IN HIGH COURT OF DELHI AT NEW DELHI Reserved on: 17.11.2016 Pronounced on: 03.07.2017 + ITA 240/2004 COMMISSIONER OF INCOME TAX ..... Appellant Through : Sh. Raghvendra Singh, Sr. Standing Counsel and Sh. Rahul Chaudhary, Advocate. versus M/S. MODILUFT LTD. ..... Respondent Through : Sh. Amar Dave and Sh. Abhinav Sharma, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE SANJEEV SACHDEVA MR. JUSTICE S. RAVINDRA BHAT % 1. question of law framed in this appeal under Section 260A of Income Tax Act, 1961 [hereafter Act ] is as follows: Whether Income Tax Appellate Tribunal was correct in law in setting aside order passed under Section 201(1) and 201(1A) of Income Tax Act, 1961. 2. assessee used to operate scheduled airlines; it closed down that business in 1996 due to which its staff, including pilots were laid-off. For AY 1997-98, assessee filed its return on 29.11.1997. Assessing Officer (AO) picked up case for scrutiny and completed assessment under Section 143(3) of Act. assessee filed Tax Deducted at Source (hereafter TDS ) returns under Section 206 of Act in Form 24 on ITA 240/2004 Page 1 of 11 26.03.1998, declaring TDS, and deposited ` 1,06,89,369/-. AO observed that Capt. J.H. Patel who was Executive Pilot for four months in 1996 (for period April-August 1996) had complained, that he was paid net salary of ` 7,72,500/- after TDS of ` 5,32,380/- and Provident Fund of ` 32,250/- but that no Form-16 was issued. AO stated that similar information was received from Ludhiana Special Range office of Income Tax authorities in relation to Capt. A.K. Vohra that though his gross salary was ` 15,28,058/- of which TDS was ` 6,15,980/-, yet Form-16 issued by company reflected gross income of ` 7,71,600/- and TDS of ` 2,75,640/-. AO also observed that complaint was received from Economic Intelligence Bureau of Department of Revenue, stating that larger sums were deducted towards TDS but entire amounts were not paid to authorities. To verify genuineness of complaints and information, AO scrutinized assessee s Form 24 and asked it to furnish relevant information. After seeking several dates towards accommodation, assessee, by letter dated 05.06.2000 stated that its relevant records were destroyed in fire and that it was unable to supply information. AO asked specific query with respect to variation in TDS amounts shown in salary slips issued by assessee to three individuals, i.e. Capt. A.K. Vohra, Capt. S.C. Mehta and Capt. J.H. Patel and actual TDS amounts deposited in respect of such individuals. 3. By its reply dated 21.08.2000, assessee informed revenue that salary was subject matter within domain of M/s. Lufthansa, and its Senior Vice President (Operations). It was also stated that salaries depended on individual contracts entered into between employer and officer ITA 240/2004 Page 2 of 11 concerned. assessee s position was that individual contracts were made available to revenue and that since they were authentic documents binding on both parties, they were adhered to by company. It was further stated that salaries were worked out on basis of agreements and that taxes were paid accordingly. It was further stated that TDS certificate in Form 16 in case of Capt. A.K. Vohra was received by him and even contained his signatures. This signified that he had no objection with regard to contents, i.e. amounts deducted and deposited. In absence of any complaint or letter from Capt. A.K. Vohra, claiming that TDS certificate for amounts more than what was paid to him were issued, revenue s stand could not be accepted. It was further stated that company had ceased its operation in middle of 1996 after which it did not have any records. 4. AO observed on basis of information furnished by three Executive Pilots and further information through pay slip furnished by Capt. B.S. Sandhu that larger or higher amounts were deducted from salaries given to such employees but lesser amount was deposited. On basis of analysis of materials furnished by such pilots, AO concluded that there was liability of tax to tune of ` 67,90,382/- in respect of 31 pilots. In addition to that amount determined as assessee s liability, AO calculated interest under Section 201(IA) of Act to extent of ` 60,66,265/-. aggregate of this demand formed basis of assessment. assessee unsuccessfully appealed to CIT. 5. assessee s appeal to ITAT was, however successful. ITAT concluded that adverse findings with respect to collection of higher amounts but deposit of much smaller amounts was not based upon any ITA 240/2004 Page 3 of 11 credible findings. It, therefore, set aside findings of AO and also CIT. ITAT reasoned inter alia as follows: 16. As per Section 206 of Act, assessee has to file return of TDS in Form No.24 indicating tax deducted at source and deposited to government. assessee company filed such return on 26.3.1998 indicating TDS of Rs.1,06,89,369/- and deposited same to government. Such TDS included TDS of Rs.57,65,092/- deducted from remuneration paid to 31 pilots. On basis of complaint by three pilots, AO concluded that actually assessee company has deducted tax at source at Rs.1,20,47,313/- from remuneration paid to 31 pilots. In other words, it was not case of revenue that assessee company has short deducted tax at source. case of revenue is that actually assessee has deducted tax at source at Rs.1,20,47,313/- from remuneration paid to 31 pilots but it has paid to government only Rs.57,65,092/-. This observation of AO has to be therefore, examined. As mentioned earlier, assessee company filed return of TDS in Form No.24 giving information of remuneration paid to 31 pilots and tax deducted at source as well as paid to Govt. as per law. AO had observed that complaints were received from three pilots to effect that they were paid higher remuneration and higher tax was deducted at source. In one