Relief to Vodafone Idea as SC orders Rs 733-crore income tax refund

In partial relief to Vodafone Idea, the Supreme Court on Wednesday ordered the Income-Tax (I-T) department to refund the telecom company Rs 733 crore, pending for the assessment year (AY) 2014-15, within four weeks. The court also asked the department to conclude proceedings relating to the firm's demand of refunds in respect of AY 2016-17 and 2017-18 as early as possible.

Vodafone Idea, which is facing a financial crisis after the apex court ordered it to pay adjusted gross revenue (AGR) dues and penalties totalling Rs 53,000 crore, will, however, have to wait for other refunds, worth Rs 4,579 crore, from the I-T department.

The court order said that for AY 2014-15, Vodafone's then Indian entities filed income-tax returns (ITRs), claiming a refund of Rs 1,532 crore. In November 2015, Vodafone filed returns for AY 2015-16, claiming a refund of another Rs 1,355.51 crore.

A year later, the company claimed a refund of Rs 1,128.47 crore for AY 2016-17.

For AY 2017-18, Vodafone claimed a refund of Rs 743 crore. In total, Vodafone Idea sought around Rs 5,500 crore in tax refunds for the period between 2014-15 and 2017-18.

Claiming there was complete inaction on part of the tax department in processing the ITRs, Vodafone had moved the Delhi High Court, asking the court to direct the department to immediately process the refunds.

The tax department said tax returns of Vodafone's Indian entities were facing multiple issues like transfer pricing adjustment, capitalisation of licence fees, 3G spectrum fees, and asset restoration cost obligation, including the effect of amalgamation of group entities, which required thorough scrutiny and determination. The high court dismissed Vodafone’s petition in December 2018 and the company then moved the Supreme Court.

The SC in its order said as far as AY 2014-15 was concerned, the final assessment order passed under Section 143(3) of the Act indicated Vodafone was entitled to refunds of Rs 733 crore, while for AY 2015-16 there was a demand of Rs 582 crore.

The court said the tax department would be entitled to invoke the requisite power under Section 245 of the Act to set off the amount of refund payable in respect of AY 2014-15 against the tax remaining payable.

As the tax department has not taken any action to refund the amount, the SC directed I-T to refund Rs 733 crore and take action on other assessment years as soon as possible.

Rakesh Nangia, chairman, Nangia Andersen consulting, said the Supreme Court judgment reinforced the principle that one cannot approach court and seek relief against the procedures prescribed in the statute. "Extraordinary remedy of writ has to be sought in an extraordinary situation, where the authorities have either violated the statutory provisions or exceeded their jurisdiction," he said.

Amit Maheshwari, tax partner, AKM Global, a consulting firm, said the Supreme Court had ruled in favour of revenue.

chart“This will bolster the case of the tax department wherein there is an ongoing assessment and the tax officer is of the opinion that granting the refund (when there is a likely tax demand) would be prejudicial to the interests of the revenue. This is despite the fact that even if the refund is granted, the tax authorities still have several avenues available to them to recover any future tax demands.

This will further delay the refunds processing in several cases and may effect cash flows, hitting companies, especially in the current scenario,” he said.