Bombay High Court Quashes Reassessment Proceedings Against Jetair

Bombay High Court Quashes Reassessment Proceedings Against Jetair

The Bombay High Court by its division member bench comprising of Justices Kamal Khata and Dhiraj Singh Thakur quashed reassessment proceedings against Jetair Pvt Ltd, a group entity of Jet Airways (India) Ltd, while holding that the reassessment proceedings were nothing but a case of ‘change of opinion,’ which did not comply with the jurisdictional foundation under Section 147 of the Income Tax Act, 1961 (the Act).

The petition filed by the Jetair Private Limited challenged the notice dated 11th March 2021 issued under Section 148 of the Act by Respondent No. 1- Deputy Commissioner of Income-tax, seeking to reopen the assessment for the Assessment Year (A.Y.) 2013-14 on the basis that he had ‘reasons to believe’ that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act; and the order dated 25th January 2022 passed by the respondent no.1 rejecting the objections inter alia on the grounds that they were ex facie illegal and contrary to the provisions of the Act.

The petitioner is the sole General Sales Agent (GSA) for Jet Airways India Limited (Jet Airways) as also sales agent for various other airline companies for which the petitioner receives commission on domestic and international ticket sales for passengers and cargo transport.

The petitioner filed its return of income for Assessment Year (AY) 2013-14 on 28th September 2013, declaring total income at Rs. 6,29,93,470/-. The commission charged by the petitioner from Jet Airways was duly reported as a related party transaction in its audited statement. The commission earned from Jet Airways was Rs. 14,42,13,012/- being 76.85 per cent of the total commission earned in respect of passenger turnover.

On 1st September 2014, the petitioner received a notice under Section 143(2) of the Act for scrutiny assessment. During assessment proceedings, on 21st April 2015 detailed questionnaires were issued by the AO. Those were responded through various letters starting from 29th April 2015 to 28th December 2015. After due consideration the AO passed order dated 28th January 2016 under Section 143(3) of the Act and computed the total income at Rs. 7,25,65,530/-. The AO made a Rs. 7,25,65,530/- disallowance with respect to interest expense on the ground that the petitioner had given interest free loan and advances to subsidiaries and other companies.

Aggrieved by the order dated 28th January 2016, an appeal was filed before the Commissioner of Income-tax (Appeals) (CIT(A)) which deleted the disallowance whilst allowing the appeal by its order dated 12th September 2016.

On 11th March 2021 the respondent no. 1 issued the impugned notice under Section 148 of the Act on the ground that he had reason to believe that income chargeable to tax for AY 2013-14 had escaped assessment.

Mr. Pardiwalla, learned senior counsel for the petitioner submitted that pre-requisite conditions of assuming jurisdiction under Section148 of the Act were not satisfied in as much as the conditions for assuming jurisdiction under Section 147 of the Act were not fulfilled.

He submitted that the main reason for the reassessment was that, as per survey findings, the range of commission received by the petitioner 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%. He submitted that merely on the basis that the petitioner is charging less commission for rendering services as sales agent from Jet Airways (related party) than from others cannot be a basis for a belief that income chargeable to tax has escaped assessment.

Per Contra, Mr. Kumar, learned counsel for the respondent submitted that Jet Airways (India) Limited and Jetair Private Limited are related parties under the Act. The lower rates charged by the petitioner were indicative of a mechanism deliberately employed to lower the payment of commission to Jetair Private Limited coupled with the fact that Jet Airways is a loss-making enterprise and its liability to pay tax may not get affected as much as payment of Online Registration Commission (ORC) to Jetair at lower rate would affect the revenues, and consequently the tax liability of the petitioner which is a profit-making company.

The bench found merit in the contentions of learned senior counsel Mr. Pardiwalla.

The Court observed, “the pre-requisite conditions of assuming jurisdiction under Section 148 of the Act are not satisfied in as much as the AO has failed to specify the material facts that were not truly and fully disclosed by the petitioner that was necessary for the assessment.”

The Court upon perusal of all the documents attached with the petition, found that it was clear that all documentary evidence including books of account as well as statements were submitted by the petitioner and therefore it was nothing but change of opinion which was not permissible under the Act.

The Court was of the view that the petitioner was right in charging lower commission rates to its sister concern / related party jet airways India Limited on account of it being a sole selling agent as well as client giving more than 98% of its total turnover.

The bench opined, “it is business call / decision for a party and is certainly not colourable device / mechanism as contended by the respondents. In fact, if the sister concern / related party namely Jet Airways India Limited which is loss making company were to pay the same rates as paid by other clients of the assessee then such transaction in normal business parlance would have been colourable device or mechanism to increase the expenses of the sister concern, the fact that Jet India Private Limited is a loss-making company is not a valid criterion to determine escapement of income.”

Since the transaction was neither an international transaction nor a specified domestic transaction, the transfer provisions shall not apply, stated the Court.

The Court thus allowed the petition, set aside the Section 148 notice and stayed all the reassessment proceedings initiated against the petitioner, Jetair.