Comedy occasion contains unlimited smut, on reflection (6)
I believe the answer is:
humour
'comedy' is the definition.
'occasion contains unlimited smut on reflection' is the wordplay.
'occasion' becomes 'hour' (I've seen this before**).
'contains' means one lot of letters goes inside another.
'unlimited' says to take the centre (discard the edges or 'limits' of the word).
'on reflection' says the letters should be written in reverse.
The middle of 'smut' is 'mu'.
'mu' in reverse letter order is 'um'.
'hour' placed around 'um' is 'HUMOUR'.
(Other definitions for humour that I've seen before include "State of mind; comply with the whims of (someone)" , "Temperament; comedy" , "Gratify by compliance" , "Sense of the comic?" , "Quality of funniness" .)