TaxTMI 
TaxTMI 
2023 (3) TMI 484
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....he order dated 25th January 2022 passed by the respondent no.1 rejecting the objections inter alia on the grounds that they are ex facie illegal and contrary to the provisions of the Act. 2. Whilst the present petition pertains to Assessment Year (AY) 2013-14, writ petitions (W.P) No 1996 of 2022 pertain to AY 2014-15, W.P No. 1901 of 2022 pertains to AY 2015-16, W.P No. 2828 of 2022 pertains to AY 2016-17 and W.P No. 2393 of 2022 pertains to AY 2017-18. Since the issue in these writ petitions as also the facts are identical save and except the year of assessment, we are disposing them by a common order. For brevity we advert to the facts in the W.P 1996 of 2022. FACTS: 3. The petitioner was 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. 4. The petitioner filed its return of income for 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....
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....icket sales passenger and Cargo for Jet Airways India Limited. Thus, Jetair Pvt. Limited works as a GSA and earns commission which ranges from 0.60% to 5% on passenger and 2.5% on cargo sales. The GSA receives a commission on all tickets and airways bill flown from the region that it represents. All cost related to GSA's business are the responsibility of GSA including rent, staff cost, office expenses etc. Airline also use GSA since GSA has historical ties with travel and cargo agents which will be time consuming for the Airline to build. The company Jetair Pvt. Limited has agreement with various other airlines companies other than Jet Airways India Limited. The list of all the companies with whom ORC (Online Registration Commission) agreement is executed along with the commission rate is given as follows AY 2012-13 to 2017-18. 2(iii) JETAIR AND ITS ONLINE RESERVATION COMMISSION (ORC) The rates at which ORC was received by Jetair from several airlines for FY 2012-13 has been tabulated as under: Airline Pax/cgo F.Y. 12- 13 Jet Airways/Jetlite Cargo 2.37 Jet Airways PAX 0.20 Kenya Airways Cargo 3.00 PAX 3.00 Royal Jordanian Ca....
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....p to 1% of basic ticket fare. Further, during FY 2011-12 and 2012-13. M/s. Jetair Pvt. Ltd. agreed to limit commission earning from Jet Airways to assist the Jet Airways (annexure-3 (page 1 to 3) - letters). Therefore, there was further drop in commission earned from Jet Airways during FY 2011- 12 and 2012-13. Q.16. As per answer given by you above, M/s. Jetair Pvt. Ltd. commission from M/s. Jet Airways Ltd. at lower rate in comparison to rate at which it charges commission from non-related entities. This rate was further lowered during FY 2011-12 and 2012-13. This has reduced taxable profit of M/s. Jetair Ltd. Please comment. Also give rate at which commission was charged from top 5 airlines including Jet Airways during FY 2011-12 to 2016-17. 1) All airlines' contracts are individually negotiated, and terms/remuneration vary per Airline. 2) You will notice that some of the airlines have fixed fee (cost plus agreements), if we work out % of fee to sales generated by us, it is less than 3%. Please note services offered in all airlines are similar, however few airlines instead of giving lesser commission, negotiate on changed model of cost plus thereby in actually reducing o....
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.... by Jetair 30,40,38,007 3. Jet Airways PAX Turnover 78,29,29,33,117 4. % of Commission calculated by the 0.20% 5. Amount as calculated by the assessee 14,45,85,866 6. % of commission @ 2.50% of Jet Airways PAX Turnover as per Survey findings 1.80,73,23,327 7. Difference (6-5) 1,66,27,37,461 2(ix) The estimates of amount which would have been paid by Jet Airways (India) Ltd to Jet Air Pvt. Ltd. during the FY 2012-13 had Jet Airways (India) Ltd paid ORC to Jet Air Ltd at the rate of 2.5% which is approximately the average at which ORC has been paid to other airlines has been arrived as tabulated above at Rs.1,66,27,37,461/- 2(x) Therefore, this is a mechanism and a colourable device to reduce the profits and consequently the tax liability of Jet Air Pvt Ltd. The amount of commission which ought to have been received by Jet Air Pvt had such commission paid at a percentage on which they have been paid to third parties, the total amount of commission that would have been received by Jet Air Pvt. Ltd. comes to Rs.1,66,27,37,461/-. This amount represents the receipts which ought to have been received by Jet Air Pvt. Ltd. from Jet Airways India Ltd. in the ....
