Fomento Resorts & Hotels Ltd vs. ACIT (Bombay High Court) (Goa Bench)

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Santosh
IN THE HIGH COURT OF BOMBAY AT GOA
TAX APPEAL NO.63 OF 2007
Fomento Resorts & Hotels Ltd.,
a Company incorporated under the
provisions of the Companies Act, 1956
and having its registered office at
Cidade de Goa Beach Resort,
Vainguinim Beach, Goa-493 004,
through its Secretary I. B. Muchandi. …. Appellant.
Versus
The Assistant Commissioner of
Income-tax, Central Circle,
Panjim having his address at
Panjim, Goa. …. Respondent.
Mr. Rafiq Dada, Senior Advocate with Mr. Nishant Thakkar, Ms.
Jasmin Amalsadvala and Ms. Vinita Palyekar, Advocates for the
Appellant.
Ms. Susan Linhares, Standing Counsel for the Respondent.
Coram : M.S. Sonak &
Nutan D. Sardessai, JJ.
Reserved on : 6th August, 2019.
Pronounced on : 30th August, 2019.
J U D G M E N T : (Per M.S. SONAK, J.)
Heard Mr. Rafiq Dada, learned Senior Advocate with Mr.
N. Thakkar and Ms. V. Palyekar for Appellant and Ms. Susan
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Linhares, Standing Counsel for the Respondent.
2. This Appeal was admitted on 20th November, 2007 on the
following substantial questions of law :
(a) Whether on the facts and in the circumstances of the
case, the Income-Tax Appellate Tribunal ought to have held
that since the respondent did not furnish to the appellant
the reasons recorded for reopening of the assessment for the
assessment year 1997-98 and did not comply with the
mandatory preconditions laid down by the Hon’ble
Supreme Court in GKN Driveshaft vs. ITO 259 ITR page
19, the reassessment order was bad in law as being opposed
to the principles of natural justice ?
(b) Whether on the facts and in the circumstances of the
case the Income-tax Appellate Tribunal was justified in
holding that chargeable expenditure had to be computed
with reference to the unit of residential accommodation in
the hotel and not with reference to the number of persons
occupying the said unit of accommodation ?
3. The brief facts in which the aforesaid substantial questions
of law fall for determination, are set out hereafter :
(A) The Appellant filed a return under the provisions of the
Expenditure Tax Act, 1987 (said Act), showing chargeable
expenditure at rupees Nil on 12.8.1998. The Respondent, by notice
dated 13.3.2003, by invoking the provisions in Section 11 of the said
Act, sought to reopen the assessment.
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(B) On the reverse of the notice dated 13.3.2003, the following
endorsement finds place :
“Reasons for Reopening :- In view of the Himachal High
Court decision in the case of H.P. Tourism Development
Corporation (238 ITR 38), the expenditure has escaped
assessment.”
(C) The Appellant, vide letter dated 14.4.2003, applied for furnish of
reasons recorded for reopening of the assessment and also lodged
objections to the assumption of the jurisdiction.
(D) The Appellant, without prejudice also filed their reply on
16.4.2003 in response to the notice under Section 11 of the said Act
dated 13.3.2003.
(E) Since the Appellants heard nothing further in the matter, the
Appellants by their letter dated 25.3.2004, once again called upon
the Assessing Officer to dispose of their objections for reopening of
the assessment, prior to commencement of the assessment for the
Assessment Year 1997-98.
(F) The Assessing Officer, without making any order disposing of the
objections filed by the Appellants, proceeded to make an assessment
order dated 26th March, 2004, bringing to charge taxable
expenditure of ₹ 10,22,73,987, relying upon the decision of the
Himachal Pradesh Tourism Development Corporation vs.
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Union of India and ors.1. The Assessing Officer, in his order dated
26th March, 2004, sought to dispose of the written objections raised
by the Appellants to the reopening of the assessment.
(G) The Appellants, aggrieved by the Assessing Officer’s order dated
26th March, 2004, appealed to the Commissioner of Income-tax
(Appeals) –VI. In the Appeal, the Appellants specifically urged that
the Assessing Officer had breached the mandatory conditions laid
down by the Hon’ble Supreme Court in the cases of GKN
Driveshafts (India) Ltd. vs. Income Tax Officer & ors. 2 on the
issue of reopening of assessment.
(H) The Commissioner (Appeals), vide order dated 30th November,
2004, dismissed the Appeal, holding that the assumption of the
jurisdiction by the Assessing Officer under Section 11 of the said Act,
was valid.
(I)The Appellants, aggrieved by the Judgment and Order dated 30th
November, 2004, preferred an appeal to the Income Tax Appellate
Tribunal (ITAT). However, by Judgment and Order dated 4th April,
2005, the ITAT was pleased to dismiss the Appellant’s Appeal.
(J) Hence the present Appeal, which came to be admitted on 20th
November, 2007 on the aforesaid substantial questions of law.
1 238 ITR 38
2 259 ITR 19(SC)
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4. Mr. Rafiq Dada, learned Senior Advocate for the
Appellants, submitted that in case the first substantial question of law
is answered in favour of the Appellant and against the Respondent-
Revenue, then, there will be no necessity to advert to the second
substantial question of law. This position was not seriously disputed
by Ms. Linhares, learned Standing Counsel for the Respondent.
Even, otherwise, the first substantial question of law relates to
assumption of jurisdiction by the Assessing Officer under Section 11
of the said Act. If this question is answered in favour of the
Appellant-Assessee and against the Respondent-Revenue, then, it will
have to be held that the assumption of jurisdiction by the Assessing
Officer under Section 11 of the said Act, was ultra vires the
provisions of Section 11 of the said Act. Any decision on the second
substantial question of law, in that eventuality, will be quite
redundant and unnecessary.
5. Mr. Dada, the learned Senior Advocate for the Appellants
submits that the decision of the Supreme Court in GKN
Driveshafts (India) Ltd . (supra) is quite clear, inasmuch as it
provides that the Assessing Officer is bound to furnish the Assessee,
reasons for reopening of the assessment, on demand. Further, the
Assessee is entitled to raise objections and the Assessing Officer is
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bound to dispose of such objections by passing a speaking order,
before he proceed with reopening of the assessment. Mr. Dada
submits that this decision was applied by the Respondent to the case
of this very Appellants for the Assessment Year 1995-96. Such
application was expressly upheld by this Court, as well as by the
Hon’ble Apex Court in the case of this very Appellant. Mr. Dada
submits that the Assessing Officer, without disposing of the
objections raised by the Appellants, could not have proceeded to
make the assessment, which has been done in the present case. He
submits that such a course of action has been expressly held as
impermissible by this Court in the cases of Bayer Material Science
(P) Ltd. vs. Deputy Commissioner of Income-tax-10(3) 3, and
KSS Petron Private Ltd. vs. The Assistant Commissioner ofIncome Tax Circle 10(2)4 . For all these reasons, Mr. Dada submits
that the first substantial question of law is required to be answered in
favour of the Appellant-Assessee and against the Respondent-
Revenue.
6. Mr. Dada adopted the submissions made by him in Tax
Appeal No.32/2006 and other connected Appeals, in so far as the
second substantial question of law is concerned. However, he submits
3 382 ITR 333 (Bom.)
4 ITXA 224 of 2014
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that should the first substantial question of law be answered in favour
of the Appellant, then, at least. in this appeal, there is no necessity of
adverting to the second substantial question of law.
7. Ms. Linhares, learned Standing Counsel for the Respondent
submitted that the decision of the Hon’ble Supreme Court in the case
of GKN Driveshafts (India) Ltd. (supra), as well as the said two
decisions relied upon by Mr. Dada relate to the provisions of the
Income Tax Act. She submits that in the present case, we are
concerned with the provisions of the Expenditure Act. She submits
that the rulings cited, therefore, are not applicable or, in any case, are
inapplicable with all their vigour. She submits that along with the
notice dated 13th March, 2003, the Assessing Officer had furnished
reasons to the Assessee and, therefore, there was no question of
furnishing any further reasons to the Assessee. She submits that in the
assessment order dated 26th March, 2004, the Assessing Officer has
dealt with and disposed of the objections raised by the Appellant to
the reopening of the assessment. She, therefore, submits that without
prejudice to the applicability of the decisions cited by Mr. Dada,
there is substantial compliance.
8. Ms. Linhares also adopts the submissions made by her in
Tax Appeal No.32/2006 and other connected Appeals, in so far as
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the second substantial question of law in this Appeal, is concerned.
For these reasons, Ms. Linhares submits that this Appeal is liable to
be dismissed.
9. Rival contentions now fall for determination.
10. As noted by us above, should the first substantial question
of law be answered in favour of the Appellant-Assessee, and against
the Respondent-Revenue, then, there will be no necessity to advert
to the second substantial question of law framed by us in our order
dated 20th November, 2007.
11. In this case, the Assessing Officer, vide notice dated 13th
March, 2003, sought to reopen the assessment by invoking the
provisions of Section 11 of the said Act. At the reverse of this notice,
the Assessing Office, had stated the reason for reopening.
