TMI Blog2023 (4) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation 2 to Section 37 is not allowable expenditure and as such, the fundamental error appears to have been crept in. At this stage, reliance which has been made by the learned advocate appearing for the petitioner about the decision passed by the co-ordinate Bench of this Court in the case of Adani Power Maharashtra Limited [ 2023 (3) TMI 987 - GUJARAT HIGH COURT] where-in also this issue has been the subject matter of consideration and in which notice for re-opening and the order rejecting the objections came to be set aside. Re-opening on the basis of audit party objection - As submitted that one of the Director of the Company submitted an application u/s 6(3) of the Right to Information Act seeking information as to objection raised by the audit party and the reply of the same was given by assessing officer. The said information was provided in the form of order dated 10.12.2021 issued u/s 7(1) of the Right to Information Act, it appears that step of re-opening is on the basis of the objection raised by the audit party as can be seen from paragraph 3 of the said page 117 in the case of this very petitioner and as such, also when the co-ordinate Bench has dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter-Assisted Scrutiny Selection) and pursuant to this process, a detailed scrutiny was undertaken. Later on, an assessment order came to be passed on 20.12.2019 under Section 143(3) of the Income Tax Act (hereinafter to be referred as the Act ), accepting the returned loss of petitioner for Assessment Year 2017-18 without making any addition or disallowance of any claim of the petitioner. Despite the aforesaid circumstance, the respondent issued notice under Section 148 of the Act on 21.03.2021 calling upon the petitioner to submit return of income of Assessment Year 2017-18 and without prejudice, the petitioner filed its return of income in response to such notice on 17.04.2021 and sought reasons recorded for re-opening and approval was obtained under Section 151 of the Act. The said request was adhered to and the reasons as well as approval was provided to petitioner on 17.05.2021. 2.1. It is the case of the petitioner that subsequently the petitioner filed its objections on 24.06.2021 questioning the validity of step of re-opening by issuing notice under Section 148 of the Act. It is the case of the petitioner that however the objections of the petitioner came to be disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act, at least two per cent of the average net profits made during the three (3) preceding financial years shall be spent towards Corporate Social Responsibility and according to the petitioner, as a matter of fact, the petitioner incurred net loss of Rs. 187.67 crores during the three (3) immediately preceding financial years and therefore, the petitioner was not under an obligation to spend any amount towards Corporate Social Responsibility by virtue of Section 135 of the Companies Act and as such, the expenditure incurred by the petitioner are not one that requires disallowance under explanation 2 to Section 37(1) of the Act. The expenditure is incurred out of commercial expediency and as such, is fully allowable and it is not the case of the respondent that expenditure if any for explanation 2 to Section 37 is not allowable expenditure and as such, the fundamental belief which the authority carried while coming to the conclusion is basically erroneous and not legally tenable and as such, it cannot be said that income has escaped assessment. 4.1. Learned advocate Mr. B.S. Soparkar has further submitted that the petitioner incurred expenditure of Rs. 9,86,34,77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be substituted by objections received from the audit department and if the Assessing Officer has objected to the audit party s communication then the reasons recorded are not in accordance with law and as such, steps in contemplation is not valid. For this purpose, reliance was placed on few decisions delivered by this Court which are hereunder :- (1) In the case of Ship Gravures Ltd. [2013] 40 taxmann.com 309 (Gujarat); (2) In the case of Vodafone West Ltd. [2013] 37 taxmann.com 158 (Gujarat); (3) In the case of Raajratna Metal Industries Ltd. [2014] 49 taxmann.com 15 (Gujarat); (4) In the case of Jagal Jayantilal Parikh [2013] 355 ITR 400 (Gujarat); (5) In the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) 4.4. Yet another reason which has been submitted for questioning validity of action taken by respondent authority is that the same is not sustainable in view of the fact that in identical situation in the case of Adani Power Maharashtra Ltd. v. Assistant Commissioner of Income Tax , on almost similar issue, rendered in Special Civil Application No. 347 of 2022 vide order dated 20.02.2023 the co-ordinate Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment Year 2017- 18, the assessee company at Note No. 34 of Profit and Loss Account and at Sr. No. 38 of the ITR, other expenses , the assessee had debited CSR to the extent as mentioned above and as can be seen from the computation of income, Income from Business or Professions as well as ITR, Part A-O1 Sr. No. 7(h) of Assessment Year 2017-18, same has not been added back while computing the taxable income as per the Income Tax Act and as such, in view of Section 37(1) of the Act, the explanation (2), any expenditure incurred by the assessee on the activity relating to corporate social responsibility referred to in Section 135(1) of the Companies Act, shall not be deemed to be an expenditure incurred by the Civil Court for the purpose of business or profession and as such, CSR expenses are not allowable and as such require to be disallowed. It is a wrong scheme made under the head CSR expense which has in fact resulted into escapement of assessment to the extent of Rs. 9,86,34,775/- and as such, the authority has rightly initiated steps. 