Bharti Airtel has won a major relief from the Delhi bench of the Income tax Appellate Tribunal (ITAT), which ordered deletion of Rs 5,739 crore from the company's taxable income.

The ITAT also held that corporate guarantees given to banks on behalf of group companies are not an international transaction and a transfer pricing adjustment cannot be made (see box).

Bharti Airtel had incurred a loss of Rs 5,739 crore on transfer of telecom infrastructure to Bharti Infratel Limited. It was a capital loss and was not claimed by the company as a deduction in its tax return for the assessment year 2008-09.

However, the amount was added back to the income of Bharti Airtel by the tax officer in the course of assessment, resulting in a double-whammy. The litigation ultimately reached the ITAT as the company filed an appeal.

 

Taking a strict view of the officer's action, the order says, "When the assessing officer appeared before us, we asked him to justify this addition, whereas, for all practical purposes, the taxpayer (Bharti Airtel) had not even claimed deduction of the same in the computation of business income. He (assessing officer) had nothing to say..." The tribunal observed that the case "appears to be in the category of a wholly frivolous, and simply indefensible, addition to the income returned by the assessee (taxpayer)". The tribunal also observed that the Dispute Resolution Panel did not adequately deal with this factual issue.

The tribunal observed that there was no effective debit to the profit and loss account. The amount of loss - Rs 5,739 crore - was squared up against the credit of an equivalent amount, representing amount withdrawn from reserve for business structuring. The accounting entries passed were absolutely profit neutral and no adjustment was required. However, the assessing officer did not take a holistic view of the accounting entries and added back the amount of Rs 5,739 crore to the income of the company, even as a deduction for it had not been made.

The ITAT observed: "The inescapable conclusion is that the addition made by the assessing officer is wholly erroneous and devoid of any legally sustainable merits."

In the strongly worded order, the ITAT held: "While we delete the impugned addition of 5,739 crore, we also place on record our dissatisfaction with the way and manner in which the issue has been handled at the assessment stage." (PTI)