Coal India Limited vs. ACIT (ITAT Kolkata)

The assessee claimed that no disallowance u/s 14A and Rule 8D could be made as (i) the disallowance made by the AO in a mechanical and automatic manner without recording reasons for his satisfaction that the assessee’s claim is incorrect and (ii) the assessee made the investment for the purpose of holding controlling stake in the group concern and not for the purpose of earning dividend. It was claimed that the assessee has not incurred any expenses to earn the dividend income and therefore Rule 8D(iii) is not applicable. HELD by the Tribunal:

(i) The contention that no satisfaction as to the correctness of the claim made u/s 14A read with 8D(iii) has been recorded by the AO as well as the CIT(A) is not acceptable. The AO has complied with the requirement of section 14A of the Act by observing that as to why he is not satisfied with the correctness of claim of the assessee that no expenditure was incurred. The AO has recorded the findings that earning of dividend was not an automatic process and the assessee was required to keep regular control over the investments made;

(ii) The contention that the assessee earned dividend income of Rs.262907.86 lakhs without incurring any expenses does not convince us at all. The term ‘expenditure’ as per section 14A would include the expenditures that are related to investments made i.e. expenditures on administration, capital expenses, travelling expenses, operating expenses etc. It is difficult to accept that the assessee company was making investments decisions to the tune of Rs.6,31,637 lakhs of public money without incurring a single penny out of its pocket. Such decisions are highly strategic in nature and are required to be made by highly qualified and experienced professionals. The same would also require market research and analysis. The assessee company by acquiring controlling interest in the subsidiary companies would also be required to attend board meetings and make policy decisions with regard to the aforesaid huge amount of investments made. By no stretch of imagination, it can be assumed that such activities were done without incurring any expenditure. It is pertinent to mention here that even the assessee did not rebut the findings of AO that the assessee was required to supervise and administer all the investments made;

(iii) In a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute.