VODAFONE SOUTH LTD. Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioner (hereafter "Vodafone") questions the legality of a reassessment notice ("the impugned notice") issued by the respondents ("the Revenue") under Section 148 of the Income Tax Act, 1961 ("the Act") on 14-03-2012, for Assessment Year ("AY") 2005-2006. It is undisputed that the reasons to believe that income had escaped assessment recorded by the revenue were disclosed to the assessee, for the first time, through a communication dated 01-10-2012.

(2.) The facts, necessary for deciding the present petition are that the assessee engages itself in the business as a telecom service provider. It filed its return for AY 2005-06 claiming a loss of Rs. 3,50,99,31,672/-. On 20-12-2007, the assessment order was finalized. The Assessing Officer ("AO") added back some amounts out of the claim for commission expenses. This disallowance was on the basis of queries sought on this aspect, from the assessee, to back its claim. The assessee had claimed expenditure of Rs. 1,07,95,70,000/- (Rs. 95,84,20,000/- on account of dealer commission and Rs. 12,11,50,000/- as commission to others in the profit and loss account). During the assessment proceedings it was asked to file details of the commission expenses. It submitted that the commission was paid to the distribution chain appointed by it across its territory of operations and that the commission expenses included commission paid to prepaid/postpaid scheme distributors, promotional merchandise distributed to the customers and collection and credit commission. The AO was of the opinion that the material supplied during the assessment proceeding could not justify the entire claim for Rs. 107.95 crores, but was sufficient to warrant a deduction of 75% of that amount. The AO therefore, added back 25% of the said sum of Rs. 107.95 crores, i.e Rs. 26,98,92,500/- and brought it to tax.

(3.) On 03-03-2010, the Revenue issued a reassessment notice in respect of AY 2005-06. Upon being asked to furnish the reasons in support of the opinion for reopening assessment, the Revenue by its letter of 07-10-2010, cited four reasons which constituted valid "reasons to believe". The first was that Section 145(2) of the Income Tax Act, 1961 provides that a provision made in the accounts for an accrued or known liability is an admissible deduction while other provisions do not qualify for deduction under the Act. In this regard, it was alleged that: