The Bombay High Court on Friday asked Vodafone India Services to move the Disputes Resolution Panel (DRP) of the Income Tax Department to resolve its Rs 1,300 crore transfer pricing case, leading to tax liability of Rs 400 crore.

The court, disposing of the petition, asked DRP to hear the case in two months, and gave Vodafone two weeks to approach it.

The case relates to FY-2010 when Vodafone India issued shares to its Mauritius-based arm for Rs 246.38 crore, which according to IT Department were grossly undervalued.

DRP is an alternative mechanism for resolution of tax disputes arising from transfer pricing issues.

Hearing Vodafone India’s petition challenging the transfer pricing by IT Department, Chief Justice Mohit Shah and Justice M S Sanklecha asked the telecom major to move the DRP for raising a preliminary objection as to whether the transaction comes within the purview of international taxation.

If DRP ruled that it fell within international taxation, then Vodafone can approach the court again, the judges said.

Vodafone India, in FY 2010, issued 2,89,000 shares valued at Rs 8,509 apiece, aggregating to Rs 246.38 crore, to its sister entity Vodafone Teleservices India Holding Mauritius.

But IT Department’s transfer pricing officer calculated that the price of the share should have been Rs 53,700 instead of Rs 8,509.

The difference is being sought to be taxed as an income in the hands of Vodafone India and the tax liability of the company has been fixed at over Rs 400 crore.

The total cost of the shares worked out by the tax department is about Rs 1,550 crore as against Rs 246 crore received by Vodafone India, thereby recording a shortfall of Rs about 1,300 crore, IT Department’s lawyers Mohan Parasran and Beni Chatterji told the court.

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