InITA No.3050/Mum/2022 -ITAT- Jetair Pvt. Ltd's lower online reservation commission rates to sister concern deemedpurely business decision, ITAT (Mumbai) rejects addition of Rs. 141.69 crores
MembersAmit Shukla (Judicial) & Gagan Goyal (Accountant) [24-07-2023]

Read Order: DCIT-CC 5(2) Mumbai v. Jetair Private Limited

Chahat Varma

New Delhi, August 4, 2023: The Mumbai bench of the Income Tax Appellate Tribunal has provided a major relief to Jetair Private Limited (assessee), by upholding the decision of the Commissioner of Income Tax (Appeals) [CIT (A)] to delete the addition of Rs. 141.69 crores made by the Assessing Officer (AO).

The case revolved around the department's contention that assessee had charged a lower Online Reservation Commission (ORC) rate to its related party, Jet Airways India Ltd / Jet Air Pvt. Ltd. (ranging between 0.2% to 0.9%), compared to other unrelated entities (charged at 2.5%). The AO argued that the commission rate should have been the same for the group concern, and thus, calculated the average ORC and added Rs. 141.69 Crores to the income of the assessee. However, the CITA (A) analysed the case and held that the Comparable Uncontrolled Price (CUP) method was not the proper comparable analysis due to various factors and adjustments involved in making the comparison. The Commissioner ultimately deleted the addition.

The coram of Amit Shukla (Judicial) and Gagan Goyal (Accountant) noted that a similar issue had been decided by the Bombay High Court in Jetair Pvt. Ltd v. Deputy Commissioner of Income Tax and Ors [LQ/BomHC/2023/858], which ruled in favour of the petitioner, stating that charging lower commission rates to its sister concern/related party, Jet Airways India Limited, was a legitimate business decision. The bench agreed with the High Court's decision that it was not a colourable device or mechanism to evade taxes, especially considering that Jet Airways India Limited was a loss-making company.

Furthermore, the bench observed that the transaction between the assessee and Jet Airways India Ltd was neither an international transaction nor a specified domestic transaction, making transfer pricing provisions inapplicable. Therefore, the arm's length principle was not applicable in this case.

The bench also noted that the CIT (A) had thoroughly analysed each General Sales Agent agreement with various entities, including Jet Airways India Ltd, and found that despite the similarity in nature of services, other conditions such as territorial operations within India, provision of bank guarantee, and method of computing commission varied between airlines. The assessee received a significant volume of business from Jet Airways India Ltd compared to other airlines.

Consequently, the bench confirmed the decision of the CIT (A) to delete the addition made by the AO, and the grounds taken by the Revenue were dismissed.