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Tax Default by Kingfisher Airlines – Case Study Part I

Kingfisher Airlines (KFA) was the dream Airlines, India had seen. It started operations in 2005 and shut down its operations in 2012. During this period, the company suffered a total Net Loss of over Rs.6000 Crores. The company has borrowed over Rs.8000 Crores from various banks, led by State Bank of India (SBI)

Income Tax default–The Company has deducted tax (TDS) from employees and vendors (suppliers, contractors and professionals) but failed to remit the amount to the government account to the tune of over Rs.400 Crores.

What Income Tax department can do in case of non remittance TDS amount by the companies?

Interest – The TDS defaulter is liable to pay simple interest at 1.5% for every month from the date of deduction till the actual date of payment to the Government. In case of Kingfisher, the TDS dues are from 2010 and the company has to pay interest till the day they pay the amount to the Government. [Section 201(1A)]

Penalty – Penalty is equal to the amount of tax not paid to the Government. In case of Kingfisher, it is around 400 Crores, in addition to the TDS dues. [Section 271C]

Imprisonment – The person shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years, apart from fine!

Recovery of Tax – If the TDS defaulter fails to pay after serving the notice by the department, they can initiate the recovery of tax proceedings.

What income tax department did in case of KFA?

Stage One – Recovery Proceedings

Summary of Facts – As per the provision of Income Tax Act, the department with an intention to protect the interests of the government revenue, empowers the AO for provisional attachment of any property belonging to the defaulter. Based on this, all the assets (including Kingfisher House located at Western Express Highway near the Mumbai domestic airport) of Kingfisher Airlines are attached by the Income Tax department.

Flow of events – For those of you who are interested in knowing the brief flow of events which unfolded in this case, the facts are given below –

  • Income Tax department conducted a survey on the premises of the company and ascertained the total TDS done but failed to remit was to the tune of Rs.400 Crores
  • The Assessing Officer (read AO) passed an order in December, 2011 treating the company as an assessee in default, levied interest and raised a demand.
  • The company appealed against the Order of AO before the Commissioner (Appeals). The commissioner dismissed the appeal and confirmed the Order of AO
  • The company then appealed to Tribunal (read as ITAT) and the tribunal set aside the order of commissioner and remanded the matter back to the AO
  • But Income Tax department being aggrieved approached High Court for a stay on the ITAT remand order. High Court granted the stay on ITAT Order
  • In view of the stay order granted by the High Court, the AO issued demand notice to the Company.  Instead of paying the amount, the company approached the High Court challenging the demand notice issued by AO
  • The High Court issued an interim order asking the company to deposit 50% of the TDS dues.

So, what happened next? Please see tomorrow’s post.

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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]