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.... meaning of the foregoing proviso. 2(xiv) In view of the above, the provisions of clause (c) of Explanation [2] to Section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be a case where income of Rs.1,66,27,37,461/- chargeable to tax has escaped assessment on account of failure on the part of the assessee to disclose truly and fully material facts necessary for its assessment. Hence, it is a fit case for issue of notice u/s. 148 of the Act. Accordingly, the assessment for A.Y. 2013-14 is to be re-opened u/s. 147 of the I. Tax Act 1961 by way of issuance of notice u/s. 148 of the I. Tax Act, 1961." 7. On 4th January 2022 the petitioner filed its objections challenging the validity of the reassessment proceedings. Thereafter on 25th January 2022 the respondent no. 1 rejected the objections. Aggrieved, the petitioner filed the present petition. 8. Mr. Pardiwalla, learned senior counsel for the petitioner submitted that pre-requisite conditions of assuming jurisdiction u/s. 148 of the Act are not satisfied in as much as the following conditions for assuming jurisdiction u/s 147 of the Act are not fulfilled: a. The Assessing....
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....osed lesser income than what was actually earned by the petitioner. The allegation is that the petitioner has earned less income than what the petitioner ought to have earned. It is submitted that even if it is suggested that the petitioner ought to have earned more income than what the petitioner has actually earned, no income can be said to have escaped assessment so as to justify the impugned notice as there are no provisions in the Act for taxing such alleged income. He submitted that notional income can be assessed to tax only when the case of an assessee falls under the provision which provides for taxing deemed income in the hands of an assessee such as u/s 50C of the Act transfer pricing provision. It is submitted that transfer pricing provision prescribes for deeming income in the hands of an assessee when an assessee has entered into an international transaction, or a specified domestic transaction and such transactions are not at arm's length price which the present transaction does not attract. He submitted that there is no other provision which requires the petitioner to determine the income of the petitioner on the basis of arm's length price. He submitted that the ag....
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....y of Jetair Private Limited. He submitted that this arrangement of charging lower rates has reduced the tax burden of the petitioner which is related party. Learned counsel submitted that based on the information gathered during the survey and post survey and upon careful perusal and examination of the agreements with 'related' and 'unrelated' parties and after having considered the statements of various senior management executives and also study of the comparative chart of ORC have with various airlines, it was concluded that such variation in ORC rates between related and unrelated entities have ostensible reasons that would tantamount to violation of arms' length principles. He submitted that the petitioner was regularly and consistently being underpaid by its sister concern Jet Airways thereby resulting in lesser revenues and leading to its lower profits and thereby resulting into lower tax liability. It was accordingly concluded that there was no reasonable justification, and it appears to be a device for evasion of taxes in complete deviation of the arm's length principle. He submits that had Jet Airways India Limited paid higher rate of commission to the petitioner, the to....
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.... the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment." In our view, there was no failure to disclose any material fact necessary for the assessment by the petitioners. 18. With regard to "AO's duty to mention" the following passage from the case of Ananta Landmark (P.) Ltd. vs. Deputy Commissioner of Income-tax, Central Circle 5(3), Mumbai [2021] 131 taxmann.com 52 (Bombay) is relevant: "... the Assessing Officer has to mention what was the tangible material to come to the conclusion that there is an escapement of income from assessment and that there has been a failure to fully and truly disclose material fact. After a period of four years even if the Assessing Officer has some tangible material to come to the conclusion that there is an escapement of income from assessment, he cannot exercise the power to reopen unless he discloses what was the material fa....
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....o new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stands till today. What the Assessing Office has said about the order of the Commissioner of Income-tax (Appeals) while recording reasons under Section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the Assessing Officer to initiate proceedings under Section 147 of the Act. It is also equally well settled that if a notice under Section 148 has been issued without the jurisdictional foundation under Section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of this court. If "reason to believe" be available, the writ court will not exercise its power of judicial review to go into the sufficiency or adequacy of the mat....