Income Tax Commissioner confirms tax demand of Rs 1,666 cr on IndiGo

IndiGo, a low-cost carrier, plans to challenge this order, which seeks a recovery of Rs 740 crore for assessment year (AY) 2016-17 and Rs 927 crore for AY 2017-18.

The airline claims it was denied a chance for a personal hearing by the commissioner.

The matter was not adjudicated on merit, the airline said in its statement.

"The CIT-Appeal has now passed the respective orders, wherein the revision to the taxable income on account of the tax treatment of certain incentives received by the Company from manufacturers with the acquisition of the aircraft and engine and disallowance of certain expenses has been confirmed without granting an opportunity of personal hearing and adjudicating the matter on merits," the airline said.

This is the second instance where the Commissioner of Income Tax-Appeals has affirmed a tax demand on IndiGo, as a similar ruling was issued in 2015.

In the earlier case, the Commissioner of Income Tax (Appeals), acting as a quasi-judicial appellate authority, had directed the Central Board of Direct Taxes to consider looking at the discounts received by Indian airlines on aircraft purchases as commission for the purpose of calculating their taxable income.

Following this interpretation, the CIT had issued notices to InterGlobe Aviation in 2015, questioning why the taxable income of the operator of Indigo Airlines should not be augmented by over Rs 400 crore for the assessment years 2008-11 to incorporate the received discounts.

InterGlobe claimed discounts as capital receipts, seeking income tax exemption. However, the Commissioner rejected this, issuing enhancement notices.

Recent orders by the Commissioner of Income Tax-Appeals confirmed revisions to taxable income due to the treatment of incentives from aircraft manufacturers and expense disallowance.

The airline, without a chance for a personal hearing, contests the sustainability of the authority's views based on legal advice.

It maintains that discounts were sought after bulk aircraft purchases, a common industry practice to obtain capital and benefit from manufacturer discounts.

The Commissioner of Income Tax contends that the discount is essentially a commission earned for facilitating a large-scale transaction between aircraft and engine manufacturers and the lessors.

The Commissioner, further, asserts that the lessee (airline) is ineligible to seek depreciation on these assets.