case, pilot also furnished copy of pay slips allegedly issued by assessee company indicating higher remuneration and higher deducted at source. AO wanted to verify contents of such complaints. He issued summons to some pilots. In response to such summons, some pilots appeared/confirmed remuneration paid to them and tax deducted at source which confirmed to claim of assessee company. In none of cases any pilot converted stand of assessee company. AO has also referred to information received from one pilot Shri B.S. Sandhu. contents of complaint have been mentioned by AO on page 5 of his order. reading of complaint nowhere whispers that higher tax was deducted at source and he was issued TDS certificate of lesser amount. ITA 240/2004 Page 4 of 11 Actually, complaint was to effect that he has not been paid his outstanding dues and he has not been issued TDS certificate due to which he would not file his income tax return. However, this complaint has nothing to do with provisions of Section 201(1)/201(A) of Act. If outstanding dues have not been paid to him, revenue cannot help it. If TDS certificate was not issued to him, there was violation and different section of Act deals with such situation. But certainly this cannot be case of any occasion under Section 201 of Act. Thus, reliance on such information was misplaced. 17. Admittedly, assessee had employed 31 pilots. Three pilots complained against assessee. Some pilots corroborated statement of Assessee company directly before AO. Still AO held that assessee has deducted higher taxes from remuneration paid to all 31 pilots and failed to make payment of same to government. We fail to understand logic of lower authorities in this regard. Perhaps revenue s observations would have got some force if AO had held that assessee company has collected higher TDS from remuneration paid to three pilots but failed to pay same to government. But that is not case of revenue. 18. AO has held assessee in default of provisions of Section 201(1) of Act. This section is applicable where assessee has defaulted tax at source (in case before us) but failed to pay same to government as per law. But in order to attract provisions of Section 201(1) of Act, revenue has to prove conclusively that tax has been deducted at source which assessee company failed to pay to government. Except assertion of lower authorities on basis of complaint received from three pilots, there is nothing on record to suggest that higher tax has been deducted as source from remuneration paid to 31 pilots which assessee failed to pay to government. While holding assessee company in default of payment of TDS to government, AO did not think it proper to verify that pilots including ITA 240/2004 Page 5 of 11 these three pilots from whom complaint was received have filed their returns of income and what salary has been declared by them in their returns. These pilots filed their returns of income, they should have enclosed TDS certificate issued by assessee company. Whether such certificates depicted any higher remuneration and higher deduction of tax at source or not, we had made specific query in this regard as to whether in any of case of 31 pilots, higher tax was deducted at source than what was mentioned in TDS certificate issued by assessee company. revenue had admitted that no such information was available with them. As against this fact, we find that when TDS certificate in Form No.16 was issued to pilots including pilots from whom complaints have been received, same was received by them and their signatures were also obtained as token of having received their TDS certificates. In one of cases any pilots informed assessee company that higher tax was deducted from their remuneration and TDS certificate of lower was issued to them. We also find that AO has mentioned about certain pay slips and TDS certificate allegedly issued by assessee company to some pilots. But once assessee company has flatly denied issuance of such pay slips, there was no evidence with revenue to result such submissions. Thus, reliance on such alleged pay slips also cannot be placed. On basis of above facts, it is clear that revenue has failed to evidence its claim that assessee was in default of not paying tax deducted at source as per law . 6. revenue argues in its appeal as well as before this Court that ITAT misappreciated facts and evidence. versions of pilots, particularly Capt. Sandhu and Capt. A.K. Vohra were damaging for assessee and it was incumbent upon it to explain with full details what were amounts actually paid to its employees and pilots and what amounts were deducted. Its failure to provide any primary material in this regard showed that it did not discharge onus of proving that entire amounts deducted ITA 240/2004 Page 6 of 11 from employees salaries were in fact deposited. Once this pattern of behavior was corroborated in respect of at least three pilots, Revenue and AO acted within their rights in concluding that all pilots numbering 31 had also received same treatment. Therefore, AO correctly deduced that amount in excess of ` 67 lakhs was unlawfully retained. In circumstances, interest was also leviable. It was also submitted that assessee s contention with respect to absence of records was pretext and afterthought which was unverifiable and not substantiated in any objective manner. On other hand, there was credible material for AO to infer that variation of 208% between tax shown in Form 24 and amount actually deducted by company existed. 7. Learned counsel for assessee submits that ITAT s reasoning is justified. As matter of fact, ITAT drew correct conclusion from complaint of Capt. Sandhu by holding that his grouse was in respect of non- payment of salary rather than withholding amounts that were not paid by assessee to income tax department. Furthermore, assessee had never admitted that pay slips relied upon by those individuals who complained to Revenue were genuine. It was argued on behalf of assessee that consistent stand in all proceedings was that there was no discrepancy between written agreements entered into by parties and amounts paid actually. If written agreements of all concerned pilots were verified and tallied with Form 24 furnished, there would have been no difficulty. Equally, it was pointed out that none of complainants or other pilots answered summons issued under Section 131 of Act, much less supported allegations against assessee. Again, no attempt ITA 240/2004 Page 7 of 11 was made by Revenue to get hold of records relating to returns filed by appellants and cross-check them with TDS returns filed, especially, by comparing Form 24. In these circumstances, findings of CIT were not based upon any credible material but rather based upon conjectures in absence of any concrete findings. 8. heart of allegations leveled by assessee against Revenue in this case is that ` 2,01,89,369/- deposited as TDS was not entire amount but that further amounts had in fact been deducted from salaries of no less than 31 pilots and unlawfully detained by it. direction of enquiry was triggered by complaints made by three individual pilots and later by one Capt. Sandhu during course of proceedings. AO as well as CIT primarily went by documents provided by three complainants, i.e. Capt. J.H. Patel, Capt. A.K. Vohra and Capt. S.C. Mehta. AO s order discusses relevant details in respect of Capt. A.K. Vohra alone. During course of AO s proceedings, entire enquiry was extended to include allegations leveled by one Capt. Sandhu. Basing itself upon conclusions and analysis arising out of amounts mentioned by complainants, AO found that over ` 67 lakhs was payable as balance TDS that should have been deposited and further sum in excess of ` 60 lakhs was due as interest. 9. careful reading of AO s order would show that whilst initial part deals with allegations of one Capt. J.H. Patel, only basis for concluding that higher amounts were deducted from salaries is premised upon allegations leveled by Capt. A.K. Vohra. Capt. Vohra claimed that he had worked for eight months in 1996 and that his gross salary was ` ITA 240/2004 Page 8 of 11 15,28,085/- out of which amount deducted from his salary was ` 6,15,980/- but that Form 16 issued showed that his gross salary was much lesser and TDS too was ` 2,75,640/-. assessee company s stand was that pilots were paid according to their individual contracts, copies of which were made available to Revenue. assessee also highlighted that each of pilots had signed on Form 16 which signified actual amount paid and at no stage did they say that larger amounts were deducted or that lesser amounts of salary was reflected but higher amounts were paid. In other words, at time of receiving salaries and signing on documents which reflected TDS, alleged complainants never stated that documents reflected any incorrect picture. In case of Capt. B.S. Sandhu, ITAT noticed that 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 Revenue. As against this, significantly, in reply to summons issued to all pilots, under Section 131 of Act, there was no response. Furthermore, there was no attempt on part of Revenue to reconcile records as it were and verify whether in individual tax returns filed by pilots, larger amounts were reflected. This failure, in opinion of Court, cannot result in penalizing assessee. 10. ITAT s reasoning that Revenue s findings were essentially based upon conjectures and complaints rather than evidence or material is reasonable and sound. AO s order is primarily premised upon complaints of Capt. J.H. Patel and Capt. A.K. Vohra and later letter received from Capt. Sandhu. In their cases too, attempt to reconcile ITA 240/2004 Page 9 of 11 between amounts declared by them in tax returns and amounts shown in returns and TDS returns of assessee, was never made. These individuals too did not make their submissions or answer any reply to summons issued under Section 131 of Act. entire tenor of AO s order is accusatory and prosecutorial in requiring assessee to discharge almost presumption that it had not paid amounts. AO first had to establish foundational fact that in respect of each of 31 pilots, amounts actually paid or deposited were less than amounts deducted from salary. Such determination had to be preceded by procedure known to law, i.e. in form of show cause notice outlining exact amounts and basis for such amounts. Instead AO merely acted upon basis of some complaints and refused to look into all material factors. There is no discussion for instance, as to contractual amount in agreement signed by each pilot and assessee; AO has ignored important fact that no pilot joined proceeding and answered summons under Section 131 and most importantly, to reject Form 24 furnished by assessee, mere complaints were insufficient. If assessee s explanation about lack of records due to fire seemed suspicious, nevertheless, AO was under duty to cross-check and reconcile returns filed by individual pilots from concerned Wards and Circles before rendering its findings. If there were facts that corroborating allegations that larger amounts were deducted but only part thereof was in fact deposited with Revenue, then and then alone would findings be justified. However, that was not so in circumstances of case. ITA 240/2004 Page 10 of 11 11. For foregoing reasons, this Court is of opinion that there is no infirmity with findings in impugned order of ITAT. question of law is answered in favor of assessee and against revenue. appeal accordingly fails and is dismissed. S. RAVINDRA BHAT (JUDGE) SANJEEV SACHDEVA (JUDGE) JULY03, 2017 ITA 240/2004 Page 11 of 11 Commissioner of Income-tax v. Modiluft Ltd