Commissioner Of Income-Tax-I v. Badar Durrez Ahmed, J (Oral

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 17.04.2013 +ITA 578/2012 COMMISSIONER OF INCOME-TAX-I .....Appellant versus CHEIL COMMUNICATIONS INDIA PVT. LTD.… RespondentAdvocates who appeared in this case:For the Appellant:Mr Rohit Madan, AdvocateFor the Respondent:Mr Salil Kapoor, Mr Vikas Jain,Mr Sanat Kapoor and Mr Ankit Gupta, Advocates CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.This appeal by the revenue is directed against the order dated31.01.2012 passed by the Income Tax Appeal Tribunal in ITA No.5161/Del/2011 relating to the assessment year 2006-07. This appeal wasadmitted for hearing on 31.12.2012 when the following substantial questionof law was framed for the consideration of this court:- “Did the Tribunal fall into error in holding that thereopening of assessment was bad in law, having regard tothe ultimate order made by the AO in that the ground forreassessment was not one of the items added back ordisallowed, to the assessee’s income assessed?” 2.The learned counsel for the appellant submitted that the reasons forreopening the assessment under Section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the said Act’) indicated that the AssessingOfficer felt that income had escaped assessment in respect of three items.The first item being the claim of loss on account of foreign exchangefluctuation. The second item being the claim of expenditure under the head“data usage charges”, which, according to the Assessing Officer, was not ofa revenue nature and had to be treated as being of a capital nature. Thethird point on which the reopening was contemplated, according to thelearned counsel for the appellant, was the question of determination of anArm’s Length Price in relation to the international transactions between the respondent/assessee and its associated enterprises.The notice underSection 148 was issued to the respondent/assessee on 11.09.2008.Thepurportedreasonsforreopeningwerealsofurnishedtotherespondent/assessee. Those purported reasons, which have been recordedby the Assessing Officer, were as under:- “M/s Cheil Communications India Private Limited A.Y. 2006-2007 Reasons for reopening the case u/s 147/148 of the I.T. Act,1961. Return of income in this case was filed on 4/12/2006declaring income of Rs.31611079/-. The return was processedu/s 143(1) on 11/3/2008 at the return income. On perusal of the assessment record of the assesseefollowing discrepancies have come to the notice; That during the year the assessee company has claimedthe amount of Rs.1182857/- as foreign exchange fluctuationloss. For the purpose of computation of taxable income, theprovisions of income-tax Act are to be followed. Liabilitywhich will arise only on the happening of an event, in this case,on the remittance of sums payable, should be allowed only atthe time of remittance and not before on a notional basis. Onthis issue, in the case of CIT vs. Woodward Governor (India)(P) Ltd. (2007) 162 Taxman 60,Department has filed SLP,which is pending in the court. That during year the assessee company has claimedexpenses of Rs.12126632/- in schedule 13 annexed with thereturn of income under the head Data Usage Charges. Theseexpenses are incurred by the assessee for various researchpurposes, development projects, etc. Since all these expensesare providing enduring benefit to the assessee hence the sameshould be treated as of capital nature. As per the form No.3CEB filed along with the return theassessee during the year had international transactions withassociated enterprises/ concerns. Hence determination of Arm’sLength Price in relation to international transactions is alsorequired. In view of the facts narrated above, I have reason tobelieve that income of Rs.13309489/- has escaped assessment for the assessment year 2006-07 and I am satisfied that it is a fitcase for issue of notice u/s 148 of I.T. Act, 1961. As per the form No.3CEB filed along with the return theassessee during the year had international transactions withassociated enterprises/ concerns. Hence determination of Arm’sLength Price in relation to international transactions is alsorequired. In view of the facts narrated above, I have reason tobelieve that income of Rs.13309489/- has escaped assessment for the assessment year 2006-07 and I am satisfied that it is a fitcase for issue of notice u/s 148 of I.T. Act, 1961. (Dr.Prashant Khambra)Asstt. Commissioner of Income TaxCircle 3(1), New Delhi.” 3.Subsequent to the issuance of the notice for reopening, the assessment of the respondent / assessee had been reopened and culminated in the assessment order dated 17.10.2011.Prior to that, the AssessingOfficer had made a reference to the Transfer Pricing Officer under Section92CA of the said Act for computation / determination of the Arm’s Length Price. In the assessment order, the computation of the total income wasdone by the Assessing Officer as under:- “COMPUTATION OF TOTAL INCOME:- Total income as declared by theRs 3161107/-assessee:-Add:-Addition on Arms Length Price u/sRs 12020160/-92CA(3):-Deemed income on a/c of ShortRs 1503613184/-Receipts declared in P/L Account:-Total assessed IncomeRs 1547244423/-Rounded OffRs 1547244420/- Assessed at income of Rs 1547244420/-. Credit of prepaidtaxes given. Demand notice and challan issued. Interestcharged as per the provisions of the I.T. Act 1961.Penaltyproceedings u/s 271(1)(e) of the I.T. Act have been initiatedseparately. (P. K. Sharma)Asstt. Commissioner of Income-taxCircle-3(1), New Delhi. Copy to the Assessee. Sd/- ACTT, Circle 3(1), New Delhi.” 4.It would be apparent from the above computation of the total income that no addition had been made with regard to the claim of foreignexchange loss. No addition had also been made in respect of data usagecharges. However, an addition with regard to the issue of Arm’s LengthPrice to the extent of Rs 1,20,20,160/- had been made. An addition hadalso been made on account of the deemed income on account of shortreceipts declared in the profit and loss account to the extent ofRs150,36,13,184/-. It is pertinent to note that the last item, that is, deemedincome on account of the short receipts declared in the profit and lossaccount had not even been mentioned in the purported reasons which hadbeen recorded. 5.The Tribunal observed that on going through the purported reasons,it was apparent that the Assessing Officer allegedly had reason to believethat income of Rs 1,33,09,489/- had escaped assessment and that thisincome comprised of two components, that is, Rs 11,82,857/- in respect of the claim of loss on account of foreign exchange fluctuation and an amountof Rs 1,21,26,632/- on account of claim of expenses under the head “datausage charges”.The Tribunal noted that in the assessment order, noaddition had been made on account of foreign exchange fluctuation loss.However, with regard to the data usage charges, 25% of the sameamounting to Rs 30,00,000/- had been initially disallowed, but the samehad been deleted by the Disputes Resolution Panel.The Tribunal,therefore, observed that it had been correctly contended on behalf of theassessee that no addition on the basis of the reasons recorded for reopeningthe completed assessment survived. 6.According to the learned counsel for the appellant, this observationof the Tribunal is erroneous inasmuch as the purported reasons also referredto the question of determination of the Arm’s Length Price which has beencompletely ignored by the Tribunal.Therefore, the Tribunal’s order,according to the learned counsel for the appellant, suffers from seriousinfirmity and the same deserves to be set aside and the question needs to beanswered in favour of the revenue and against the respondent / assessee.The learned counsel for the appellant had placed reliance on the decision ofthis court in the case ofRanbaxy Laboratories Limited v. Commissioner of 6.According to the learned counsel for the appellant, this observationof the Tribunal is erroneous inasmuch as the purported reasons also referredto the question of determination of the Arm’s Length Price which has beencompletely ignored by the Tribunal.Therefore, the Tribunal’s order,according to the learned counsel for the appellant, suffers from seriousinfirmity and the same deserves to be set aside and the question needs to beanswered in favour of the revenue and against the respondent / assessee.The learned counsel for the appellant had placed reliance on the decision ofthis court in the case ofRanbaxy Laboratories Limited v. Commissioner of Income-tax: 336 ITR 136 (Delhi). He submitted that the said decision hadbeen wrongly interpreted by the Tribunal. Referring to the said decision,the learned counsel for the appellant submitted that this court had observedthat once the Assessing Officer had reason to believe that incomechargeable to tax had escaped assessment and he proceeded to issue anotice under Section 148, it was not open to him to assess or re-assess theincome under an independent or unconnected issue, which was not the basisof the notice for re-opening the assessment. He submitted that these werenot the facts in the present case. It is not as if the issue of Arm’s LengthPrice was not mentioned in the reasons. It is only if the Arm’s Length Priceissue had not been mentioned in the purported reasons that the point raisedby the respondent / assessee seeking support from Ranbaxy LaboratoriesLimited (supra)could be accepted. The learned counsel appearing for therevenue reiterated that the Tribunal had completely ignored this aspect ofthe matter by not even mentioning that the reasons had specifically referredto the requirement for determination of the Arm’s Length Price.Thelearned counsel for the appellant also referred to Section 92CA of the saidAct and submitted that a reference to the Transfer Pricing Officer had beenmade by the Assessing Officer pursuant to the notice for reopening the assessment and after following the prescribed procedure, the TransferPricing Officer had determined the Arm’s Length Price on the basis ofwhich the addition to the extent of Rs 1,20,20,160/- had been made by theAssessing Officer.He submitted that the Tribunal ought not to havecancelled the entire addition on the ground that the re-assessmentproceedings themselves were without jurisdiction. 7.The learned counsel for the respondent / assessee submitted that ifthe purported reasons were to be examined, there were, in fact, only tworeasons. One, being the issue with regard to the claim of loss on account offoreign exchange fluctuation amounting to Rs 11,82,857/- and the otherwith regard to the claim of expenses under the head “data usage charges”amounting to 1,21,26,632/-, both of which amounted to Rs 1,33,09,489/-,which is the exact amount, which the Assessing Officer allegedly hadreason to believe, had escaped assessment for the assessment year 2006-07.This would be apparent from the purported reasons itself.The learnedcounsel for the respondent / assessee submitted that there was no formationof any belief or reason to believe that the Arm’s Length Price determinedby the respondent / assessee was incorrect in any manner. In fact, there isno mention ofany amount with regard to the extent of escapement of income on the part of a faulty determination of the Arm’s Length Price onthe part of the respondent / assessee.The learned counsel for therespondent / assessee drew our attention to Section 147 of the said Actwhich, to the extent relevant, reads as under:- income on the part of a faulty determination of the Arm’s Length Price onthe part of the respondent / assessee.The learned counsel for therespondent / assessee drew our attention to Section 147 of the said Actwhich, to the extent relevant, reads as under:- “147. Incomeescapingassessment.–Ifthe AssessingOfficer has reason to believe that any income chargeable to taxhas escaped assessment for any assessment year, he may,subject to the provisions of sections 148 to 153, assess orreassess such income and also any other income chargeable totax which has escaped assessment and which comes to hisnotice subsequently in the course of the proceedings under thissection, or recompute the loss or the depreciation allowance orany other allowance, as the case may be, for the assessmentyear concerned (hereafter in this section and in sections148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3)of section 143 or this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of the relevantassessment year, unless any income chargeable to tax hasescaped assessment for such assessment year by reason of thefailure on the part of the assessee to make a return under section139 or in response to a notice issued under sub-section (1)of section 142 or section 148 or to disclose fully and truly allmaterial facts necessary for his assessment, for that assessmentyear: Provided further that the Assessing Officer may assessor reassess such income, other than the income involvingmatters which are the subject matters of any appeal, referenceor revision, which is chargeable to tax and has escapedassessment. Explanation 1.—Production before the Assessing Officer ofaccount books or other evidence from which material evidencecould with due diligence have been discovered by the AssessingOfficer will not necessarily amount to disclosure within themeaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the followingshall also be deemed to be cases where income chargeable totax has escaped assessment, namely:— (a)where no return of income has been furnished bythe assessee although his total income or the totalincome of any other person in respect of which heis assessable under this Act during the previousyear exceeded the maximum amount which is notchargeable to income-tax;the assessee although his total income or the totalincome of any other person in respect of which heis assessable under this Act during the previousyear exceeded the maximum amount which is notchargeable to income-tax; (b)where a return of income has been furnished by theassessee but no assessment has been made and it isnoticed by the Assessing Officer that the assesseehasunderstatedtheincomeorhasclaimedexcessive loss, deduction, allowance or relief inthe return;assessee but no assessment has been made and it isnoticed by the Assessing Officer that the assesseehasunderstatedtheincomeorhasclaimedexcessive loss, deduction, allowance or relief inthe return; (c)where an assessment has been made, but— (i)income chargeable to tax has been underassessed; orassessed; or (ii)such income has been assessed at too low arate ; orrate ; or (iii)such income has been made the subject ofexcessive relief under this Act ; orexcessive relief under this Act ; or (iv)excessive loss or depreciation allowance orany other allowance under this Act has beencomputed.any other allowance under this Act has beencomputed. Explanation3.