Bharti Infratel Limited (‗Petitioner/BIL‘, for short) by this writ petition impugns legality and validity of notice for re-assessment dated 31st March, 2015 issued under Section 148 read with Section 147 of the Income Tax Act, 1961 ('Act', for short) for the Assessment Year 2008-09. BIL has also challenged the order dated 23rd February, 2016 passed by the Assessing Officer, Deputy Commissioner of Income Tax, Circle-4(2), the first respondent to the writ petition, rejecting its objections to reopening of the assessment.
2. For convenience, it is observed and recorded that the Principal Commissioner of Income Tax is the second respondent to the present writ petition and that BIL is a company and a subsidiary of Bharti Airtel Limited (BAL, for short).
3. BIL in its return of income for the Assessment Year 2008-09 filed on 15th October, 2008 had declared a loss of Rs.157,27,09,173/- under the normal provisions and book profits of Rs.63,54,91,170/- under Section 115 JB of the Act. Revised return filed on 31st March, 2010 had enhanced the book profits to Rs. 63,89,40,500/-
4. Return for Assessment Year 2008-09 was taken up for scrutiny assessment vide issue of notices under Section 143(2) and 142 of the Act. Questionnaires were issued to which BIL had responded by furnishing details and documents which would be referred subsequently, culminating in the order of assessment dated 20th December, 2010 under Section 143(3) of the Act.
5. Thereafter, reassessment proceedings were initiated by the first respondent by issue of impugned notice under Section 148 read with Section 147 of the Act, which was served on BIL on 1st April, 2015. BIL by letter dated 8th April, 2015 had informed the assessing officer that the revised return filed by them on 31st March, 2010 may be treated as return filed in response to notice under Section 148 of the Act. By the same letter BIL had requested the first respondent to furnish copy of the 'reasons to believe' recorded for initiation of re-assessment proceedings. 'Reasons to believe' were furnished vide letter dated 13th April, 2015.
6. BIL had filed objections to reopening both on facts and law vide reply/objections dated 5th May, 2015 which, inter alia, had challenged assumption of jurisdiction under Section 147/148 of the Act.
7. The objections have been rejected by the first respondent by the impugned order dated 23rd February, 2016, resulting in filing of the present writ petition impugning the said order as well as notice dated 31st March, 2015 initiating re-assessment proceedings under Section 147/148 of the Act.
8. The relevant portion of the 'reasons to believe' recorded by the Assessing Officer for re-opening of assessment read as under :-
―During proceedings u/s 143(3) read with Section 263 of Income-tax Act, 1961 in case of M/s Bharti Airtel Ltd. for A.Y. 2008-09, it has been observed that M/s Bharti Airtel Ltd. (hereinafter referred to as ‗transferor‘) had transferred its telecom infrastructure assets worth Rs.5739.60 crores to its subsidiary company M/s Bharti Infratel Ltd. (hereinafter referred to as ‗transferee‘) on 31.01.2008 for Nil value under the Scheme of Arrangement approved by Hon‘ble Delhi High court.
Further, as per scheme, the transferee company had revalued the said assets to Rs.8218.12 crores in the asset side of its Balance Sheet for the year ending on 31.03.2008 and the corresponding amount is added under General Reserves on the liability side of its Balance Sheet as per Part-III of the scheme of arrangement which clarified the accounting treatment in the books of transferee company. The relevant part of the scheme is reproduced as under:
Part III ISSUE OF SHARES AND ACCOUNTING TREATMENT IN THE BOOKS OF THE TRANSFEROR COMPANY AND THE TRANSFREE COMPANY
3.2 ACCOUNTING TREATMENT IN THE BOOKS OF THE TRANSFEREE COMPANY
3.2.1 Upon the Scheme becoming effective, the Transferee Company shall record the Telecom infrastructure at their respect fair values as on the Appointed Date.
3.2.2 The transferee company will credit an amount equal to the fair values of Telecom Infrastructure as general reserve, which shall constitute Free Reserves available for all purposes as the Transferee Company at its own discretion considers proper including in particular for off-setting any additional depreciation that may be charged by the Transferee company.
