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TMI Blog2013 (5) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... as given in the reasons for reopening the assessment, was not a reason at all. AO could proceed to determine the Arm’s Length Price only if there was a fault found with the determination of the Arm’s Length Price by the assessee. If the 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 for computation of the Arm’s Length Price to the Transfer Pricing Officer under Section 92CA. Thus in agreement with the contention of assessee that, following the decisions in Jet Airways (2010 (4) TMI 431 - HIGH COURT OF BOMBAY) and Ranbaxy Laboratories Limited (2011 (6) TMI 4 - DELHI HIGH COURT ) there could not have been an addition on account of Arm’s Length Price as the only two purported reasons regarding claim of loss on account of foreign exchange fluctuations and the claim of expenses on account of “data usage charges” had not resulted in any addition. In favour of assessee. - ITA 578/2012 - - - Dated:- 17-4-2013 - Badar Durrez Ahmed And Vibhu Bakhru,JJ. For the Appellant :Mr Rohit Madan, Advocate For the Respondent :Mr Salil Kapoor, Mr Vikas Jain, Mr Sanat Kapoor and Mr Ankit Gupta, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability which will arise only on the happening of an event, in this case, on the remittance of sums payable, should be allowed only at the time of remittance and not before on a notional basis. On this 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 claimed expenses of Rs.12126632/- in schedule 13 annexed with the return of income under the head Data Usage Charges. These expenses are incurred by the assessee for various research purposes, development projects, etc. Since all these expenses are providing enduring benefit to the assessee hence the same should be treated as of capital nature. As per the form No.3CEB filed along with the return the assessee during the year had international transactions with associated enterprises/ concerns. Hence determination of Arm s Length Price in relation to international transactions is also required. In view of the facts narrated above, I have reason to believe that income of Rs.13309489/- has escaped assessment for the assessment year 2006-07 and I am satisfied that it is a fit case for issue of notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of foreign exchange fluctuation and an amount of Rs 1,21,26,632/- on account of claim of expenses under the head data usage charges . The Tribunal noted that in the assessment order, no addition had been made on account of foreign exchange fluctuation loss. However, with regard to the data usage charges, 25% of the same amounting to Rs 30,00,000/- had been initially disallowed, but the same had been deleted by the Disputes Resolution Panel. The Tribunal, therefore, observed that it had been correctly contended on behalf of the assessee that no addition on the basis of the reasons recorded for reopening the completed assessment survived. 6. According to the learned counsel for the appellant, this observation of the Tribunal is erroneous inasmuch as the purported reasons also referred to the question of determination of the Arm s Length Price which has been completely ignored by the Tribunal. Therefore, the Tribunal s order, according to the learned counsel for the appellant, suffers from serious infirmity and the same deserves to be set aside and the question needs to be answered in favour of the revenue and against the respondent / assessee. The learned counsel for the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amount, which the Assessing Officer allegedly had reason to believe, had escaped assessment for the assessment year 2006-07. This would be apparent from the purported reasons itself. The learned counsel for the respondent / assessee submitted that there was no formation of any belief or reason to believe that the Arm s Length Price determined by the respondent / assessee was incorrect in any manner. In fact, there is no mention of any amount with regard to the extent of escapement of income on the part of a faulty determination of the Arm s Length Price on the part of the respondent / assessee. The learned counsel for the respondent / assessee drew our attention to Section 147 of the said Act which, to the extent relevant, reads as under:- 147. Income escaping assessment. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n computed. Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. 8. Referring to the said provision, the learned counsel for the respondent / 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 an income. While doing so, he may also assess other income chargeable to tax which had escaped assessment, but which came to his notice subsequently in the course of the proceedings under Section 147. The learned counsel laid stress on the expression and also appearing in Section 147. He submitted that unless and until there was an assessment of income which was indicated to have escaped assessment in the reasons, there could not have been any assessment of any other income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reason for such issue had not been included in the reasons recorded under Section 148(2) of the said Act. However, this was subject to the rider that such other income could be assessed or re-assessed only if there was an assessment with regard to the income which had allegedly escaped assessment and which was part of the reason 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 Jet Airways (supra) had been accepted by this court also as was apparent from para 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 case of Jet Airways (supra). 11. We have considered the arguments at length. We agree with the learned counsel for the respondent that insofar as the issue of the Arm s Length Price is concerned, that was no reason at all. If we look once again at the purported reasons, we find that the Assessing Officer has only mentioned that as per Form No.3CEB filed alongwith the return, the assessee, during the year, had international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to furnish by a notice issued under Section 92D(3), the Assessing Officer could, then, proceed to determine the Arm s Length Price in relation to the said international transaction in accordance with the provisions of sub- Sections (1) and (2) of Section 92C on the basis of such material or information or document available with him. This was, of course, subject to the Assessing Officer giving the assessee an opportunity to show cause as to why the Arm s Length Price should not be determined on the basis of the material or information or the document in the possession of the Assessing 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 or document in his possession on the basis of which he could come to any of the four opinions indicated above. In other words, the Assessing Officer could proceed to determine the Arm s Length Price only if there was a fault found with the determination of the Arm s Length Price by the assessee. If the Assessing Officer were to form such an opinion, then he could either determine the Arm s Length Price himself or he could refer the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrarty powers in the Assessing Officer. 15. In the present case, we find that there was no material whatsoever before the Assessing Officer when the purported reasons were recorded to indicate that the Arm s Length Price determined by the assessee was not correct. In fact, there is not even an allegation that the Arm s Length Price determined by the assessee was not correct. Therefore, we are in agreement with the learned counsel for the respondent / assessee that the purported reason of determination of the Arm s Length Price, as given in the reasons for reopening the assessment, was not a reason at all. 16. In view of the above, there were only two purported reasons and they were pertaining to (a) the claim of loss on account of foreign exchange fluctuation and; (b) the claim of expenses on account of data usage charges. Both these items have not resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment the former, he cannot independently assess the latter. xxxx xxxx xxxx xxxx xxxx .. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ( such income ) which escaped assessment and which was the basis of the formation of belief and if he does so, he can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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