Accordingly, it cannot be said that no reasons were furnished to the
Appellant for reopening of the assessment or that there is breach of
the law laid down by the Hon’ble Apex Court in GKN Driveshafts
(India) Ltd. (supra), at least, in so far as requirement of furnishing
of the reasons for reopening of the assessment is concerned. To that
extent, therefore, we are unable to agree with the contention of Mr.
Dada that this is a matter where the Assessing Officer failed to
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furnish the reasons for reopening of assessment whilst invoking the
provisions of Section 11 of the said Act.
12. Hon’ble Supreme Court in GKN Driveshafts (India)
Ltd. (supra) has, however, further held that once reasons are
furnished, the Assessee is entitled to lodge his objections and the
Assessing Officer is duty bound to dispose of such objections, by
passing a speaking order.
13. In the present case, the Appellants did lodge their objections
vide letter dated 14th April, 2003. By a further letter dated 25th
March, 2004, the Appellants requested the Assessing Officer to
dispose of such objections by passing a speaking order before
proceeding with the reassessment in respect of the Assessment Year
1997-98. However, the Assessing Officer, without proceeding to
dispose of the objections raised by the Appellants by passing a
speaking order, straight away proceeded to make the assessment order
dated 26th March, 2004, bringing to charge taxable expenditure on
₹10,22,73,987/-. The assessment order dated 26th March, 2004, no
doubt, deals with the objections raised by the Appellant and purports
to dispose of the same. Ms. Linhares contends that this is a sufficient
compliance with the procedure set out in GKN Driveshafts (India)
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Ltd. (supra), assuming that the same is at all applicable to the
proceedings under the said Act. Mr. Dada, however, submits that
such disposal in the assessment order itself does not constitute the
compliance with the mandatory conditions prescribed by the Hon’ble
Supreme Court in GKN Driveshafts (India) Ltd. (supra). In
support, as noted earlier, Mr. Dada relies upon Bayer Material
Science (P) Ltd. (supra) and KSS Petron Private Ltd. (supra) .
14. The contention of Ms. Linhares that the decisions relied
upon by Mr. Dada relate to the provisions of the Income Tax Act
and, therefore, are not applicable to the proceedings under the
Expenditure Tax Act, cannot be accepted. In the first place, the
provisions relating to reopening of assessment are almost pari materia.
Secondly, in so far as Assessment Year 1995-96 is concerned, the
Respondent applied the very same ruling in GKN Driveshafts
(India) Ltd. (supra) to hold that the notice of reopening of
assessment was ultra vires Section 11 of the said Act. This view, in the
specific context of the said Act and incidentally in the specific
context of this very Appellant, was upheld not only by this Court,
but also by the Hon’ble Supreme Court. This was in ETA No.1 and
5/PANJ/01 decided by the Tribunal on 4.4.2006.
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15. The aforesaid decision of the ITAT was appealed by the
Respondent vide Tax Appeal No.71/2006. This appeal was dismissed
by this Court vide order dated 27th November, 2006, which reads
thus :
“ Heard the learned Counsel on behalf of the parties.
This appeal is filed against the Order dated 4-4-2006 of
the ITAT wherein in para 7 the learned ITAT has come to
the conclusion that the Assessing Officer is required to give
reasons, when asked for by the Assessee. Giving of reasons
has got to be considered as implicit in Section 11 of the
Expenditure Tax Act, 1987. It is now well settled that
giving reasons in support of an order is part of complying
with the principles of natural justice.
In the light of that, no fault could be found with the
order of the learned ITAT and as such no substantial
question of law arises as well.
Appeal dismissed.”
16. The Respondent, instituted a Special Leave to Appeal
(Civil) No.5711/2007 which was, however, dismissed by the Hon’ble
Apex Court vide order dated 16/7/2007, by observing that there were
no merits.
17. Accordingly, for the aforesaid reasons, we are unable to
accept Ms. Linhares’s contention based upon the any alleged variance
between the provisions of the said Act and the provisions of the
Income Tax Act, in so far as applicability of the principles in GKN
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Driveshafts (India) Ltd. (supra) is concerned.
18. The moot question is, therefore, the disposal of the
objections by the Assessing Officer in his assessment order dated
26th March, 2004 constitutes sufficient compliance with the
procedure prescribed by the Hon’ble Supreme Court in the case of
GKN Driveshafts (India) Ltd. (supra) or, whether it was necessary
for the Assessing Officer to have first disposed of the Appellant’s
objections by passing a speaking order and only upon
communication of the same to the Appellants, proceeded to reopen
the assessment for the Assessment Year 1997-98.
19. Virtually, an identical issue arose in the cases of Bayer
Material Science (P) Ltd. (supra) and KSS Petron Private Ltd.
(supra) before the Division Benches of our High Court at Bombay.