Explanation: Additional depreciation means depreciation provided, charged or suffered by the Transferee Company on the assets transferred by the Transferor Company under the Scheme in excess of what would be chargeable on the original book value of these assets as if there had been no revaluation on transfer of these assets and basing the cost of these assets on the historical cost as appears in the books of the Transferor Company. The reserve as above shall be treated as arising from this Scheme and shall not be treated as a reserve created by the Transferee Company.
During the assessment proceedings for the A.Y. 2008- 09 in the case of M/s Bharti Airtel Ltd. (BAL), the entire scheme of transfer of assets from BAL to Bharti Infratel Limited (BIL) was examined in the light of Scheme of Arrangement (SOA) approved by the Hon‘ble High Court of Delhi. During the examination of the scheme, it is seen from the relevant portion of the Share Holders Agreement dated 8.12.2007, Annual Report of Bharti Infratel Limited (BIL) for F.Y. 2007-08 & F.Y. 2008-09, Annual Report of Bharti Airtel Limited and Agreement made in the entire process, that neither the BAL nor the BIL disclosed the full and true intention in the SOA approved by the Hon‘ble High Court. In the SOA, it was mentioned that the passive infrastructure of BAL is being transferred to wholly owned subsidiary and as there is no movement of assets to any company outside the group, neither any shares are to be issued, nor any consideration is to be paid to the shareholders for transfer of the assets. However, within less than 15 days of approval of SOA by the Hon‘ble High Court, and even before the transfer of assets by BAL to BIL, a shareholder agreement dated 08.12.2007 is entered into. In fact, as per the Shareholder‘s Agreement, the passive infrastructure transferred by transferor company, before the effective date and after the effective date (Effective date as mentioned in Indefeasible Right to Use Agreement IRU) is to be managed and operated by Indus Tower Limited only and not even for single day to be handled by Bharti Infratel Limited as submitted before the Hon‘ble High Court through the SOA filed.
From the entire scheme, it is seen that the assets which can be directly transferred from BAL to ITL were routed through BIL and BIVL for the purpose of evasion of tax because the assets, WDV of which in the books of BAL on the date of transfer was Rs.5739.60 crores were transferred at NIL value to BIL and, immediately after transfer, were revalueed at Rs.8218.12 crores. The difference of the amount of Rs.2478.51 crores (Rs.8218.12 crores – Rs.5739.60 crores) between the value of assets and revaluation of investment has already been taxed in the hands of BAL under the provision of Income-tax Act, 1961. But the assets whose value on the date of transfer from BAL to BIL was Rs.5739.60 crores were received by BIL at Nil value, thereby resulting in gain of Rs.5739.60 crores in the hands of BIL, which is income within the provisions of Section 2(24) of the Income-tax Act, 1961.
Therefore I have reason to believe that the WDV of the assets, received by BIL at Nil, i.e., Rs.5739.60 crores is the income of the BIL which has escaped assessment due to failure on the part of the assessee to disclose truly and fully all material facts necessary for its assessment.
Since period of four years has expired from the end of the relevant assessment year, sanction for issue of notice u/s 148 of the Income-tax Act, 1961 as prescribed under proviso to Section 151(1) of the Income-tax Act, 1961, may kindly be accorded.
