CAG alleges Bharti Airtel under-reported revenue, telecom major denies accusation!

In the latest, a draft report by Comptroller and Auditor General (CAG) has accused leading telecom operator of India, Bharti Airtel, of earning “undue benefits” in the range of Rs 14,500 crore by underreporting revenues, as per website TheWire.in.

The series of two articles on the website has been jointly authored by senior journalists Aditi Roy Ghatak and Paranjoy Guha Thakurta.

The report claims that Bharti Airtel Ltd and its subsidiary, Bharti Hexacom earned abnormal profits in excess of Rs 44,000 crore through corporate restructuring. Bharti Hexacom runs GSM services in Rajasthan and Northeast.

The CAG draft report alleges that the telecom major under reported revenue in order to save on license fee (LC) and spectrum usage charge (SUC) between April 2006 and March 2010 which led to a revenue loss of around Rs 14,361 crore to the government.

CAG claims underreporting of revenue was done through

“Under-reported revenues in the statements of revenue and licence fee and in the company’s primary books of accounts (trial balances) and profit and loss (P&L) account, especially on revenues earned from providing pre-paid, post-paid and roaming services, besides forex deals and infrastructure sharing, and also “suppressed” income from investments, interest and miscellaneous sources in calculating AGR while computing LF and SUC.

•Gave its 95% subsidiary Bharti Telemedia Limited Rs 1,487.95 crore as an interest-free, unsecured loan in 2009-10, thereby violating the “arm’s length” relation between a holding company and its subsidiaries, decreased its own revenues by the amount of interest payable and ultimately, the LF and SUC payable to the DoT.

•Ignored revenue accounted under global operations and under its infrastructure provider (IP-1) licence for computation of revenue share.

•Did not consider income from profit on sale of fixed assets in AGR.

•Deducted written-off, bad debts worth Rs 91 crore from gross revenue and claimed deductions for providing PSTN (Public Switched Telephone Network) services against leased line charges in 2006-07.

•Ignored revenue from sale/lease of bandwidth charges in AGR for computation of LF and SUC.”

Replying to the query posed by Business Standard, Bharti Airtel said, “Regarding the ‘purported draft CAG report’ that you have mentioned in your query, we would like to state that we are not aware of any such report being placed by the CAG in the public domain. In the absence of an official report, as a matter of principle, we would not like to offer any comment. Also, the various matters raised in the story are a function of government policy from time to time and are industry issues. These are all old developments and have been extensively reported in the media. While many of these matters have already been discussed and settled at various government/judicial forums, some of them are currently under litigation in various courts of law, awaiting decisions. However, we would like to reiterate that as a responsible corporate following the highest standards of corporate governance, we have always been in compliance of all laws of the land including, but not limited to those pertaining to taxes and levies, and all government policies and regulations pertaining to telecom operations.”

Adjusted Gross Revenue (AGR) is the main parameter based on which telecom carriers disburse their annual LC and SUC to the government. However, what exactly AGR includes has been a controversial issue since 2003.

The telecom department Telecom Disputes Settlement and Appellate Tribunal (TDSAT) says it should include all revenue earned by a service provider, but telecom carriers claim only what is directly related to telecom operations such as tariffs should be included.

On August 11, telcos moved Supreme Court against the TDSAT’s order that ruled “certain non-telecom revenues like rent, profit on sale of fixed assets, dividend and treasury income would be counted as adjusted gross revenue (AGR), on which licence fee would have to be paid to the government.” The matter will be heard on September 8.

Economic Times also quotes a company source saying, “We have anyways (sic) provided for the additional amounts, just in case the ruling goes against us.”

EfundsPlus take:

If CAG’s allegations hold credibility, then it has clearly exposed the general practice followed across the sector in India – the malaise can be deeply entrenched. CAG is actually preparing a draft audit report for other telecom companies as well so more players may be indicted by the national accounting regulator in the coming days for the same. Till apex court clears out the definition of AGR, holding anyone culpable is too unripe.

Once the CAG draft report is finalised, it will be tabled in Parliament.

The other surprise is that the CAG allegations got simply unreported in a major section of media barring Economic Times/Times of India and Business Standard. But reasons become very clear on a closer re-think.

Video courtesy: NewsClickin
Photo courtesy: www.techfashy.com

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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