IndiGo’s parent InterGlobe Aviation gets ₹1,666 cr tax demand notice

Shares of InterGlobe Aviation, the parent company of IndiGo airline, opened lower on November 23 as the Commissioner of Income Tax (CIT) Appeals has passed orders confirming tax demands totalling around ₹1,666 crore.

IndiGo shares open lower today at ₹2598.95 after tax notice. Pairing opening losses, the share price of IndiGo was trading at ₹2605.95, 0.15% at the time of reporting.

The CIT-Appeal passed orders to demand ₹739.68 crore and ₹927.03 crore tax demand for the assessment years 2016–17 and 2017–18, respectively.

"The CIT-Appeal has now passed the respective orders, wherein the revision to the taxable income on account of 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," InterGlobe Aviation said.

The company will contest the same and will take appropriate legal remedies, InterGlobe added.

As per the filing, the revised taxable income on account of tax treatment of the incentives that the company received from the manufacturers  with the acquisition of the aircraft and engine disallowance of certain expenses has been confirmed without getting an opportunity of personal hearing and adjudication of the matters on merit.

JM Financial in a recent note had expected IndiGo to report an improvement in Q3 profitability given revival in fares due to seasonally strong quarter, compensation of higher ATF prices.

The March quarter might be impacted from incremental aircraft grounding and increased lease cost due to higher demand in the second-hand market for 12 new aircraft, it said.

"3Q profitability is expected to improve given a) revival of PAX yields from November onwards b) Positive rub-off of higher ATF prices in terms of distance based ‘fuel charge’ charged from customers. Higher scale of operations in festive 3Q is likely to be partially offset by (a) higher ATF prices (b) P&W related aircraft groundings. Stock fairly priced at 8.3x EV/EBITDA FY25E," it said this month.

Moreover, InterGlobe Aviation said it believes, based on legal advice from counsel, that the views taken by authority are not sustainable.

Post Q2 results, Emkay Global, cut its FY24 earnings per share estimate for InterGlobe Aviation by 6 per cent, on higher forex loss. It, however, remained constructive on IndiGo, given its strong ASK guidance, dominant position and robust order book, with some relief on fuel rates.