The Income Tax Appellate Tribunal (ITAT) has quashed a reassessment order against Vodafone Idea involving a staggering ₹5,700 crore against the service provider. The bench also rejected the assessment officer’s charge that the company used “colourable device”, a term deployed to denote dubious means to obtain a tax benefit.
“We have absolutely no hesitation to hold that there is an invalid assumption of jurisdiction for reopening the assessment on the part of the ld. AO (Assessment Officer) u/s 147 of the Act in the facts and circumstances of the instant case,” a division bench at Mumbai ITAT said while allowing the appeal by Vodafone Idea.
“The reopening made by the ld. AO is hereby quashed and additions suggested thereon are also deleted on merits,” the bench added.
Vodafone Idea (formerly known as Idea Cellular) moved the ITAT after a reassessment of its returns for the Assessment Year 2009-10 (FY09). In its earlier form, the assessee transferred passive infrastructure assets (PIAs) amounting to ₹1,622.78 crore to Idea Cellular Tower Infrastructure Ltd (ICTIL) — a 100 per cent subsidiary of Aditya Birla Telecom Ltd. (ABTL).
ABTL, in turn, is a 100 per cent subsidiary of the assessee (Idea Cellular Ltd) through demerger at nil consideration with an appointed date of January 1, 2009. Subsequently, ICTIL amalgamated in IndusTowers, resulting into transfer of the PIAs. AO, called this business arrangement a ‘colourable device’.
“In view of this, there is reason to believe that the colourable device created through a scheme of demerger and amalgamation is only for tax evasion and no taxes on these transactions have been paid,” the AO had remarked while adding ₹5,708 crore (arrived after subtracting book value of the asset from enhanced value post transfer) in the taxable income.
‘Change of opinion’
Based on facts presented and arguments made, the bench observed that all the transactions carried out by the assessee duly reflected in its financial statements, notes on accounts to financial statements and also in the notes accompanying the return of income together with the relevant annexures. Further, all the details were already explained before the AO.
The bench noted that the AO had not agreed to certain contentions of the assessee and made substantial addition in the original scrutiny assessment proceedings with regard to this issue. Hence, “it is a clear case of change of opinion only,” it said. Further, it mentioned that there is no ‘colourable device’ involved at all in the instant case. “It is a fact that the scheme of demerger and the merger had been duly addressed by the High Courts,” the bench said.