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The Delhi High Court has set aside two Income Tax notices ordering reopening of income assessment of BSNL for 2001-02 and 2002-03 on the grounds that the telecom PSU escaped assessment by claiming excessive depreciation on its assets.
"We set aside the notices dated November 23, 2005 and March 12, 2007 issued under Section 148 of the Income Tax Act and quash all proceedings initiated pursuant thereto," a bench of Justices Badar Durrez Ahmed and Vibhu Bakhru said.
The court said the I-T notices and subsequent proceedings against Bharat Sanchar Nigam Ltd were "illegal and liable to be quashed."
The judgement came on two separate petitions filed by BSNL against the I-T notices ordering reopening of its concluded assessments for assessment year 2001-02 and 2002-03.
BSNL, a PSU, was incorporated on September 15, 2000 for providing telecom services after assets and liabilities of Department of Telecommunication Services and Department of Telecommunication Operation were transferred to it.
The book value of assets, comprising business being transferred to BSNL, was assessed at Rs 63,000 crore.
The consideration for the same was agreed to be met by issue of equity capital of Rs 5,000 crore (500 crore shares of the face value of Rs 10 each), preference share capital of Rs 7,500 crore and debt of Rs 7,500 crore. The balance consideration was reflected as reserves.
The I-T department issued two notices to BSNL alleging that the firm had claimed excessive depreciation on the cost of its assets "without reducing the proportionate amount of reserves therefrom". The notices ordered re-assessment of BSNL's income for the years 2001-02 and 2002-03.
The bench, in its judgement, said, "The Assessing Officer erred in completely ignoring that reserves and surpluses of a company are a part of shareholders funds and the book value of equity share consists of not only the paid up capital but also the reserves and surpluses of the company."
