Tax Appeal v. Nutan D. Sardessai, Jj

1 txa63-07dt. 30-08-19 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 theAppellant. Ms. Susan Linhares, Standing Counsel for the Respondent. Coram : M.S. Sonak & Nutan D. Sardessai, JJ. Reserved on : 6[th] August, 2019. Pronounced on : 30[th] 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 2 txa63-07dt. 30-08-19 Linhares, Standing Counsel for the Respondent. 2.This Appeal was admitted on 20th November, 2007 on thefollowing substantial questions of law : (a) Whether on the facts and in the circumstances of thecase, the Income-Tax Appellate Tribunal ought to have heldthat since the respondent did not furnish to the appellantthe reasons recorded for reopening of the assessment for theassessment year 1997-98 and did not comply with themandatory preconditions laid down by the Hon'bleSupreme Court in GKN Driveshaft vs. ITO 259 ITR page19, the reassessment order was bad in law as being opposedto the principles of natural justice ? (b) Whether on the facts and in the circumstances of thecase the Income-tax Appellate Tribunal was justified inholding that chargeable expenditure had to be computedwith reference to the unit of residential accommodation inthe hotel and not with reference to the number of personsoccupying the said unit of accommodation ? 3. The brief facts in which the aforesaid substantial questionsof law fall for determination, are set out hereafter : (A) The Appellant filed a return under the provisions of theExpenditure Tax Act, 1987 (said Act), showing chargeableexpenditure at rupees Nil on 12.8.1998. The Respondent, by noticedated 13.3.2003, by invoking the provisions in Section 11 of the saidAct, sought to reopen the assessment. 3 txa63-07dt. 30-08-19 (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 lodgedobjections to the assumption of the jurisdiction. (D) The Appellant, without prejudice also filed their reply on16.4.2003 in response to the notice under Section 11 of the said Actdated 13.3.2003. (E) Since the Appellants heard nothing further in the matter, theAppellants by their letter dated 25.3.2004, once again called uponthe Assessing Officer to dispose of their objections for reopening ofthe assessment, prior to commencement of the assessment for theAssessment Year 1997-98. (F) The Assessing Officer, without making any order disposing of theobjections filed by the Appellants, proceeded to make an assessmentorder dated 26th March, 2004, bringing to charge taxableexpenditure of ₹ 10,22,73,987, relying upon the decision of theHimachal Pradesh Tourism Development Corporation vs. 4 txa63-07dt. 30-08-19 Union of India and ors.[1]. The Assessing Officer, in his order dated26th March, 2004, sought to dispose of the written objections raisedby the Appellants to the reopening of the assessment. (F) The Assessing Officer, without making any order disposing of theobjections filed by the Appellants, proceeded to make an assessmentorder dated 26th March, 2004, bringing to charge taxableexpenditure of ₹ 10,22,73,987, relying upon the decision of theHimachal Pradesh Tourism Development Corporation vs. 4 txa63-07dt. 30-08-19 Union of India and ors.[1]. The Assessing Officer, in his order dated26th March, 2004, sought to dispose of the written objections raisedby the Appellants to the reopening of the assessment. (G) The Appellants, aggrieved by the Assessing Officer’s order dated26th March, 2004, appealed to the Commissioner of Income-tax(Appeals) –VI. In the Appeal, the Appellants specifically urged thatthe Assessing Officer had breached the mandatory conditions laiddown by the Hon’ble Supreme Court in the cases of GKNDriveshafts (India) Ltd. vs. Income Tax Officer & ors.[2] on theissue of reopening of assessment. (H) The Commissioner (Appeals), vide order dated 30th November,2004, dismissed the Appeal, holding that the assumption of thejurisdiction by the Assessing Officer under Section 11 of the said Act,was valid. (I)The Appellants, aggrieved by the Judgment and Order dated 30[th]November, 2004, preferred an appeal to the Income Tax AppellateTribunal (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 20thNovember, 2007 on the aforesaid substantial questions of law. 238 ITR 3811 2259 ITR 19(SC) 5 txa63-07dt. 30-08-19 4.Mr. Rafiq Dada, learned Senior Advocate for theAppellants, submitted that in case the first substantial question of lawis answered in favour of the Appellant and against the Respondent-Revenue, then, there will be no necessity to advert to the secondsubstantial question of law. This position was not seriously disputedby Ms. Linhares, learned Standing Counsel for the Respondent.Even, otherwise, the first substantial question of law relates toassumption of jurisdiction by the Assessing Officer under Section 11of the said Act. If this question is answered in favour of theAppellant-Assessee and against the Respondent-Revenue, then, it willhave to be held that the assumption of jurisdiction by the AssessingOfficer under Section 11 of the said Act, was ultra vires theprovisions of Section 11 of the said Act. Any decision on the secondsubstantial question of law, in that eventuality, will be quiteredundant and unnecessary. 