20 . In Bayer Material Science (P) Ltd. (supra), by a notice
dated 6/2/2013, the Revenue sought to reopen the assessment in the
year 2007-08. The Assessee filed a revised return of income and
sought for reasons recorded in support of the notice dated 6.2.2013.
The reasons were furnished only on 19.3.2015. The Assessee lodged
objections to the reasons on 25th March, 2015. The Assessing
Officer, without disposing of the Petitioner’s objections, made a draft
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assessment order dated 30th March, 2015, since this was a matter
involving transfer pricing. In such circumstances, the Division Bench
of this Court, set aside the assessment order by observing that the
Court was unable to understand how the Assessing Officer could, at
all, exercise the jurisdiction and enter upon an inquiry on the
reopening notice before disposing of the objections on the reasons
furnished to the Assessee. This Court held that the proceedings
initiated by the Transfer Pricing Officer (TPO), on the basis of such a
draft assessment order, were without jurisdiction and quashed the
same.
21. Similarly, in the case of KSS Petron Private Ltd. (supra),
this Court was concerned with the following substantial question of
law :
“Whether on the facts and circumstances of the case and in
law, the Tribunal was justified in restoring the issue to the
Assessing Officer after having quashed/set aside the order
dated 14th December, 2009 passed by the Assessing Officer
without having disposed of the objections filed by the
appellant to the reasons recorded in support of the reopening
Notice dated 28th March, 2008 ?”
22. In the aforesaid case, the Assessing Officer had purported
to dispose of the objections to the reasons in the assessment order,
consequent upon reopening of the assessment. This Court, however,
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held that the proceedings for reopening of assessment prior to
disposing of the Asessee’s objections by passing a speaking order, was
an exercise in excess of jurisdiction.
23. KSS Petron Private Ltd. (supra), this is what the Division
Bench has observed at paragraphs 7 and 8 of the Judgment :
“7. On further Appeal, the Tribunal passed the
impugned order. By the impugned order it held that the
Assessing Officer was not justified in finalizing the
Assessment, without having first disposed of the objections
of the appellant. This impugned order holds the Assessing
Officer is obliged to do in terms of the Apex Court’s
decision in GKN Driveshafts (India) Ltd., v/s. ITO 259
ITR 19. In the aforesaid circumstances, the order of the
CIT(A) and the Assessing Officer were quashed and set
aside. However, after having set aside the orders, it restored
the Assessment to the Assessing Officer to pass fresh order
after disposing of the objections to reopening notice dated
28th March, 2008, in accordance with law.
8. We note that once the impugned order finds the
Assessment Order is without jurisdiction as the law laid
down by the Apex Court in GKN Driveshafts (supra) has
not been followed, then there is no reason to restore the
issue to the Assessing Officer to pass a further/fresh order.
If this is permitted, it would give a licence to the Assessing
Officer to pass orders on reopening notice, without
jurisdiction (without compliance of the law in accordance
with the procedure), yet the only consequence, would be
that in appeal, it would be restored to the Assessing Officer
for fresh adjudication after following the due procedure.
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This would lead to unnecessary harassment of the Assessee
by reviving stale/ old matters.”
24. According to us, the rulings in Bayer Material Science (P)
Ltd. (supra) and KSS Petron Private Ltd. (supra) afford a complete
answer to the contentions raised by Ms. Linhares in defence of the
impugned order.
25. Since, in the present case, the Assessing Officer has
purported to assume the jurisdiction for reopening of the assessment,
without having first disposed of the Assessee’s objections to the
reasons by passing a speaking order, following the law laid down in
GKN Driveshafts (India) Ltd. (supra), Bayer Material Science
(P) Ltd. (supra) and KSS Petron Private Ltd. (supra), we are
constrained to hold that such assumption of jurisdiction by the
Assessing Officer was ultra vires Section 11 of the said Act. The first
substantial question of law will, accordingly, have to be answered in
favour of the Appellant and against the Respondent-Revenue.
26. As noted earlier, in view of the aforesaid, there is no
necessity to advert to the second substantial question of law, at least,
in so far as this Appeal is concerned. The Appeal is, therefore, allowed
and the impugned orders dated 26th March, 2004 made by the
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Assessing Officer, 30th November, 2004 made by the Commissioner
(Appeals) and 12th January, 2007 made by the ITAT are set aside on
the ground of want of compliance with jurisdictional parameters by
the Assessing Officer, and without going into the second substantial
question of law framed in this Appeal. Accordingly, we clarify that
the second substantial question of law, raised in this Appeal, is not to
be treated as decided in this Appeal, one way or the other.
27. The Appeal is allowed in the aforesaid terms. There shall be
no order as to costs.
Nutan D. Sardessai, J. M.S. Sonak, J.