Reopening Can’t Be Solely Based On Alleged Non-Disallowance Under S. 14A: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings initiated under Section 147 of the Income Tax Act, holding that reopening based solely on alleged non-disallowance under Section 14A—without any exempt income earned during the year—is unsustainable in law. The bench of Saktijit Dey (Vice President) And Makarand Vasant Mahadeokar (Accountant Member) has observed that once it is established that assessee has not earned any exempt income during the year, the applicability of Section 14A r.w.r. 8D would fail at the very threshold. Therefore, the assessment could not have been reopened u/s. 147 of the Act on the issue of disallowance u/s. 14A r.w.r. 8D. Thus, once the escaped income based on which assessment was reopened u/s. 147 of the Act could not have been added, no other addition could have been made by the Assessing Officer in the reassessment proceeding. The assessee, a Mumbai-based corporate entity engaged in trading, promotion, and development of art and cultural works including memorabilia and vintage items, filed its return of income on October 15, 2010, declaring income of ₹63.81 lakh. The return was selected for scrutiny and assessment was completed under Section 143(3) on March 20, 2012, accepting the returned income without any additions. Subsequently, the Assessing Officer reopened the assessment under Section 147, alleging that the assessee had made investments in shares capable of earning exempt income. No disallowance under Section 14A read with Rule 8D had been made. Income of ₹3,00,339 had allegedly escaped assessment. In reassessment proceedings, the Assessing Officer computed disallowance under Section 14A read with Rule 8D at ₹3,00,339 and further disallowed ₹27.30 lakh under Section 43B on account of unpaid CST and VAT. The Commissioner of Income Tax (Appeals) upheld the reassessment, prompting the assessee to approach the ITAT. The assessee argued that the applicability of Section 14A had already been examined during the original scrutiny assessment. Detailed submissions were filed and even a without-prejudice computation of disallowance was provided. The Assessing Officer chose not to make any addition. Therefore, reopening on the same issue amounted to a mere change of opinion. The reassessment was triggered by an audit objection, amounting to borrowed satisfaction rather than independent application of mind. Crucially, the assessee had not earned any exempt income during the relevant assessment year. Hence, Section 14A read with Rule 8D was not applicable at all. The alleged unpaid VAT and CST were not routed through the Profit & Loss Account. Since no deduction had been claimed, disallowance under Section 43B was impermissible. The Tribunal noted that the original assessment was completed under Section 143(3). During original scrutiny, the Assessing Officer had specifically inquired into Section 14A applicability. The reasons recorded for reopening did not refer to any fresh tangible material. There was no mention of actual exempt income earned during the year. The Tribunal observed that once the issue had been examined in original proceedings, reopening without new material amounted to a change of opinion, which is impermissible. The Tribunal emphasized that the Assessing Officer had failed to establish that any exempt income was earned during the year. It reiterated the settled legal position that in absence of exempt income, no disallowance under Section 14A read with Rule 8D can be made. The CIT(A)’s reliance on the amendment introduced by the Finance Act, 2021 was also rejected, as the amendment operates prospectively and does not apply to AY 2010–11. Since the very basis of reopening—alleged escapement due to Section 14A disallowance—was legally unsustainable, the Tribunal held that the initiation of proceedings under Section 147 was invalid. The reassessment order passed under Section 143(3) read with Section 147 was liable to be quashed. The Tribunal further held that The VAT and CST amounts were not routed through the Profit & Loss Account. No deduction had been claimed. Therefore, disallowance under Section 43B had no legal foundation. Allowing the appeal in entirety, the Tribunal quashed the reassessment proceedings and set aside the impugned order. Case Details Case Title: Ravisun Creative Promotions Pvt. Ltd. Vessus ACIT Citation: JURISHOUR-106-ITAT-2026(Mum) Case No.: ITA No.1616/Mum/2022 Date: 20/02/2026 Counsel For Appellant: Radha Halbe Counsel For Respondent: Annavaran Kosuri, Sr.- DR Click Here To Read Order Read More: GST Order Passed U/s 74 Alleging Fraud Can’t Be Converted to S. 73 Without Supporting Documents: Gujarat High Court

Reopening Can’t Be Solely Based On Alleged Non-Disallowance Under S. 14A: ITAT

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