5.Mr. Dada, the learned Senior Advocate for the Appellantssubmits that the decision of the Supreme Court in GKNDriveshafts (India) Ltd. (supra) is quite clear, inasmuch as itprovides that the Assessing Officer is bound to furnish the Assessee,reasons for reopening of the assessment, on demand. Further, theAssessee is entitled to raise objections and the Assessing Officer is 6 txa63-07dt. 30-08-19 5.Mr. Dada, the learned Senior Advocate for the Appellantssubmits that the decision of the Supreme Court in GKNDriveshafts (India) Ltd. (supra) is quite clear, inasmuch as itprovides that the Assessing Officer is bound to furnish the Assessee,reasons for reopening of the assessment, on demand. Further, theAssessee is entitled to raise objections and the Assessing Officer is 6 txa63-07dt. 30-08-19 bound to dispose of such objections by passing a speaking order,before he proceed with reopening of the assessment. Mr. Dadasubmits that this decision was applied by the Respondent to the caseof this very Appellants for the Assessment Year 1995-96. Suchapplication was expressly upheld by this Court, as well as by theHon’ble Apex Court in the case of this very Appellant. Mr. Dadasubmits that the Assessing Officer, without disposing of theobjections raised by the Appellants, could not have proceeded tomake the assessment, which has been done in the present case. Hesubmits that such a course of action has been expressly held asimpermissible by this Court in the cases of Bayer Material Science(P) Ltd. vs. Deputy Commissioner of Income-tax-10(3)[3], andKSS Petron Private Ltd. vs. The Assistant Commissioner ofIncome Tax Circle 10(2)[4] . For all these reasons, Mr. Dada submitsthat the first substantial question of law is required to be answered infavour of the Appellant-Assessee and against the Respondent-Revenue. 6.Mr. Dada adopted the submissions made by him in TaxAppeal No.32/2006 and other connected Appeals, in so far as thesecond substantial question of law is concerned. However, he submits 3 382 ITR 333 (Bom.)4ITXA 224 of 2014 7 txa63-07dt. 30-08-19 that should the first substantial question of law be answered in favourof the Appellant, then, at least. in this appeal, there is no necessity ofadverting to the second substantial question of law. 7.Ms. Linhares, learned Standing Counsel for the Respondentsubmitted that the decision of the Hon’ble Supreme Court in the caseof GKN Driveshafts (India) Ltd. (supra), as well as the said twodecisions relied upon by Mr. Dada relate to the provisions of theIncome Tax Act. She submits that in the present case, we areconcerned with the provisions of the Expenditure Act. She submitsthat the rulings cited, therefore, are not applicable or, in any case, areinapplicable with all their vigour. She submits that along with thenotice dated 13th March, 2003, the Assessing Officer had furnishedreasons to the Assessee and, therefore, there was no question offurnishing any further reasons to the Assessee. She submits that in theassessment order dated 26th March, 2004, the Assessing Officer hasdealt with and disposed of the objections raised by the Appellant tothe reopening of the assessment. She, therefore, submits that withoutprejudice to the applicability of the decisions cited by Mr. Dada,there is substantial compliance. 8.Ms. Linhares also adopts the submissions made by her inTax Appeal No.32/2006 and other connected Appeals, in so far as 8 txa63-07dt. 30-08-19 the second substantial question of law in this Appeal, is concerned.For these reasons, Ms. Linhares submits that this Appeal is liable tobe dismissed. 9.Rival contentions now fall for determination. 10.As noted by us above, should the first substantial questionof law be answered in favour of the Appellant-Assessee, and againstthe Respondent-Revenue, then, there will be no necessity to advertto the second substantial question of law framed by us in our orderdated 20th November, 2007. 8.Ms. Linhares also adopts the submissions made by her inTax Appeal No.32/2006 and other connected Appeals, in so far as 8 txa63-07dt. 30-08-19 the second substantial question of law in this Appeal, is concerned.For these reasons, Ms. Linhares submits that this Appeal is liable tobe dismissed. 9.Rival contentions now fall for determination. 10.As noted by us above, should the first substantial questionof law be answered in favour of the Appellant-Assessee, and againstthe Respondent-Revenue, then, there will be no necessity to advertto the second substantial question of law framed by us in our orderdated 20th November, 2007. 11.In this case, the Assessing Officer, vide notice dated 13thMarch, 2003, sought to reopen the assessment by invoking theprovisions 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 theAppellant for reopening of the assessment or that there is breach ofthe law laid down by the Hon’ble Apex Court in GKN Driveshafts(India) Ltd. (supra), at least, in so far as requirement of furnishingof the reasons for reopening of the assessment is concerned. To thatextent, therefore, we are unable to agree with the contention of Mr.Dada that this is a matter where the Assessing Officer failed to 9 txa63-07dt. 30-08-19furnish the reasons for reopening of assessment whilst invoking theprovisions 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 arefurnished, the Assessee is entitled to lodge his objections and theAssessing Officer is duty bound to dispose of such objections, bypassing a speaking order. 