The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition against Jetair holding that the transfer pricing could not be applied as transaction neither international nor as a specified domestic transaction.
The Assessee Company, Jetair Private Limited was engaged in business as General Sales Agent for international and domestic airlines offering marketing, sales and accounting services. A survey under Section 133A of the Income Tax Act was conducted in the case of the assessee on 19/09/2018.
During the course of survey proceedings, statement of Vidyagauri Samant,General Manager (Finance) of the assessee company was recorded under Section 131 of the Income Tax Act in which she stated that, Jet Airways (India) Ltd had paid ORC commission to other entities at a higher rate than what was received to the assessee company, a group concern.
The AO in the show-cause notice to the assessee asked the assessee as to why charging less commission rate from group concern should not be added as compared to the commission paid from other entities. He noted that in respect of Online Reservation Commission for passengers 0.2% to 0.99% for the related party Jet Airways / Jet Air averaging about 0.6% while for other unrelated airlines it averaged to around 2.5%
The AO further deduced that, since both Jet Airways (India) Ltd. and Jetair Pvt. Ltd. were private parties in charge of lower rate of commission were indicative of a mechanism deliberately employed to lower the payment of commission without any ostensible reasons which was in violation of arm’s length principle.
Manan Mathuria, on behalf of the assessee submitted that the department had to appreciate the commercial expediency behind the transaction only real income could be taxed and there was no provision to notional income under the Income-tax Act.
He further submitted that the Department had to appreciate the commercial expediency behind the transaction and only real income could be taxed and there was no provision to notional income under the Income-tax Act.
Suresh D Gaikwad, appeared on behalf of the revenue.
The two-member Bench of Amit Shukla, (Judicial Member) and Gagan Goyal, (Accountant Member) dismissed the appeal filed by the revenue holding 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 held that the transaction was neither an international transaction nor a specified domestic transaction, and the transfer provisions would not apply.
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