—Forthepurposeofassessmentorreassessment under this section, the Assessing Officer mayassess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his noticesubsequently in the course of the proceedings under thissection, notwithstanding that the reasons for such issue have notbeen included in the reasons recorded under sub-section (2)of section 148.” (ii)such income has been assessed at too low arate ; orrate ; or (iii)such income has been made the subject ofexcessive relief under this Act ; orexcessive relief under this Act ; or (iv)excessive loss or depreciation allowance orany other allowance under this Act has beencomputed.any other allowance under this Act has beencomputed. Explanation3.—Forthepurposeofassessmentorreassessment under this section, the Assessing Officer mayassess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his noticesubsequently in the course of the proceedings under thissection, notwithstanding that the reasons for such issue have notbeen included in the reasons recorded under sub-section (2)of section 148.” 8.Referring to the said provision, the learned counsel for therespondent / assessee submitted that the Assessing Officer must have reason to believe that any income chargeable to tax had escaped assessment before he can embark upon the assessment or re-assessment of such anincome. While doing so, he may also assess other income chargeable to taxwhich had escaped assessment, but which came to his notice subsequentlyin the course of the proceedings under Section 147. The learned counsellaid stress on the expression “and also” appearing in Section 147.Hesubmitted that unless and until there was an assessment of income whichwas indicated to have escaped assessment in the reasons, there could nothave been any assessment of any other income independently.Theassessment of any other income chargeable to tax could only be done inconjunction with the assessment of such income which had been indicatedto have escaped assessment in the reasons for invoking Section 147 of thesaid Act.The learned counsel placed reliance on the Supreme Courtdecision in the case ofCommissioner of Income-tax v. Kelvinator of India Limited: 320 ITR 561 (SC) to submit that unless and until there was sometangible material available with the Assessing Officer to indicate that therewas an escapement of income, assumption of jurisdiction under Section 147was not permissible. He also referred to the decision of this court in thecase of The Commissioner of Income-tax v. Orient Craft Limited[ITA No.555/2012 decided on 12.12.2012], which has followed the decision inKelvinator (supra).The learned counsel for the respondent / assesseesubmitted that while Kelvinator (supra) was a decision of reopening of anassessment which had earlier been completed under Section 143(3) of thesaid Act, Orient Craft (supra) was a case of reopening where there was anintimation under Section 143(1) and, in that decision, this court had heldthat the criteria laid down and the pre-conditions stipulated for invokingSection 147 were the same whether it was a case of reopening of anassessment under Section 143(3) or a case of intimation under Section143(1) of the said Act. 9.The learned counsel for the respondent also referred to the BombayHigh Court decision in the case ofCIT v. Jet Airways: 331 ITR 236 (Bom)for the proposition that the expression “and also” had a definite meaningand that in the absence of the assessment or re-assessment of the income 9.The learned counsel for the respondent also referred to the BombayHigh Court decision in the case ofCIT v. Jet Airways: 331 ITR 236 (Bom)for the proposition that the expression “and also” had a definite meaningand that in the absence of the assessment or re-assessment of the income indicated to have escaped assessment in the reasons, no other income couldbe assessed or re-assessed independently. The said decision in Jet Airways(supra) also examined the effect of the Explanation 3 to Section 147 whichwas introduced by the Finance (No.2) Act of 2009 with retrospective effectfrom 01.04.1989.He submitted that the Bombay High Court in JetAirways (supra) held that the effect of the said Explanation 3 was that oncethe Assessing Officer had formed the reason to believe that incomechargeable to tax had escaped assessment and had proceeded to issue noticeunder Section 148, it was open to him to assess or re-assess the income inrespect of any other issue, though the reason for such issue had not beenincluded in the reasons recorded under Section 148(2) of the said Act.However, this was subject to the rider that such other income could beassessed or re-assessed only if there was an assessment with regard to theincome which had allegedly escaped assessment and which was part of thereason to believe that income chargeable to tax had escaped assessment. 