13.In the present case, the Appellants did lodge their objectionsvide letter dated 14th April, 2003. By a further letter dated 25thMarch, 2004, the Appellants requested the Assessing Officer todispose of such objections by passing a speaking order beforeproceeding with the reassessment in respect of the Assessment Year1997-98. However, the Assessing Officer, without proceeding todispose of the objections raised by the Appellants by passing aspeaking order, straight away proceeded to make the assessment orderdated 26th March, 2004, bringing to charge taxable expenditure on₹10,22,73,987/-. The assessment order dated 26th March, 2004, nodoubt, deals with the objections raised by the Appellant and purportsto dispose of the same. Ms. Linhares contends that this is a sufficientcompliance with the procedure set out in GKN Driveshafts (India) 10 txa63-07dt. 30-08-19 Ltd. (supra), assuming that the same is at all applicable to theproceedings under the said Act. Mr. Dada, however, submits thatsuch disposal in the assessment order itself does not constitute thecompliance with the mandatory conditions prescribed by the Hon’bleSupreme Court in GKN Driveshafts (India) Ltd. (supra). Insupport, as noted earlier, Mr. Dada relies upon Bayer MaterialScience (P) Ltd. (supra) and KSS Petron Private Ltd. (supra) . 14.The contention of Ms. Linhares that the decisions reliedupon by Mr. Dada relate to the provisions of the Income Tax Actand, therefore, are not applicable to the proceedings under theExpenditure Tax Act, cannot be accepted. In the first place, theprovisions relating to reopening of assessment are almost pari materia.Secondly, in so far as Assessment Year 1995-96 is concerned, theRespondent applied the very same ruling in GKN Driveshafts(India) Ltd. (supra) to hold that the notice of reopening ofassessment was ultra vires Section 11 of the said Act. This view, in thespecific context of the said Act and incidentally in the specificcontext 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 and5/PANJ/01 decided by the Tribunal on 4.4.2006. 11 txa63-07dt. 30-08-19 15.The aforesaid decision of the ITAT was appealed by theRespondent vide Tax Appeal No.71/2006. This appeal was dismissedby this Court vide order dated 27[th] November, 2006, which readsthus : “ Heard the learned Counsel on behalf of the parties. This appeal is filed against the Order dated 4-4-2006 ofthe ITAT wherein in para 7 the learned ITAT has come tothe conclusion that the Assessing Officer is required to givereasons, when asked for by the Assessee. Giving of reasonshas got to be considered as implicit in Section 11 of theExpenditure Tax Act, 1987. It is now well settled thatgiving reasons in support of an order is part of complyingwith the principles of natural justice. In the light of that, no fault could be found with theorder of the learned ITAT and as such no substantialquestion 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’bleApex Court vide order dated 16/7/2007, by observing that there wereno merits. 17. Accordingly, for the aforesaid reasons, we are unable to accept Ms. Linhares’s contention based upon the any alleged variancebetween the provisions of the said Act and the provisions of theIncome Tax Act, in so far as applicability of the principles in GKN 12 txa63-07dt. 30-08-19 Driveshafts (India) Ltd. (supra) is concerned. 18.The moot question is, therefore, the disposal of theobjections by the Assessing Officer in his assessment order dated26th March, 2004 constitutes sufficient compliance with theprocedure prescribed by the Hon’ble Supreme Court in the case ofGKN Driveshafts (India) Ltd. (supra) or, whether it was necessaryfor the Assessing Officer to have first disposed of the Appellant’sobjections by passing a speaking order and only uponcommunication of the same to the Appellants, proceeded to reopenthe assessment for the Assessment Year 1997-98. 19.Virtually, an identical issue arose in the cases of BayerMaterial 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 noticedated 6/2/2013, the Revenue sought to reopen the assessment in theyear 2007-08. The Assessee filed a revised return of income andsought for reasons recorded in support of the notice dated 6.2.2013.The reasons were furnished only on 19.3.2015. The Assessee lodgedobjections to the reasons on 25th March, 2015. The AssessingOfficer, without disposing of the Petitioner’s objections, made a draft 13 txa63-07dt. 30-08-19 assessment order dated 30th March, 2015, since this was a matterinvolving transfer pricing. In such circumstances, the Division Benchof this Court, set aside the assessment order by observing that theCourt was unable to understand how the Assessing Officer could, atall, exercise the jurisdiction and enter upon an inquiry on thereopening notice before disposing of the objections on the reasonsfurnished to the Assessee. This Court held that the proceedingsinitiated by the Transfer Pricing Officer (TPO), on the basis of such adraft assessment order, were without jurisdiction and quashed thesame. 