that in the order of assessment, the assessing officer has not

recorded the satisfaction that disallowance made by the

assessee was incorrect and in the absence of the satisfaction

recorded by the assessing officer with regard to incorrectness

of the claim of the assessee, no further disallowance by the

assessing officer could have been made. Learned Senior

counsel for the assessee has fairly submitted that in any

case, disallowance under Section 14A of the Act read with

Rule 8D has to be confined in respect of the claim made by

the assessee to the extent of Rs.1,61,035/-. In support of

aforesaid submissions, reliance has been placed on decisions

in 'HINDUSTAN AERONAUTICS LIMITED S. ACIT AND

ANOTHER', (2021) 125 TAXMANN.COM 80, 'GPDREK &

BOYCE MANUFACTURING COMPANY LTD. VS. DCIT',

(2017) 81 TAXMANN.COM 111 (SC), and 'EICHER

MOTORS LTD. VS. CIT', (2017) 86 TAXMANN.COM 49

(DELHI).

6. On the other hand, learned counsel for the

revenue submitted that the assessing officer in his order has

recorded the required satisfaction and therefore, condition

precedent for invocation of power under Section 14A read

with Rule 8D of the Rules, has been fulfilled. It is also urged

that application of the formula prescribed in rule 8D is

justified. It is alternatively argued that in any case

disallowance made to the extent as claimed by the assessee

has to be upheld.

7. We have considered the submissions made on

both sides and have perused the record. Section 14A of the

Act deals with expenditure in relation to income not

includable in total income. Section 14A(2) provides that

assessing officer shall determine the amount of expenditure

incurred in relation to such income which does not form part

of total income under this Act in accordance with such

method as may be prescribed, if the Assessing Officer having

regard to the accounts of the assessee is not satisfied with

the correctness of the claim of assessee in respect of such

expenditure in relation to income which does not form part of

total income under this Act. It is well settled in law that

assessing officer has to record reasons for disagreeing with

the claim of the assessee that it had incurred no expenditure

for earning such exempt income. Even Rule 8D(1) requires

the assessing officer to mandatorily record his satisfaction

that the claim made by the assessee that no expenditure has

been incurred in earning the exempt income is incorrect.

[See:'GODREJ & BOYCE MANUFACTURING COMPANY

LTD. VS. DCIT', (2017) 81 TAXMANN.COM 111 (SC)]

8. Now we may advert to the facts of the case and

examine whether the assessing officer has recorded

satisfaction with regard to the correctness of the claim made

by the assessee in respect of such expenditure in relation to

the exempt income. The assessee has made disallowance of

Rs.1,61,035/- under Section 14A of the Act read with Rule

8D of the Rules. From the perusal of the order passed by the

assessing officer and in particular paragraph 7 to 14, it is

evident that the assessing officer has failed to record its

satisfaction with regard to the claim of the assessee that it

had incurred any expenses in earning the exempt income

except a sum of Rs.1,61,035/-. Therefore, in the absence of

any satisfaction recorded by the assessing officer, the

substantial question of law has to be answered in the

negative. However, as fairly stated by learned Senior counsel

that disallowance to the extent of Rs.1,61,035/- which was

proposed by the assessee itself has to be upheld. Therefore,

the disallowance under Section 14A of the Act read with Rule

8D of the Rules is confined to the extent of Rs.1,61,035/-. To

the aforesaid extent, the orders passed by the Income Tax

Appellate Tribunal, Commissioner of Income Tax (Appeals

and the Assessing Officer are modified. The Assessing Officer

is directed to disallow a sum of Rs.1,61,035/- under Section

14A of the Act read with Rule 8D of the Rules.

Accordingly, the appeal is disposed of.

Sd/-

JUDGE

Sd/-

JUDGE

ss