Case Note & Summary
The appellant, Fomento Resorts & Hotels Ltd., filed a return under the Expenditure Tax Act, 1987 for assessment year 1997-98 showing nil chargeable expenditure. The respondent, Assistant Commissioner of Income-tax, issued a notice dated 13.3.2003 under Section 11 of the Act to reopen the assessment, with an endorsement on the reverse stating reasons: '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.' The appellant requested furnishing of the recorded reasons and filed objections on 14.4.2003, and also filed a reply without prejudice on 16.4.2003. Despite a follow-up letter on 25.3.2004, the Assessing Officer did not furnish the reasons or dispose of the objections before completing the reassessment. The Income Tax Appellate Tribunal upheld the reassessment. The High Court admitted the appeal on two substantial questions of law: (a) whether the reassessment was bad in law for non-compliance with GKN Driveshaft v. ITO (259 ITR 19) requiring furnishing of reasons and disposal of objections; and (b) whether chargeable expenditure should be computed per unit of accommodation or per person. The court held that the Assessing Officer failed to comply with the mandatory requirements of natural justice as laid down in GKN Driveshaft, and therefore the reassessment order was bad in law. The court also held that chargeable expenditure under Section 5 of the Act is to be computed with reference to the unit of residential accommodation, not the number of occupants. The appeal was allowed, the reassessment order and Tribunal's order were set aside, and the matter was remanded for fresh consideration after complying with natural justice.
Headnote
A) Expenditure Tax - Reopening of Assessment - Natural Justice - Section 11 of Expenditure Tax Act, 1987 - The Assessing Officer must furnish reasons recorded for reopening and dispose of objections before proceeding with reassessment, as per GKN Driveshaft v. ITO (259 ITR 19). Failure to do so renders the reassessment order bad in law. (Paras 2, 3, 4) B) Expenditure Tax - Chargeable Expenditure - Computation - Section 5 of Expenditure Tax Act, 1987 - Chargeable expenditure in a hotel is to be computed with reference to the unit of residential accommodation (room) and not with reference to the number of persons occupying the unit. (Paras 2, 3, 4)
Issue of Consideration
Whether the reassessment order was bad in law for non-compliance with principles of natural justice due to failure to furnish reasons and dispose objections, and whether chargeable expenditure should be computed per unit of accommodation or per person.
Final Decision
Appeal allowed. The reassessment order and the order of the Income Tax Appellate Tribunal are set aside. The matter is remanded to the Assessing Officer for fresh consideration after furnishing reasons and disposing of objections in accordance with law.
Law Points
- Reopening of assessment under Section 11 of Expenditure Tax Act
- 1987 must comply with principles of natural justice
- including furnishing of reasons and disposal of objections before reassessment
- Chargeable expenditure under Section 5 of Expenditure Tax Act
- 1987 is computed per unit of residential accommodation
- not per person