21.Similarly, in the case of KSS Petron Private Ltd. (supra),this Court was concerned with the following substantial question oflaw : “Whether on the facts and circumstances of the case and inlaw, the Tribunal was justified in restoring the issue to theAssessing Officer after having quashed/set aside the orderdated 14th December, 2009 passed by the Assessing Officerwithout having disposed of the objections filed by theappellant to the reasons recorded in support of the re-opening Notice dated 28th March, 2008 ?” 22.In the aforesaid case, the Assessing Officer had purportedto dispose of the objections to the reasons in the assessment order,consequent upon reopening of the assessment. This Court, however, 21.Similarly, in the case of KSS Petron Private Ltd. (supra),this Court was concerned with the following substantial question oflaw : “Whether on the facts and circumstances of the case and inlaw, the Tribunal was justified in restoring the issue to theAssessing Officer after having quashed/set aside the orderdated 14th December, 2009 passed by the Assessing Officerwithout having disposed of the objections filed by theappellant to the reasons recorded in support of the re-opening Notice dated 28th March, 2008 ?” 22.In the aforesaid case, the Assessing Officer had purportedto dispose of the objections to the reasons in the assessment order,consequent upon reopening of the assessment. This Court, however, 14 txa63-07dt. 30-08-19 held that the proceedings for reopening of assessment prior todisposing of the Asessee’s objections by passing a speaking order, wasan exercise in excess of jurisdiction. 23.KSS Petron Private Ltd. (supra), this is what the DivisionBench has observed at paragraphs 7 and 8 of the Judgment : “7. On further Appeal, the Tribunal passed theimpugned order. By the impugned order it held that theAssessing Officer was not justified in finalizing theAssessment, without having first disposed of the objectionsof the appellant. This impugned order holds the AssessingOfficer is obliged to do in terms of the Apex Court'sdecision in GKN Driveshafts (India) Ltd., v/s. ITO 259ITR 19. In the aforesaid circumstances, the order of theCIT(A) and the Assessing Officer were quashed and setaside. However, after having set aside the orders, it restoredthe Assessment to the Assessing Officer to pass fresh orderafter disposing of the objections to reopening notice dated28th March, 2008, in accordance with law. 8. We note that once the impugned order finds theAssessment Order is without jurisdiction as the law laiddown by the Apex Court in GKN Driveshafts (supra) hasnot been followed, then there is no reason to restore theissue to the Assessing Officer to pass a further/fresh order.If this is permitted, it would give a licence to the AssessingOfficer to pass orders on reopening notice, withoutjurisdiction (without compliance of the law in accordancewith the procedure), yet the only consequence, would bethat in appeal, it would be restored to the Assessing Officerfor fresh adjudication after following the due procedure. 15 txa63-07dt. 30-08-19 This would lead to unnecessary harassment of the Assesseeby 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 completeanswer to the contentions raised by Ms. Linhares in defence of theimpugned order. 25.Since, in the present case, the Assessing Officer haspurported to assume the jurisdiction for reopening of the assessment,without having first disposed of the Assessee’s objections to thereasons by passing a speaking order, following the law laid down inGKN Driveshafts (India) Ltd.(supra), Bayer Material Science(P) Ltd. (supra) and KSS Petron Private Ltd. (supra), we areconstrained to hold that such assumption of jurisdiction by theAssessing Officer was ultra vires Section 11 of the said Act. The firstsubstantial question of law will, accordingly, have to be answered infavour of the Appellant and against the Respondent-Revenue. 26.As noted earlier, in view of the aforesaid, there is nonecessity to advert to the second substantial question of law, at least,in so far as this Appeal is concerned. The Appeal is, therefore, allowedand the impugned orders dated 26th March, 2004 made by the 16 txa63-07dt. 30-08-19 26.As noted earlier, in view of the aforesaid, there is nonecessity to advert to the second substantial question of law, at least,in so far as this Appeal is concerned. The Appeal is, therefore, allowedand the impugned orders dated 26th March, 2004 made by the 16 txa63-07dt. 30-08-19 Assessing Officer, 30th November, 2004 made by the Commissioner(Appeals) and 12[th] January, 2007 made by the ITAT are set aside onthe ground of want of compliance with jurisdictional parameters bythe Assessing Officer, and without going into the second substantialquestion of law framed in this Appeal. Accordingly, we clarify thatthe second substantial question of law, raised in this Appeal, is not tobe treated as decided in this Appeal, one way or the other. 27.The Appeal is allowed in the aforesaid terms. There shall beno order as to costs. Nutan D. Sardessai, J. M.S. Sonak, J.