Submitted for kind perusal and approval.‖
9. The 'reasons to believe' state that BAL had transferred telecom infrastructure assets worth Rs.5739.60 crores to its subsidiary and the present petitioner-BIL on 31st January, 2008 for nil consideration under a Scheme of Arrangement ('SOA', for short) approved by the Delhi High Court. As per SOA, BIL had re-valued the said assets to Rs.8218.12 crores on the assets side of their balance sheet for the year ending 31st March, 2008. Contemptuously Rs.8218.12 crores were added to the general reserve on the liability side of BIL‘s balance sheet as per Part III of the SOA. Thereafter, Part III of SOA has been quoted to state that the amount credited to the reserves on account of transfer of telecom infrastructure assets constituted free reserves that would be available to BIL as a company in its discretion with liberty to set-off against the reserve created against additional depreciation that may be charged/claimed by the BIL. The reserve was to be treated as arising from the SOA and not created by BIL. Paragraph 3.3 of the reasons states that the entire scheme of transfer of assets was examined in the assessment proceedings for AY 2008-09 of BAL by the Assessing Officer in the light of SOA approved by the Delhi High Court and that- ―during examination of the scheme it was seen from the relevant portion of Share Holders Agreement dated 8.12.2007, annual report for the petitioner company for Financial Year 2007-08 and 2008-09, annual report of Bharti Airtel Limited and agreement made in the entire process that neither BIL nor BAL disclosed full and true intention in the SOA approved by the Hon‘ble High Court‖. SOA had mentioned transfer of passive infrastructure of BAL to BIL, a wholly owned subsidiary, and that there was no transfer of assets to a company outside the ―group‖. It was stipulated that shares were not to be issued and no consideration was to be paid to the shareholders for transfer of assets. Contrary to the SOA approved by the High Court, within fifteen days of the approval of SOA, a shareholder‘s agreement on 8th December, 2007 was entered into by BIL whereby the passive infrastructure was transferred by it to a third party, namely, M/s Indus Tower Limited. This transfer was made before the effective date, which was the date by which BIL would have acquired indefeasible right to use the passive infrastructure. On/or before the effective date, M/s Indus Tower Limited had acquired indefeasible right to use the passive infrastructure transferred to BIL by BAL. BIL had not for even a single day used the passive infrastructure, contrary to what was stated in the SOA filed before the Delhi High Court. Thus, the entire scheme had actually envisaged transfer of passive infrastructure assets from BAL to M/s Indus Tower Limited, which were routed through subsidiary of BAL, i.e., the petitioner/BIL‘s subsidiary Bharti Infratel Ventures Limited. The entire purpose behind the scheme was evasion of taxes, as passive infrastructure assets of BAL having written down value of Rs.5739.60 crores were transferred at nil value to BIL and were immediately re-valued at Rs.8218.12 crores. The difference between the two figures of Rs.8218.12 crores and Rs.5739.60 crores, i.e., the written down value of the assets transferred by BAL to BIL and the re-valuation of investment had been taxed in the hands of BAL. Re-assessment in the case of BIL was necessary and required as gain of Rs.5739.60 crores in the form of transfer of assets from BAL to BIL had escaped assessment. This was taxable income under Section 2(24) of the Act as the declared written down value of the assets received from BAL was nil, thereby resulting in gain of Rs.5739.60 crores being the written down value. Thus, there was failure on the part of the petitioner to disclose truly and fully all material facts.
10. The petitioner has challenged reopening primarily on four grounds:-
(i) Absence of rational and intelligible nexus between material relied upon in the reasons to believe and escapement of income.
(ii) Change of opinion.
(iii) Non-satisfaction of pre-conditions specified in the proviso read with Explanation 1 to Section 147 of the Act.
(iv) Lack/ absence of valid sanction under Section 151 of the Act.
11. Fourth objection was not pressed. First objection we would observe would relate to merits and is not being examined as we find that BIL should succeed in view of the second and third objections, which are interconnected. For the sake of convenience, we would like to examine and consider them together to avoid prolixity and repetition.
12. In order to decide the second and third contentions, we begin by reproducing relevant portion of Section 147 of the Act, which reads as under:-
26. BIL has also relied upon audited financial statement for the year ending 31st March, 2008 submitted to the Assessing Officer in the original assessment proceedings making the following disclosures: -
(a) Director‘s report dated 24th April, 2008 in which there was complete disclosure recording the SOA between BIL and BAL for transfer of tower business and subsequent transfer of a portion of the assets to M/s Indus Tower Limited, a joint venture under the head ―Business Review‖. The Relevant portion of the disclosure has been quoted in the writ petition which states and refers to the Scheme of Demerger of tower business from BAL to BIL on the scheme being sanctioned and accordingly the petitioner had acquired 52000 towers infrastructure. BIL had subsequently entered into joint venture with Vodafone Essar Limited and Idea Cellular Limited to maintain and operate tower infrastructure business with the equity structure of 42:42:16 respectively.
