Lack Of Tangible Material On Record To Conclude That Income Had Escaped Assessment Cannot Be Sustained: Bombay HC
The Bombay High Court has provided relief to the Maharashtra State Power Generation Company Limited (petitioner) by quashing the notice issued by the Assistant Commissioner of Income Tax (first Respondent) under Section 148 of the Income Tax Act.
Observing that there was a lack of tangible material on record to support the conclusion that income had escaped assessment, the High Court has also prohibited the tax authorities from taking any further steps concerning the notice.
While reiterating that CSR expenditure is allowable under Section 37 (1) of the Act and insertion of Explanation 2 to Section 37 (1) operates prospectively, the Division Bench comprising of Justice Dhiraj Singh Thakur and Justice Kamal Khata observed that “Explanation 1 will not be applicable as CSR expenditure was incurred as required by section 135 of the Companies Act, 2013 and its proposed disallowance would not constitute an offence”.
Advocate Niraj Sheth appeared for the Petitioner, whereas Advocate Suresh Kumar appeared for the Respondent.
In this case, the petitioner was a company involved in electricity generation for the state of Maharashtra. They had filed the petition, challenging a notice issued by the first Respondent under Section 148 of the Income Tax Act, seeking to reopen the assessment for the Assessment Year 2013-14.
After considering the submission, the Bench found that the reasons recorded by the first Respondent for reopening the assessment relied upon facts and figures available from the audited account.
However, the Bench noted that all material particulars regarding the expenditure were disclosed in Note No. 20, and an assessment order under Section 143(3) was passed on Dec 30, 2016, based on those disclosures.
Furthermore, “the Assessing Officer (AO) had disallowed the entire expenditure as CSR expenditure, relying on Explanation 2 to Section 37(1) of the Act. It was noted that this provision was inserted with effect from 1st April 2015 for the Assessment Year 2015-16 and was not applicable during the year under consideration”, added the Bench.
Finally, the High Court concluded that the AO has acted in excess of the limit of his jurisdiction to reopen the assessment in the exercise of powers under section 147 read with section 148 of the Act.
Accordingly, the High Court quashed the reopening notice as well as the order issued by the first Respondent for A.Y. 2013-14
Cause Title: Maharashtra State Power Generation Company Limited v. Assistant Commissioner of Income Tax and Ors. [Neutral Citation No: 2023:BHC-OS:5587-DB]
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