RAVISUM CREATIVE PROMOTIONS PVT. LTD (FORMERLY KNOWN AS AGRO INVESTMENT PVT. LTD,MUMBAI vs. ACIT CEN CIR 8 (11(1), MUMBAI

Before us, learned counsel appearing for the assessee submitted that in course of original assessment proceeding, the Assessing Officer had specifically enquired into the applicability of Section 14A r.w.r. 8D. She submitted, being convinced with the explanation of the assessee, the Assessing Officer did not make any disallowances. Thus, she submitted, once the issue was examined in the original assessment proceeding, the same issue cannot be revisited in a proceeding u/s. 147 of the Act on a mere change of opinion. She submitted, the reopening is purely based on audit objection wherein, audit party had proposed the subject disallowance u/s. 14A r.w.r. 8D. Thus, she submitted, the reopening having been made on borrowed satisfaction is invalid. Without prejudice, learned counsel submitted, since the assessee had not earned any exempt income during the year Section 14A r.wr.8D would not be applicable. Therefore, there cannot be any escapement of income on that count. Hence, very initiation of proceeding u/s. 147 of the Act to make disallowance u/s. 147 r.w.r. 8D is unsustainable. In so far as merits of the issues are concerned, learned counsel submitted, since the assessee had not earned any exempt income during the year under consideration no disallowance u/s. 14A r.w.r. 8D could have been made.

As far as disallowance u/s. 43B is concerned, learned counsel submitted, the assessee had not claimed any such deduction on account of payment of VAT and CST, as it was never routed through the Profit and Loss Account. Thus, she submitted, the addition is unsustainable.

The learned Departmental Representative (DR) strongly relied upon the observations of the Departmental Authorities.

We have considered rival submissions and perused the materials on record. The reasons recorded by the Assessing Officer for reopening of assessment are as under:-

In view of the above, I hav`1e reason to believe that income chargeable to tax amounting to Rs 3,00,339/- has escaped assessment for AY.2010- 11 by reason of the failure on part of the assessee to disclose fully and truly all material facts necessary for assessment within the meaning of proviso to the Sec 147 of the Act. Hence, the case is required to be reopened u/s, 147 of the IT. Act for A.Y. 2010-11.

Necessary approval has been received from the Jt. CIT-8(2), Mumbai vide letter dated 10.12.2014. Issue notice u/s 148 of the IT Act, 1961accordingly.”

As could be seen from the reasons recorded, the only issue on which the assessment was reopened is alleged non-disallowance of expenditure u/s.14A r.w.r. 8D. It is a fact on record that the original assessment in case of the assessee was completed u/s. 143(3) of the Act. Materials placed on record demonstrate that in course of original assessment proceeding, the Assessing Officer has specifically enquired into applicability of Section 14A r.w.r. 8D keeping in view investment made by the assessee in exempt income yielding asset. In response to the queries raised by the Assessing Officer, the assessee had not only furnished submissions against applicability of Section 14A r.w.r. 8D but on a without prejudice basis had furnished a computation of disallowance u/s. 14A of the Act by working out the disallowance at a figure of Rs.23,453/-. Thus, these facts clearly indicate that in course of original assessment proceeding, the Assessing Officer had enquired into the applicability of Section 14A r.w.r. 8D but ultimately did not propose any disallowance.

The reasons recorded for reopening of assessment reproduced elsewhere in the order is completely silent on the fresh tangible material available with the Assessing Officer post completion of assessment u/s. 143(3) of the Act, which could have necessitated reopening of assessment u/s. 147 of the Act. In the reasons recorded, the Assessing Officer has merely stated that the assessee had made investment in shares capable of earning exempt income. He has not even mentioned the quantum of exempt income, if any, earned by the assessee. Though, the Assessing Officer has consciously avoided making any reference to the audit objection, however materials on record demonstrate that post completion of assessment, the audit party raised objection on couple of issues including, the issue of disallowance u/s. 14A r.w.r. 8D, which might have prompted the action u/s. 147 of the Act. Be that as it may, fact remains that in course of original reassessment proceeding, the Assessing Officer had examined the issue of applicability of Section 14A r.w.r. 8D.

The other relevant factor is the Assessing Officer is completely silent on the quantum of exempt income earned by the assessee during the year. This fact assumes importance, keeping in view, the settled legal position that in absence of any exempt income earned during the year, no disallowance u/s. 14A r.w.r. 8D can be made. The only submission of the Assessing Officer in the reasons recorded is, the assessee has made investment in shares capable of earning exempt income. It is evident, in course of proceedings before the First Appellate Authority, the assessee did make specific submission that since no exempt income was earned during the year, provisions of Section 14A r.w.r. 8D are not applicable. However, learned First Appellate Authority has rejected such contention referring to an amendment made to the provision by Finance Act, 2021, which going by ratio laid down in various judicial precedents would operate prospectively, hence not applicable to prior assessment years. Thus, 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. Thus, based on the aforesaid reasoning, we hold that proceeding initiated u/s. 147 of the Act in the case of present assessee is invalid. Therefore, the impugned assessment order passed in pursuance thereof would also be invalid. Hence, deserves to be quashed. Accordingly, we do so.

Even otherwise also the assessee has made out strong case on merits.

In so for as the issue of disallowance u/s. 14A r.w.r. 8D is concerned, it is established on record that in the year under consideration, the assessee had not earned any exempt income. That being the case, no disallowance u/s. 14A r.w.r. 8D can be made.

So far as the issue of disallowance u/s. 43B of the Act is concerned, learned counsel through material placed on record has demonstrated that no such expenditure has been routed through the P&L account. Hence, there is no scope for disallowance u/s. 43B of the Act. In view of the aforesaid, in our considered opinion, assessee is bound to succeed both on the legal issue as well as on merit. Grounds are allowed.

In the result, appeal is allowed. Order pronounced in the open court on 20 /02/2026.