(b)Point 3 in the auditor‘s report had specifically stated that the passive infrastructure acquired from BAL had been recorded in the books of accounts at fair market value and the equivalent amount was transferred to the general reserve in accordance with the SOA. The notes refer to Accounting Standard-14 for amalgamation and stated that the fair market value of Rs.8235.96 crores was credited to the general reserve. The capital reserve has been reduced by Rs.8235.96 crores and the general reserve was increased by Rs.8197.14 crores after depreciation of Rs.388.20 crores.
(c) Details of SOA as well as the accounting treatment given to the transferred assets in the books of accounts were also noted in Note 1(a) to Schedule 16 of the financial statement.
(d)It was informed that the SOA under Sections 391-394 of the Companies Act, 1956 for transfer of telecom infrastructure undertaking was approved by the High Court vide order dated 26th November, 2007 and filed with the Registrar of Companies on 31st January, 2008. Details of the asset transferred, i.e., telecom infrastructure comprising of wireless and broadcast towers, all rights, title, interest in land on which the towers had been constructed, etc. for plant and equipment forming part of the telecom infrastructure were recorded in the books of BIL at their respective fair value and the equivalent amount credited to the general reserve. This general reserve would constitute as a free reserve, which would be available to the petitioner for all purposes and to be utilized at its own discretion, including in particular for setting off of additional depreciation. In the table, full value of the details of the fixed asset, capital, work in progress, etc. particulars of higher depreciation have been mentioned.
(e) Notes with the audit report had mentioned subsequent joint venture agreement dated 8th December, 2007, entered into between BIL, Vodafone Essar Limited and Idea Cellular Limited for the purpose of setting up and formation of M/s Indus Tower Limited. It was stated that telecom infrastructure assets, described as passive infrastructure assets in 16 telecom circles across India, out of telecom assets in 23 circles acquired from BAL were proposed to be transferred to M/s Indus Tower Limited. Thus, note on disclosures had referred to the joint venture agreement dated 8th December, 2007 and that the Indian tower company, M/s Indus Tower Limited would provide passive infrastructure services in 16 circles in India. BIL would acquire 42% stock/shares in M/s Indus Tower Limited and shares of equal status would be acquired by M/s Vodafone Essar Limited, and balance 16% shares would be held by M/s Idea Cellular Limited. It was stated that "for this purpose M/s Bharti Infra Venture Limited has been incorporated as wholly owned subsidiary of BIL wherein relevant assets are to be transferred for ultimate merger in M/s Indus Tower Limited". Pursuant to the aforesaid agreement, the BIL had acquired 50000 equity shares of Rs.10/- each on 17th December, 2007 in M/s Bharati Infratel Venture Limited for aggregate value of Rs.5,00,000/-.
(f) Tax audit report in Annexure-2 to clause 14 again gave complete details regarding written down value of the assets transferred by BAL having aggregate of Rs.5371.67 crores comprising of written down value of Rs.5229.32 crores and additional depreciation of Rs.142.36 crores claimed by BIL.
(g) Note 3 of the notes of return of income reads as under: -
3) The company had entered in to a scheme of arrangement for transfer of the Telecom Infrastructure undertaking from Bharti Airtel Limited (―BAL‖), which has been approved by the Hon‘ble High Court of Delhi vide order dated November 26, 2007 and filed with the Registrar of Companies, Delhi & Gurgaon on January 31, 2008 i.e. the Effective Date of the Scheme. Pursuant to the scheme, the telecom infrastructure undertaking were transferred to and vested in the Company with that date.