5.1. Learned advocate Ms. Mehta has further submitted that necessary sanction to issue notice under Section 148 of the Act was already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of that, we hold that re-opening of the case under Section 147 (b) of the Act in the facts of this case was on the basis of the factual information given by the internal audit party and was valid in law xxx xxx and as such, by referring to the aforesaid observations made by the Hon ble Apex Court, it has been submitted that objection raised by the petitioner is not sustainable even on this proposition as well. Hence, overall consideration of the material on record would clearly indicate according to learned advocate Ms. Mehta that the action sought to be initiated is thoroughly justified and permissible in law. Hence, no case is made out to call for any interference. 6. In re-joinder to this, learned advocate Mr. Soparkar has on the contrary reiterated that this very stand has been taken into consideration by the co-ordinate Bench of this Court and as such, has stated that already in Special Civil Application 347 of 2022 a decision is already taken and the notice as well as the orders came to be set aside and as such, when the very revenue authority has been examined by the co-ordinate Bench of this Court in the case of Adani Power Maharashtra Limited (supra) the stand t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid provision, when the petitioner was called upon to explain, the petitioner has explained vide objections dated 24.06.2021 and inter alia contended that by virtue of explanation 2 attached to Section 37 of the Income Tax Act, the assessing officer has erroneously concluded that such CSR expenditure cannot be allowed under Section 37 of the Income Tax Act and to that extent, there is escapement of income, the said conclusion is patently erroneous and as such, the action which is sought to be initiated is impermissible. In fact, as a matter of records, the petitioner has made average net loss of Rs. 187.67 crores during three immediately preceding Financial Years and as such, the petitioner was not under obligation to spend any amounts toward CRS by virtue of Section 135 of the Act and as such, the expenditure incurred by the petitioner is not the one which requires disallowance under explanation 2 to Section 37 (1). The expenditure incurred is out of Commercial expenses and is fully allowable and further it is the stand of the petitioner that even it is not the case of revenue that expenditure if any for explanation 2 to Section 37 is not allowable expenditure and as such, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections, re-opening of assessment is permissible or not is clearly clinching the issue raised in the present proceedings and hence, we answer in negative against the revenue. 13. The co-ordinate Bench after analyzing the detailed case law on this subject has considered the issue and as such, we may deem it proper to quote hereunder the relevant observations made in the said judgment precisely paragraph 9 to 12 :- 9. This Court made it quite clear that the Assessing Officer himself initiated the reassessment proceedings without his own conviction and only at the instance of the audit party which was termed to be a coulourable exercise of jurisdiction and the same was not sustained. 10. The two decisions of the Apex Court which are heavily relied upon will need to be considered at this stage. It is to be noted that this Court in Vodafone West Ltd (supra), has already referred to the Lucas T.V.S. It was a case where the auditor s opinion in regard to the interpretation of law was questioned to be treated by the Assessing Officer as information. The Court, while considering the submissions of both the sides, has held that apart from the information furnished by the audit pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out by the audit party is permissible under the law and there can be no dispute that the audit party is entitled to point out such factual error or omission in the assessment. 12. Here is a case where, admittedly, audit party had expressed the opinion on a question of law. It had also pointed out to the Assessing Officer and that information which had been given was on question of law. This has been dealt with in Lucas T.V.S. Ltd. and even otherwise, the facts of the instant case clearly make out that when the audit party had pointed out to the Assessing Officer, it not only was disagreeing with the information given on the law point, it had completely disagreed after examining the objections raised by the audit party. In paragraph 3 and paragraph 6, it has said that after carefully examining, the objections are not acceptable and they need to be dropped. The Assessing Officer, without any conviction, when has issued the notice, this surely is not a case where the reopening of the case is on the basis of any factual error pointed out by the audit party so as to be covered by the decision of the P.V.S.Beedies (P) Ltd. On the contrary, it is covered by those decisions whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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