Sponsored
    Follow Us:
Sponsored

The country’s leading mobile operators, including Bharti Airtel, Vodafone Essar, BSNL and Tatas, have questioned the government’s move to direct the Comptroller and Auditor General of India (CAG) to audit their books. The CAG is a constitutional body that conducts independent audits of all government accounts.

The communications ministry had recently asked the country’s five major operators, Bharti Airtel, Reliance Communications, Tata Teleservices, Vodafone Essar and state-owned BSNL, to provide all documents relating to their accounting details for three years beginning 2006-07 to CAG.

It, in turn, had asked these telcos to submit their books and records within 15 days, including cost break-up and details of depreciation charged on fixed assets and other income. Bharti Airtel and Vodafone Essar in their communication to the government pointed out that powers of CAG do not extend to private operators.

Earlier this month, Tata Communications, the internet service provider from the Tata group, had also questioned the logic behind the government’s move to ask CAG to undertake another audit, especially when the communications ministry had already assigned private audit firms to examine the books of all leading telcos.

BSNL executives also said a new audit for the past three years would only amount to duplication, since CAG had already audited its financials for this period. The accounts of all PSUs are audited by CAG.

ET has not been able to establish if Reliance Communications, too, has also sent a communication to the government questioning the logic behind the CAG audit.

“The various sections of the CAG (Duties, Powers and Conditions of Service) Act 1971, which set out the duties and powers of the CAG are with respect to audit of accounts of government companies/corporations under the Union of State. These powers do not extend to private companies like Bharti Airtel,” the telco said in a communication to telecom secretary PJ Thomas. The telco also added the “nature of information being sought was confidential and extremely sensitive from a competitive point of view and falls beyond (Bharti’s) obligations under the licence agreement”.

Vodafone Essar, too, is learnt to have taken a similar stance in its communication to the government opposing a second round of audit by the CAG. CAG officials, however, said that a 2002 notification authorises it to audit the accounts of telecom companies, as they share a part of their revenues with the government. So far, the CAG never exercised this power, they added.

This is the second instance of the government wanting to examine the telcos’ books. The move follows allegations of under reporting of revenues. Since telcos pay 6-10% of their annual revenue as licence fee and 2-6% as spectrum usage charges, reporting lower revenue brings down the component they have to share with the government.

In April 2009, the government had ordered a special audit of the account books of top private cellphone companies, including Reliance Communications (RCOM), Bharti Airtel, Vodafone Essar, Tata Teleservices and Idea Cellular, to ensure that they have correctly reported and shared revenue with it.

The audits aimed to establish if there were any discrepancies in the revenues reported by these companies. The special audit reports for Reliance Communications, Bharti Airtel, Vodafone Essar and Idea Cellular have already been submitted to the department of telecom (DoT) while Tata Teleservices’ is expected to be completed soon.

“We believe that the audit under progress is the only special audit provided in the licence agreement and audit by CAG is extraneous. Another audit by CAG does not appear to have been prescribed and is seen as an avoidable exercise,” Tata Communications said in its communication to DoT.

Bharti also questioned the logic for another round of audits, and said the earlier one had taken up eight months. It also said another audit amounts to duplication of efforts, costs, time and manpower and added that if this process is undertaken, then the same should be required of all operators.

Last month, Contractor, Nayak & Kishnadwala, the special auditor appointed by DoT to examine Bharti Airtel’s books, in its report said there was no evidence of the telco fudging its accounts. The auditor, however, added that Bharti Airtel failed to add the margin it paid dealers for selling recharge coupons as part of its revenue and, hence, had not paid licence fee amounting to about Rs 98 crore on it.

Bharti, in its response, clarified it would not have to pay this fee, since the telecom tribunal ruling makes it clear that licence fee is payable only on actual realised revenues and not on notional revenues.

Similarly, in the case of Idea Cellular, Chhajed & Doshi, the special auditor gave a clean chit to company. It also said that the service provider may have to pay an additional Rs 74 crore to the government, but added that if the telecom tribunal’s ruling be considered and lack of clarity on the applicability of licence fees on insurance claims, among others, be taken into account, then there is zero discrepancy in Idea Cellular’s books.

In the case of Vodafone Essar, auditor SK Mehta and Company, in its 140-page report, said there were no discrepancies, as the telco’s accounting was in line with international standards.

In this case, too, the auditors said the company may have to pay an additional Rs 188 crore as liabilities to the government, but pointed that a telecom tribunal ruling stating that licence and spectrum fee is payable only on actual realised revenues and not on notional revenues erases these liabilities to zero.

In October 2009, Jaipur-based Parakh & Co, the auditor appointed to examine RCOM’s books said in a report that the telco failed to show revenues of Rs 2,799.19 crore, causing losses of Rs 315 crore to the government in terms of licence and spectrum fees.

RCOM, in addition to denying any wrongdoing, has also asked the DoT to reject the special audit and alleged the report “was issued for malafide purpose, based on uncorroborated facts and done without any discussions with it (RCOM)”.

Sponsored

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

0 Comments

  1. arjun sen says:

    proposed audit jurisdiction of CAG in Private telecos A/c is restricted to only revenue sharing of those telecos with DOT as license fee. the revenue sharing is based on a percentage of the AGR i.e Annual Gross Revenue of the company. cag audit will ensure the amount of AGR is not manipulated/deflated by the cos as of ‘SATYAM’ fiasco. though the CA firms are giving audit certificate in this regard, the certificate lacks credibility after the above scam. the authority of cag audit has already been giving vide a Gazett Notification of 2002 and accounts of four companies viz Hutch at Mumbai, Airtel at Kolkata R-COM and IDEA(?) were audited by CAG once in 2005. inspite of the same the objection raised by the private cos like Airtel is surprising. but it is also good news that R-COM and TTSL hs agreed to the TRAI request for CAG audit.

  2. V . Sharma says:

    Why would the Govt. want to access their accounts at all, other than for the purpose of collecting tax? If it indeed wants to its own share in the profits, it should insist on the same only against some sweat equity. Wouldn’t that be more logical, simpler and more equitable too ? In fact, a reasonable person would be rather inclined to the view that, whenever any private party is asking for any concession or favorable dispensation, Govt. should do this and access the accounts of any company only a as share holder instead of bringing in CAG, after all a part of the Ste machinery only.

  3. TDS says:

    To be very frank, the constitutional authority of the CAG does not indeed extend beyond the peripheries of the govt. accounts/documents, including therein the PSUs, the institutions/organisations, etc., who are in receipt of govt. funding of any amount, and the like. If these telecom giants (under the protective umbrella of the political-bureaucratic magnanimity) are NOT in receipt of any such largesse from the govt., it is doubtful if the CAG can really exercise its authority in respect of their accounts. Of course, the CAG has an indirect way of accessing these records, through the powers of the ITOs under the Income-tax Act, in the name of Revenue Audit-a mere routine job enabling the officers of the CAG to enjoy power over and the hospitality of the IT deptt. officers!

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Search Post by Date
July 2024
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
293031