HC Cancels Reassessment; CSR Expenses Not Bound by Companies Act

Case Details:  Adani Power Rajasthan Ltd. v. ACIT - [2023] 150 taxmann.com 136 (Gujarat)

Judiciary and Counsel Details

• Ashutosh Shastri and J.C. Doshi, JJ.
• B.S. Soparkar for the Petitioner. 
• Ms. Maithili D. Mehta for the Respondent.

Facts of the Case

Assessee-Company filed its return of income, declaring losses for the relevant assessment year. Assessee’s case was selected for scrutiny proceedings and was completed without any addition. Pursuant to the completion of proceedings, the Assessing Officer (AO) noticed that the assessee had incurred losses during the last three years and was not under any obligation to spend any amount as CSR expenditure. Considering this fact, the AO issued notice under section 148 on the ground that CSR expenditure was not allowed and, thus, resulted in the escapement of income.

Aggrieved-assessee filed a writ petition to the Gujarat High Court against such reassessment notice.

High Court Held

The High Court held that the assessee made an average net loss during the three immediately preceding Financial Years. The assessee was not obligated to spend any amounts toward CRS by virtue of Section 135 of the Companies Act. Thus, the expenditure incurred by the assessee did not require disallowance under explanation 2 to Section 37 (1).

Therefore, the expenditure incurred is out of Commercial expenses and is fully allowable.

Further, detailed scrutiny was undertaken by the AO, and after satisfying himself, an order of assessment was passed wherein neither any addition nor disallowance of any claim was made. On the basis of the same records, issuance of notice under Section 148 tantamounts to being issued based on the change of opinion, which was impermissible.

Thus, the re-opening of the assessment was quashed.