10.The learned counsel also referred to Ranbaxy Laboratories Limited(supra) and submitted that the decision of the Bombay High Court in JetAirways (supra) had been accepted by this court also as was apparent frompara 18 wherein this court observed that it was in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the caseof Jet Airways (supra). 11.We have considered the arguments at length.We agree with thelearned counsel for the respondent that insofar as the issue of the Arm’sLength Price is concerned, that was no reason at all. If we look once againat the purported reasons, we find that the Assessing Officer has onlymentioned that as per Form No.3CEB filed alongwith the return, theassessee, during the year, had international transactions with associatedenterprises and, therefore, determination of the Arm’s Length Price inrelation to the international transactions was also required. In our view, thisis no reason at all. The scheme of the Act for determination of the Arm’sLength Price is given in Chapter X. Section 92(1) specifically stipulatesthat any income arising from an international transaction is to be computedhaving regard to the Arm’s Length Price.Section 92C prescribes themethodology for computation of the Arm’s Length Price. Section 92C(1)stipulates that the Arm’s Length Price in relation to an internationaltransaction is to be determined by following any of the methods stipulatedtherein, whichever is the most appropriate method, having regard to thenature of transaction or class of transactions or class of associated persons or functions performed by such persons or such other relevant factors asmay be prescribed. One of the methods prescribed is the transactional netmargin method. Insofar as the present case is concerned, a look at FormNo.3CEB which was filed alongwith the return by the respondent / assesseewould indicate that the transactional net margin method had been followedas the most appropriate method. or functions performed by such persons or such other relevant factors asmay be prescribed. One of the methods prescribed is the transactional netmargin method. Insofar as the present case is concerned, a look at FormNo.3CEB which was filed alongwith the return by the respondent / assesseewould indicate that the transactional net margin method had been followedas the most appropriate method. 12.We may point out that Form No.3CEB is nothing but the report fromthe accountant to be furnished under Section 92E relating to internationaltransactions and the same form is prescribed under Rule 10E of the Income-tax Rules, 1962.The said form, as pointed out above, had been filedalongwith the return and, therefore, there was compliance on the part of therespondent / assessee with the provisions of Section 92E. Under the normalcircumstances, under a regular assessment, if the Assessing Officer, on thebasis of the material and information or document in his possession, was ofthe opinion that the price charged or paid in an international transaction hadnot been determined in accordance with sub-sections (1) and (2) of Section92C or any information and document relating to an internationaltransaction had not been kept and maintained by the assessee in accordancewith the provisions contained in Section 92D(1) and the Rules made in that behalf or the information or data used in computation of the Arm’s LengthPrice was not reliable or correct or the assessee had failed to furnish withinthe specified time any information or document which he was required tofurnish by a notice issued under Section 92D(3), the Assessing Officercould, then, proceed to determine the Arm’s Length Price in relation to thesaid international transaction in accordance with the provisions of sub-Sections (1) and (2) of Section 92C on the basis of such material orinformation or document available with him. This was, of course, subjectto the Assessing Officer giving the assessee an opportunity to show causeas to why the Arm’s Length Price should not be determined on the basis ofthe material or information or the document in the possession of theAssessing Officer. 