Vodafone tax case: HC allows penalty proceedings to go on

However, it asks I-T Dept not to give effect to its final order till next hearing in July

Delhi High Court today allowed the income tax department to go ahead with its penalty proceedings against telecom major Vodafone, but asked the agency not to give effect to its final order till the next hearing in July.

A vacation bench of V Kameswar Rao and I S Mehta passed the order on Vodafone's plea seeking stay on the penalty proceedings that were initiated against it in December last year in connection with an assessment order for the year 2011-12.

"..Penalty proceedings initiated would be allowed to continue and any final order issued (by IT department) will not be given effect to till next date of hearing on July 7," the court said.

It also issued notice to the Centre and the IT department on Vodafone's plea and listed the matter for further hearing.

During the hearing today, Vodafone told the court that the final order was expected to be passed tomorrow and pursuant to that the department would raise a demand of Rs 1,500 crore which would have to be deposited within 30 days.

The company raised apprehension that the tax department may not give it the stipulated 30 days and could initiate recovery proceedings within a week.

In response to this, the department said normally, the recovery proceedings are initiated after completion of the stipulated period. In the instant case, no recovery proceedings would be started till the next date, it submitted.

Vodafone also told the court that another division bench of the high court on December 23 last year had directed the department not to give effect to its assessment order, but despite that, the penalty proceedings were initiated on December 29, 2015.

The company said the penalty proceedings emanated from the assessment order, which was not to be given effect to as per the court's order.

Vodafone's application to stay the penalty proceedings was filed in its main petition challenging a decision of a dispute resolution panel, set up under the Income Tax Act, to disallow exemptions amounting to over Rs 2,800 crore and also proposed adding of the amount to its taxable income for the assessment year 2011-12.

The dispute resolution panel (DRP), set up as an alternative dispute resolution mechanism, had disallowed exemptions under various heads, including network site rentals, annual license fee, unaccounted income, depreciation on 3G spectrum and transfer pricing adjustments on advertisements and marketing expenses, Vodafone has said in its petition.

The company has also claimed that 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 has alleged in its plea against the DRP order.