The depreciation on assets transferred from BAL have been computed in accordance with the fifth proviso to section 32 of the Act, since assets have been used by both the legal entities during the year. Hence the depreciation on such assets for the assessment year 2008-09 has been apportioned between the two Companies in the ratio of number of days for which the assets were used by the respective Companies, computed as follows;
a. Total Depreciation on assets transferred from BAL for F/Y 2007-08= Rs.8,683,809,952/-
b. Depreciation on above assets for 60 days (i.e. from Feb 1 st to March 31st) = Rs.1,423,575,402
The aforesaid depreciation of Rs.1,423,575,402/- have been claimed by the company under section 32 of the Act in respect of assets transferred from Airtel.
c. The balance depreciation for 306 days amounting to Rs.7,260,234,550/- has been claimed by BAL in its return of income.‖
27. Director‘s report as mentioned above at the first page under the heading ―Business Review‖ had referred to demerger of tower business from BAL to BIL, which was sanctioned by the Court pursuant to which BIL had acquired 52000 tower infrastructures on 31st March, 2008. It is also stated that BIL had entered into a joint venture of tower infrastructure business with M/s Indus Tower Limited, Vodafone Essar Limited and Idea Cellular Limited to maintain and operate tower infrastructure business with equity structure of 42:42:16 respectively. Under the head ―Subsidiary Company‖, it was stated that the petitioner was incorporated as a wholly owned subsidiary of M/s Bharti Infratel Ventures Limited for restructuring of the tower business. Copy of the balance sheet, profit and loss account, Director‘s report, Auditor‘s report of Bharti Infratel Ventures Limited was an integral part of the said report. The Chartered Accountant‘s report had mentioned full details.
28. Aforesaid documents show that the contention of BIL/petitioner is factually correct for note 3 had specifically referred to the fact that passive infrastructure was transferred from BAL had been recorded in the accounts of BIL at its fair value of Rs.8235.96 crores and credited to the general reserve, etc. Balance sheet under the head ―Reserve and Surplus‖ also reflects the said position. Further, an addition made to the general reserve arising from the SOA. Reference can be made to Note 1(a) of Schedule 16. Schedule 4 relating to fixed assets refers to addition made during the year and gives full details after referring to Notes 3, 4 and 10 of Schedule 15 and Note 4 of Schedule 16. Schedule 16 is very detailed and refers to the entire SOA between BIL and BAL. It states that BIL was incorporated on 30th November, 2006 with the object of, inter alia, setting up, operating and maintaining wireless communication towers, provide network development facilities and to engage in video and voice data and internet transmission business in and out of India. SOA between BIL and BAL, the orders passed by the Court, the details of the terms of the scheme, general reserve, assets and liabilities (based upon independent fair valuation report) are elucidated and stated. With regard to fair market value, etc. details in form of fixed assets, liabilities etc. were given. Under heading (b), reference is made to the Joint Venture Agreement dated 8th December, 2007 with M/s Vodafone Essar Limited and M/s Idea Cellular Limited to form an independent tower company, namely, M/s Indus Towers Limited, which was to provide passive infrastructure services in 16 circles and BIL and M/s Vodafone Essar Limited would hold approximately 42% each in M/s Indus Towers Limited and the remaining 16% would be owned by M/s Idea Cellular Limited. For this purpose M/s Bharati Infratel Ventures Limited was incorporated as a wholly owned subsidiary of BIL, wherein relevant assets were transferred for subsequent partial merger of the assets in M/s Indus Tower Limited.
29. The Assessing Officer had also asked BIL to provide details of depreciation claimed on the assets transferred by BAL and documents in support of the written down value of the assets. BIL along with the reply dated 15th November, 2010 had enclosed copy of the SOA. Assessing Officer had also raised a specific query as to the basis on which the assets have been transferred, to which an undated reply was given by the petitioner, the relevant portion of which reads as under:
3. During the assessment proceedings, we have been asked to provide details of depreciation amounting to Rs. 142,35,75,402/- claimed on assets transferred from Bharti Airtel Limited and evidences in support of assets written down value (WDV) received.
In this regard it is submitted that the company has entered into a scheme of arrangement for transfer of the telecom infrastructure undertaking from Bharti Airtel Limited (―BAL‖) , which has been approved by the Hon‘ble High Court of the Delhi vide order dated November 26, 2007 and filed with the registrar of the companies, Delhi & Gurgaon on January 31, 2008 i.e. the effective date of the scheme. Pursuant to the scheme, the telecom infrastructure undertaking were transferred to and vested in Bharti Infratel Limited (―BIL‖) with that date.
