HC stays fresh tax demand on Vodafone

The DRP, set up under the income tax act, had disallowed exemptions under various heads

The Delhi High Court on Friday instructed the income-tax (I-T) department not to give effect to any fresh assessment against Vodafone for assessment year 2011-12 till February 18, when the British telco’s plea against a dispute resolution panel's decision to disallow exemptions amounting to Rs 2,800 crore would be taken up.

The dispute resolution panel (DRP), an alternative dispute resolution mechanism formed under the Income Tax Act, had disallowed exemptions sought by Vodafone under various heads, including network site rentals, annual licence fee, unaccounted income, depreciation on 3G spectrum and transfer pricing adjustments on advertisements and marketing expenses.

THE CASE SO FAR

• March 2015: Income-tax assessment officer (AO) passes draft order disallowing Rs 2,800 crore exemptions for AY 2011-12 sought by Vodafone
• November 16: Dispute resolution panel strikes down the telecom major’s plea challenging the March order, sends it back to the AO
• December last week: Delhi High Court orders the AO not to give effect to his latest order till the next hearing on February 18

It had also referred the matter back to an assessing officer (AO), who in March 2015 had passed a draft assessment order, disallowing the exemptions sought by Vodafone.

A High Court bench of judges Badar Durrez Ahmed and Sanjeev Sachdeva had last week allowed the AO to pass the assessment order, but asked him not to give effect to it till the next date of hearing on February 18. I-T officials, however, said the high court’s direction was not a setback for the government. “One should not read too much into the development as it is more of a stay order. The final verdict is yet to come,” said a senior government official who did not wish to be named.

The court also issued a notice to the Centre, DRP and the I-T department and sought their replies on Vodafone's plea, which alleged the panel's November 16 order disallowing the exemptions was “illegal and arbitrary” and contrary to provisions of the I-T Act.

The draft order was challenged by the company before the DRP, which on November 16 disallowed the objections and remanded back the matter back to the AO, the petition filed by Vodafone said.

The telecom major has contended that the panel, while disallowing the objections, had said the proposed addition of Rs 2,800 crore should be made to its taxable income for assessment year 2011-12.

According to the company, the panel gave no reasons for dismissing the objections.“Huge additions have been proposed solely on a complete and prima-facie non-application of mind,” Vodafone said in its plea against the DRP order.