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Mumbai: HC quashes IT notices to Jet Airways’ general sales agent

Jet Airways’ relaunch is now on schedule as NCLT approved transfer of ownership to Jalan-Kalrock Consortium | Image: Wikipedia (Representative)

Mumbai: In a relief to Jetair Private Limited, sole General Sales Agent (GSA) for Jet Airways India Limited, the Bombay High Court quashed notices issued by Income Tax (IT) to reopen its assessment for the years 2013-14 to 2017-18. 

A division bench of Justices Dhiraj Thakur and Kamal Khata on Wednesday quashed the five notices issued by the IT department while hearing different petitions by Jetair. 

Jetair was the sole GSA for Jet Airways as also sales agent for various other airline companies for which it received commission on domestic and international ticket sales for passengers and cargo transport. 

The IT department had issued notices for reopening assessments on the basis that he has ‘reasons to believe’ that income chargeable to tax has escaped assessment within the meaning of section 147 of the Income Tax Act. 

According to the plea challenging the notice for AY 2013-14, it contended that it filed IT returns in Sept 2013, declaring income of over Rs6.29 crore. Jetair pointed out that the commission earned from Jet Airways was around Rs14.42 crore being 76.85% of the total commission earned in respect of passenger turnover. 

However, the Assessing Officer (AO), after scrutinising the papers, computed  the total income at Rs 7,25,65,530. Jetair challenged this before IT Commissioner (Appeals), which allowed the plea. However, the IT department issued fresh notices contending fresh material had surfaced against Jetair. 

PJ Pardiwala, Counsel for Jetair, contended that the main reason for the reassessment is that, as per survey findings, the range of commission received by Jetair in respect of passengers was 0.2% to 0.99% averaging to about 0.6%, while for other unrelated airlines it averages to around 2.5%. Consequently, a huge variation between the average rates for the related party and the unrelated party was discovered. 

Pardiwala submitted that merely on the basis that Jetair was charging less commission for rendering services from Jet Airways than from others cannot be a basis for a belief that income chargeable to tax has escaped assessment. Pardiwala submitted that only real income is chargeable to tax. The IT department had not alleged that Jetair had disclosed lesser income than what it actually earned. The allegation is that Jetair earned less income than what it ought to have earned. 

He further argued to reopen assessment, pre-requisite conditions must be met which includes that the AO must have reason to believe that income chargeable to tax has escaped assessment; and there must be failure on the part of the petitioner to disclose fully and truly any material facts necessary for assessment. 

Suresh Kumar, advocate for IT, opposed the plea saying considering  the size and financial standing, Jet Airways had considerable weight for fixing ORC rate to its own benefit thereby lowering the tax liability and to the benefit of the whole group thereby lowering the tax liability of the entire group, argued Kumar. 

Had Jet Airways paid higher rate of commission to Jetair, the total amount of commission that would have been received by the petitioner would be over Rs 166.27 crore. Under  the “garb of tax planning”, related parties had managed and arranged to pay lesser rate of commission to “suit finance/revenues of the group companies. This was a colourable device, with aim to evade tax”, argued Kumar. 

He submitted that this issue was not examined at the time of original assessment and therefore it would not amount to change of opinion. 

However, the court noted that the IT department did not satisfy the pre-requisite conditions and the AO failed to  specify the material facts that were not truly and fully disclosed by Jetair that was necessary for the assessment.

“Upon perusal of all the documents attached with the petition, it is clear that all documentary evidence including books of account as well as statements were submitted by the petitioner (Jetair) and therefore it is nothing but change of opinion which is not permissible under the Act,” noted the court. 

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