The main legal point established in the judgment is that the expenditure incurred on corporate social responsibility activities under Section 135 of the Companies Act is not to be treated as expenditure for the purposes of business under Section 37 of the Income Tax Act.

ORDER :

(Ashutosh Shastri, J.)

1. By way of this petition under Article 226 of the Constitution of India, the petitioner has prayed for quashing and setting aside the impugned notice dated 21.03.2021 at Annexure-A as well as for setting aside the impugned order dated 25.10.2021.

2. The brief facts leading to rise of present petition is that petitioner is a limited company and all the shareholders are the citizens of India and as such, amenable to the writ jurisdiction of this Court. The petitioner submitted its return of income for Assessment Year 2016-17 on 28.11.2016 declaring total loss of Rs.1206,52,27,424/- under the normal provisions and book profit of Rs.0/-. The return of the petitioner was processed and the case of the petitioner was selected for scrutiny under CASS. On furnishing information, detailed scrutiny was undertaken and later on, on 22.12.2018, the assessment order under Section 143 (3) of the Income Tax Act, (hereinafter referred to as the “Act”) came to be passed assessing total loss of the petitioner at Rs.1181,07,09,327/- for Assessment Year 2016-17.

2.1. It is the case of the petitioner that the respondent issued notice upon the petitioner under Section 148 of the Act on 21.03.2021 calling upon the petitioner to submit return of income for Assessment Year 2016-17 without prejudice, & in due compliance of the said notice and consequently, for reopening has also sought approval obtained under Section 151 of the Act. The said reasons and the approval came to be supplied to the petitioner on 17.05.2021.

2.2. In response to the said reasons, the petitioner filed detailed objections on 16.08.2021 and questioned the validity of the notice issued under Section 148 of the Act. However, according to the petitioner, by brief satisfaction, objections raised by the petitioner came to be turned down on 25.10.2021 and order was supplied to the petitioner. The petitioner on account of such action by the respondent authority aggrieved by the impugned notice dated 21.03.2021 issued under Section 148 of the Act as well as order passed upon the objections of the petitioner dated 25.10.2021, is constrained to approach this Court by way of present petition under Article 226 of the Constitution of India.

3. Pursuant to the notice issued by the co-ordinate Bench of this Court, after pleadings having been completed, the matter is requested to be taken by for hearing and as such, we have heard Mr. B.S. Soparkar, learned advocate who represented the petitioner and Ms. Maithili Mehta, learned advocate who represented the respondent authority.

4. Mr. B.S. Soparkar, learned advocate appearing for the petitioner has vehemently contended that the impugned notice as well as the order passed by the respondent authority are patently erroneous and in conflict with the fundamental rights of the petitioner under Articles 14, 19(1)(g) of the Constitution of India and hence, same are required to be quashed and set aside. It has been submitted that perusal of the reasons recorded, the main substantial reason is to the effect that income has escaped assessment since claim of CSR expenses made by the petitioner of Rs.4,05,629/- was not allowable and as such, requires to be disallowed and to that extent, the income has escaped assessment and thus, according to learned advocate Mr. Soparkar, is fundamentally erroneous, since expenses are incurred voluntarily, wholly and exclusively for the purposes of business and therefore, there is no question of escapement of income from the assessment.

4.1. Learned advocate Mr. Soparkar has further contended that in view of explanation 2 attached to Section 37 of the Act, any expenditure incurred on the activities relating to corporate social responsibility referred to in Section 135 of the Companies Act, shall not be deemed to be expenditure incurred for the purposes of business. As per Section 135 of the Companies Act, at least two per cent of the average net profit made during three immediately preceding fina