13.It is, therefore, clear that even in the course of a regular assessment,the Assessing Officer would have to have some material, information ordocument in his possession on the basis of which he could come to any ofthe four opinions indicated above. In other words, the Assessing Officercould proceed to determine the Arm’s Length Price only if there was a faultfound with the determination of the Arm’s Length Price by the assessee. Ifthe Assessing Officer were to form such an opinion, then he could either determine the Arm’s Length Price himself or he could refer the matter forcomputation of the Arm’s Length Price to the Transfer Pricing Officerunder Section 92CA. 14.It is well settled that the Assessing Officer has power to reopen theassessment provided there is “tangible material” to come to the conclusion that income has escaped assessment. In the case of Kelvinator (supra), theSupreme Court considered the effect of amendments made to section 147 ofthe Act by Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws(Amendment) Act, 1989 and held as under:- determine the Arm’s Length Price himself or he could refer the matter forcomputation of the Arm’s Length Price to the Transfer Pricing Officerunder Section 92CA. 14.It is well settled that the Assessing Officer has power to reopen theassessment provided there is “tangible material” to come to the conclusion that income has escaped assessment. In the case of Kelvinator (supra), theSupreme Court considered the effect of amendments made to section 147 ofthe Act by Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws(Amendment) Act, 1989 and held as under:- “On going through the changes, quoted above, made to section147 of the Act, we find that, prior to the Direct Tax Laws(Amendment) Act, 1987, reopening could be done under theabove two conditions and fulfilment of the said conditions aloneconferred jurisdiction on the Assessing Officer to make a backassessment, but in section 147 of the Act (with effect from 1[st]April, 1989), they are given a go-by and only one condition hasremained, viz., that where the Assessing Officer has reason tobelieve that income has escaped assessment, confers jurisdictionto reopen the assessment. Therefore, post-1[st]April, 1989, powerto reopen is much wider.However, one needs to give aschematic interpretation to the words “reason to believe” failingwhich, we are afraid, section 147 would give arbitrary powers tothe Assessing Officer to reopen assessments on the basis of“mere change of opinion”, which cannot be per se reason toreopen.We must also keep in mind the conceptual differencebetween power to review and power to reassess. The AssessingOfficer has no power to review ; he has the power to reassess.But reassessment has to be based on fulfilment of certain pre- conditions and if the concept of “change of opinion” is removed,as contended on behalf of the Department, then, in the garb ofreopening the assessment, review would take place. One musttreat the concept of “change of opinion” as an in-built test tocheck abuse of power by the Assessing Officer. Hence, after 1[st]April, 1989, the Assessing Officer has power to reopen, providedthere is “tangible material” to come to the conclusion that there isescapement of income from assessment. Reasons must have alive link with the formation of the belief. Our view gets supportfrom the changes made to section 147 of the Act, as quotedhereinabove.Under the Direct Tax Laws (Amendment) Act,1987, Parliament not only deleted the words “reason to believe”but also inserted the word “opinion” in section 147 of the Act.However, on receipt of representations from the companiesagainst omission of the words “reason to believe”, Parliamentreintroduced the said expression and deleted the word “opinion”on the ground that it would vest arbitrarty powers in theAssessing Officer.” 15.In the present case, we find that there was no material whatsoeverbefore the Assessing Officer when the purported reasons were recorded toindicate that the Arm’s Length Price determined by the assessee was notcorrect. In fact, there is not even an allegation that the Arm’s Length Pricedetermined by the assessee was not correct. Therefore, we are in agreementwith the learned counsel for the respondent / assessee that the purportedreason of determination of the Arm’s Length Price, as given in the reasonsfor reopening the assessment, was not a reason at all. 16.In view of the above, there were only two purported reasons and theywere pertaining to (a) the claim of loss on account of foreign exchangefluctuation and; (b) the claim of expenses on account of data usage charges.Both these items have not resulted in any addition. 17.In the case of Jet Airways (supra), the Bombay High Court held asunder: 16.In view of the above, there were only two purported reasons and theywere pertaining to (a) the claim of loss on account of foreign exchangefluctuation and; (b) the claim of expenses on account of data usage charges.Both these items have not resulted in any addition. 