The depreciation on assets transferred from BAL have been computed in accordance with the fifth proviso to Section 32 of the Act, since assets have been used by the both the legal entities during the year. Hence the depreciation on such assets for the Assessment year 2008-09 has been apportioned between the two companies in the ratio of number of days for which the assets were used by the respective companies, computed as follows;
a. Total depreciation on WDV of assets trans from BAL for FY 2007-08 Rs 868,38,09,952
b. Depreciation on the above assets for 60 days (1 Feb‘08 to 31Mar‘08) Rs 142,35,75,402.
c. Depreciation on the same assets for 306 days (1 Apr‘07 to 31‘Jan‘08) Rs 726,02,34,550.
The details of circle wise WDV of assets transferred along with computation of total depreciation of Rs 868,38,09,952/- is enclosed as ―Annexure 2‖.
30. The petitioner has also stated that a note on the factum of demerger of assets by BAL and transfer to BIL and the fact that it was without consideration as mentioned in the SOA duly approved by the High Court, was furnished to the Assessing Officer by producing and filing on record both SOA's and the orders passed by the High Court, which was taken note of and considered.
31. In the aforesaid factual background and the legal position elucidated, it has to be held that BIL had made full and true disclosure of material facts i.e. all primary facts which are mentioned and stated in the ‗reasons to believe‘. Nothing was concealed, withheld and nothing was left to be factually discovered in the form of 'material' mentioned in detail in accounts and other evidence, that was not disclosed/stated but could have been discovered by due diligence. In fact as noted above, reading of the ‗reasons to believe‘ i.e. evidence and material in form of facts and figures were duly stated and mentioned in the affidavit sworn by Mr. Raghuveer Singh Dagur on 12th February, 2010, opposing the second scheme of demerger and transfer of infrastructure assets in 12 circles by BIL to M/s Bharti Infratel Ventures Ltd. and language, facts and figures in the ‗reasons to believe‘ are similar, if not identical.
32. In view of the aforesaid discussion, the writ petition has to be allowed as the jurisdictional pre-conditions in the form of proviso to Section 147 is not satisfied in the facts of the present case. Explanation 1 would not apply as all primary facts were disclosed, stated and were known and in knowledge of the Assessing Officer. Further, this would be a case of ‗change of opinion‘ as the assessee had disclosed and had brought on record all facts relating to transfer of passive infrastructure, its book value, fair market value as was mentioned in the SOA as also that the transferred passive assets to become property of M/s. Indus Infrastructure Ltd. including the dates of transfer and the factum that one-step subsidiary Bharti Infratel Ventures Ltd. was created for the said purpose. These facts were within the knowledge of the Assessing Officer when he had passed the original assessment order for the Assessment Year 2008-09 on 20th December, 2010.
33. The writ petition is accordingly allowed and Writ of Certiorari is issued quashing the notice for re-assessment dated 31st March, 2015 issued under Section 148 read with Section 147 of the Act for the Assessment Year 2008-09. Writ of Certiorari is also issued quashing the order dated 23rd February, 2016, passed by the Assessing Officer, rejecting objections filed by the petitioner. In the facts of the case, there would be no order as to costs.
Cases Referred to
1. Commissioner of Income Tax-VI, New Delhi versus Usha International Limited, (2012) 348 ITR 485 (Delhi)(FB)
2. Commissioner of Income Tax, Delhi versus Kelvinator of India Limited, (2002) 256 ITR 1 Delhi (FB)
3. State of Uttar Pradesh and Others versus Aryaverth Chawal Udyog and Others, (2015) 17 SCC 324
4. Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers (P) Limited, (2008) 14 SCC 208
5. S. Narayanappa versus CIT, (1967) 1 SCR 590
6. Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC 71 : 1980 SCC (Tax) 348] .)
7. A.L.A. Firm v. CIT, (1991) 2 SCC 558
8. CIT v. Dinesh Chandra H. Shah, (1972) 3 SCC 231
9. CIT v. Nawab Mir Barkat Ali Khan Bahadur, (1975) 4 SCC 360 : 1975 SCC (Tax) 316
10. Income Tax Officer, Ward No. 16(2) versus Techspan India Private Limited and Another, (2018) 6 SCC 685
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