2017 (7) TMI 145 - HC - Income Tax

Order passed under Section 201(1) and 201(1A) - assessee in default - variation in TDS amounts shown in the salary slips issued by the assessee to three Capt. A.K. Vohra, Capt. S.C. Mehta and Capt. J.H. Patel and the actual TDS amounts deposited in respect of such individuals - Held that - As at the time of receiving the salaries and signing on the documents which reflected the TDS, the alleged complainants never stated that the documents reflected any incorrect picture. In the case of Capt. B.S. Sandhu, the ITAT noticed that the tenor of his letter and his grievance was that he was not paid salary for substantial periods, rather than complaining that amounts lesser than what was deducted were in fact deposited with the Revenue. As against this, significantly, in reply to the summons issued to all pilots, under Section 131 of the Act, there was no response. Furthermore, there was no attempt on the part of the Revenue to reconcile the records as it were and verify whether in the individual tax returns filed by the pilots, larger amounts were reflected. This failure, in the opinion of the Court, cannot result in penalizing the assessee. ITAT s reasoning that the Revenue s findings were essentially based upon conjectures and complaints rather than evidence or material is reasonable and sound. There is no discussion for instance, as to the contractual amount in the agreement signed by each pilot and the assessee; the AO has ignored the important fact that no pilot joined the proceeding and answered summons under Section 131 and most importantly, to reject the Form 24 furnished by the assessee, mere complaints were insufficient. If the assessee s explanation about lack of records due to fire seemed suspicious, nevertheless, the AO was under a duty to cross-check and reconcile the returns filed by the individual pilots from the concerned Wards and Circles before rendering its findings. Decided in favor of the assessee

Issues Involved:
1. Whether the Income Tax Appellate Tribunal (ITAT) was correct in law in setting aside the order passed under Section 201(1) and 201(1A) of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Assessee's Operations:
The assessee, which operated scheduled airlines, ceased its business in 1996, leading to the layoff of its staff, including pilots. For the Assessment Year (AY) 1997-98, the assessee filed its return on 29.11.1997 and submitted TDS returns under Section 206 of the Act in Form 24 on 26.03.1998, declaring TDS and depositing ?1,06,89,369/-. Complaints were received from pilots regarding discrepancies in their TDS amounts and Form-16 issuance.

2. Assessing Officer's (AO) Observations and Actions:
The AO observed discrepancies in the TDS amounts shown in salary slips and the actual TDS deposited for pilots Capt. J.H. Patel and Capt. A.K. Vohra. The AO scrutinized the assessee’s Form 24 and asked for relevant information, which the assessee claimed was destroyed in a fire. The AO concluded that there was a liability of ?67,90,382/- in respect of 31 pilots and calculated interest under Section 201(1A) of ?60,66,265/-, forming the basis of the assessment.

3. Assessee's Response and ITAT's Findings:
The assessee argued that salaries were subject to individual contracts and that TDS certificates issued were accurate. The ITAT found that the AO's adverse findings were not based on credible evidence. The ITAT noted that the AO's conclusions were based on complaints from a few pilots and not corroborated by substantial evidence. The ITAT emphasized that there was no proof that higher TDS amounts were deducted but not deposited.

4. Revenue's Arguments:
The Revenue argued that the ITAT misappreciated the facts and evidence, and that the versions of the pilots, particularly Capt. Sandhu and Capt. A.K. Vohra, were damaging for the assessee. The Revenue contended that the assessee failed to provide primary material to prove that the entire amounts deducted were deposited, and that the AO correctly deduced that an amount in excess of ?67 lakhs was unlawfully retained.

5. Assessee's Defense:
The assessee maintained that the ITAT's reasoning was justified and that the complaints were about non-payment of salary rather than TDS discrepancies. The assessee argued that there was no discrepancy between the written agreements and the amounts paid. The pilots did not respond to summons, and the Revenue did not attempt to reconcile the records with the individual tax returns filed by the pilots.

6. Court's Analysis and Conclusion:
The Court found that the AO's order was primarily based on complaints from a few pilots and lacked substantial evidence. The AO failed to reconcile the records and verify the amounts declared by the pilots in their tax returns. The Court held that the ITAT's reasoning was reasonable and sound, and that the AO's findings were based on conjectures rather than credible material. The AO was under a duty to cross-check and reconcile the returns filed by the individual pilots before rendering its findings.

7. Final Judgment:
The Court concluded that there was no infirmity in the ITAT's findings. The question of law was answered in favor of the assessee and against the revenue. The appeal was dismissed.

← Previous Next →