17.In the case of Jet Airways (supra), the Bombay High Court held asunder: “….Interpreting the provision as it stands and withoutadding or deducting from the words used by Parliament, it isclear that upon the formation of a reason to believe undersection 147 and following the issuance of a notice undersection 148, the Assessing Officer has the power to assessor reassess the income which he has reason to believe hadescaped assessment, and also may other income chargeableto tax.The words ‘and also’ cannot be ignored.Theinterpretation which the court places on the provision shouldnot result in diluting the effect of these words or renderingany part of the language used by Parliament otiose.Parliament having used the words ‘assess or reassess suchincome and also any other income chargeable to tax whichhas escaped assessment’, the words ‘and also’ cannot beread as being in the alternative. On the contrary, the correctinterpretation would be to regard those words as beingconjunctive and cumulative. It is of some significance thatParliament has not used the word ‘or’. The Legislature didnot rest content by merely using the word ‘and’. The words‘and’ as well as ‘also’ have been used together and inconjunction.” xxxxxxxxxxxxxxxxxxxx “…..Evidently, therefore, what Parliament intends by use ofthe words ‘and also’ is that the Assessing Officer, upon the formation of a reason to believe under section 147 and theissuance of a notice under section 148(2) must assess orreassess : (i). ‘such income’ ; and also (ii) any other incomechargeable to tax which has escaped assessment and whichcomes to his notice subsequently in the course of theproceedings under the section.The word ‘such income’refer to the income chargeable to tax which has escapedassessment and in respect of which the Assessing Officerhas formed a reason to believe that it has escapedassessment. Hence, the language which has been used byParliament is indicative of the position that the assessmentor reassessment must be in respect of the income in respectof which he has formed a reason to believe that it hasescaped assessment and also in respect of any other incomewhich comes to his notice subsequently during the course ofthe proceedings as having escaped assessment.If theincome, the escapement of which was the basis of theformation of the reason to believe is not assessed orreassessed, it would not be open to the Assessing Officer toindependently assess only that income which comes to hisnotice subsequently in the course of the proceedings underthe section as having escaped assessment.If upon theissuance of a notice under section 148(2), the AssessingOfficer accepts the objections of the assessee and does notassess or reassess the income which was the basis of thenotice, it would not be open to him to assess income undersome other issue independently. Parliament when it enactedthe provisions of section 147 with effect from April 1, 1989clearly stipulated that the Assessing Officer has to assess orreassess the income which he had reason to believe hadescaped assessment and also any other income chargeable totax which came to his notice during the proceedings. In theabsence of the assessment or reassessment the former, hecannot independently assess the latter.” xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx “….. Section 147 has this effect that the Assessing Officerhas to assess or reassess the income (‘such income’) whichescaped assessment and which was the basis of theformation of belief and if he does so, he can also assess orreassess any other income which has escaped assessmentand which comes to his notice during the course of theproceedings.However, if after issuing a notice undersection 148, he accepted the contention of the assessee andholds that the income which he has initially formed a reasonto believe had escaped assessment, has as a matter of factnot escaped assessment, it is not open to him independentlyto assess some other income. If he intends to do so, a freshnotice under section 148 would be necessary, the legality ofwhich would be tested in the event of a challenge by theassessee.” 18.In the case of Ranbaxy Laboratories Limited (supra), the DivisionBench of this High Court has also expressed its complete agreement withthe above reasoning of the Bombay High Court. 19.We are in agreement with the contention of learned counsel for therespondent that, following the decisions in Jet Airways (supra) and Ranbaxy Laboratories Limited (supra) [which has confirmed Jet Airways(supra)], there could not have been an addition on account of Arm’s LengthPrice as the only two purported reasons regarding claim of loss on accountof foreign exchange fluctuations and the claim of expenses on account of“data usage charges” had not resulted in any addition. 20.Consequently, we find that, although the Tribunal had not adequatelydealt with the issue of Arm’s Length Price, which was raised by the parties,the conclusion arrived at by the Tribunal is correct. Therefore, the questionis answered in favour of the assessee and against the revenue. The appealis dismissed. There shall be no order as to costs. BADAR DURREZ AHMED, JVIBHU BAKHRU, JApril 17, 2013rk/dutt