On Wednesday, the Supreme Court asked the Income Tax Department to refund ₹733 Crore to Vodafone-Idea Ltd., for the assessment year of 2014-15. The payment is to be made with 4 weeks, added SC. This ruling will grant partial relief to the telecom company which is facing a lot of pressure.
Vodafone Idea is pressed with adjusted gross revenue dues of ₹58,254 Crore, of which it has been able to pay only ₹6,854 crore so far. The firm had petitioned for a total of ₹4,759.07 Crore, in tax refunds, for the assessment years (AYs), 2014-15 to 2017-18 before the scrutiny is over. During deliberations, its reasoning was that if in the scrutiny it was found that it owed more as taxes it would pay later. The I-T Department objected to this writ petition stating that processing of refunds and pending scrutiny proceedings were on account of legitimate ongoing proceedings. Thus, this plea was dismissed by the High Court.
Moreover, the apex court has now demanded a refund of ₹733 Crore for AY 2014-15 (fiscal year 2013-14) as the department deemed its assessment for that year, complete. This setback before the SC marks the second such for the company as earlier its HC plea was wholly rejected.
In their judgement, the bench of judges which included Justices Vineet Saran and U U Lalit, stated,”Insofar as AY 2014-15 is concerned, final assessment order passed under Section 143(3) of the (Income Tax) Act indicates that the appellant (telecom firm) is entitled to refund of ₹733 Crores; while for AY 2015-16 there is a demand of ₹582 Crores.”
The I-T department has still not completed the scrutiny of the other assessment years and relied on a provision in the Income Tax law, which gives tax authorities the power to withhold refund, pending scrutiny of assessment proceedings. Upholding that law, HC concluded that the department is well within its right, under section 241 A, to complete it. Aggrieved, the company moved the apex court last year.
The apex court conclusively noted that the Income Tax department would be entitled to invoke “requisite power under Section 245 of the Act to set off the amount of refund payable in respect of AY 2014-15 against tax remaining payable.”
“Since the requisite action is not even initiated, we say nothing in that respect. In the premises, we direct that the amount of ₹733 Crores shall be refunded to the appellant (telecom firm), within 4 weeks from today, subject to any proceedings that the Revenue may deem appropriate to initiate, in accordance with law,” the top court added.
Tax experts have said that in case Vodafone Idea is dissatisfied with the final scrutiny it can challenge the order but it would have to go through all the regular channels by first appealing in the income tax tribunal and then upwards.
Terming the judgment as “significant” and the one which will “be talk of business circle for some time,” Rakesh Nangia, chairman, Nangia Andersen Consulting, said that the ruling “reinforces the principle that one cannot (just) approach the Supreme Court/ High Court and seek relief against the procedures prescribed in the statute.”
Furthermore, he added, “Extraordinary remedy of writ has to be sought in extra-ordinary situation where the authorities have either violated the statutory provisions or exceeded their jurisdiction.” He said that the tax authorities also relied on a provision in income tax law, which gives power to income tax authorities to withhold refund, pending scrutiny assessment proceedings. “The tax authorities also objected to issuance of refunds due to outstanding tax demands in case of taxpayer for earlier years,” Nangia concluded.
Vodafone Idea is facing extreme liquidity pressure. Apart from the burden of the payment of AGR dues where it has sought deferred payment spread over some 20 years, which is currently before another bench of the apex court; the company had to recently pay its current licence fee and spectrum usage charge for the period of January-March, amounting to ₹1,367 crore, to the government.
Furthermore, the company had posted a net loss of ₹6,453 Crore for Q3 of FY19-20 on a revenue of ₹11,089 Crore. Its cash reserves of around ₹12,815 Crore, at the end of 2019, has now reduced to below ₹3,000 Crore. This has led its parent company, Vodafone plc, to pump in a total of ₹1,530 Crore into Vodafone Idea which was promised back in September 2020 under terms of ‘contingent liability mechanism’.
Vodafone Idea’s petition to Delhi High Court, earlier, alleged that there was complete inaction on part of I-T department, in processing its Income Tax Returns and in issuing appropriate refunds for it. In regards to that, the Supreme Court bench has directed the I-T Department to complete the scrutiny of the telecom firm’s income with respect to the assessment years 2016-17 and 2017-18, as early as possible.