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DoT auditor got it wrong
October, 26th 2009

Reliance Communications (RCOM) on Sunday said it did not have to pay any additional licence or spectrum fee to the government nor had it inflated its revenues.

The statement came after the company said it had completed a preliminary review of a report issued by a government-appointed auditor which had accused it of various malpractices.Special auditors report estimating alleged additional liability of Rs 316 crore is incorrect, hopelessly biased, one-sided and prejudiced, said the company in a statement.

It also said that there was no reference to any item of revenue or differences apart from items reported by the company and included in its quarterly disclosures to the stock exchanges, department of telecom (DoT) and Trai. The special audit has nowhere recorded a finding that there was any inflation of revenue by RCOM, as incorrectly alleged in a section of the media, said the statement.

The special auditors appointed by DoT had alleged that RCOM inflated revenues by over Rs 2,900 crore, while at the same time, underreporting revenues to Trai with the intention of evading licensing fee of over Rs 300 crore. But RCOM said it had received a copy of the report issued by the special auditors appointed by DoT only on October 14, after persistently asking for a copy of the report. The report was submitted to DoT on October 7, 2009.

In an earlier conversation with ET, the auditor, Parakh &Co, defended its work and denied allegations that its findings had not been shared with RCOM. The company also stated that the Rs 160 crore, which represented over 50% of the alleged additional liability of Rs 316 crore, was blatantly incorrect. And that, TDSAT and Customs, Excise And Service Tax Appellate Tribunal (CESTAT) have already passed rulings in favour of RCOM.

The company claims that the special auditors have wrongly alleged the existence of an additional liability of Rs 70 crore towards licence fees on income such as unrealised foreign exchange gains and interest and dividends earned by the company before it became a licensee.

This finding is entirely contrary to the direct decision of the TDSAT applicable to the entire telecom industry, it said in a statement.

RCOM said it has made due disclosures and is fully complaint with listing agreements of both the stock exchanges and all Sebi disclosure guidelines.

RCOM has accused the auditors of not being professional in their conduct, as they did not discuss their findings and observations with the company at any stage. The special auditor has arrived at adverse findings without seeking any response on facts and law from RCOM and it has also finalised the report without any discussions with RCOMs statutory auditors, the company said.

The companys statutory auditors are BSR & Co (KPMG) and Chaturvedi & Shah (Nexia International). RCOMs accounts were also subjected to peer group review by Sebi-appointed auditors in May 2009.

The government had appointed Parakh & Co as special auditors to conduct audit of the accounts of the company and its subsidiaries Reliance Communications Infrastructure, Reliance Telecom and Reliable Internet Services for the financial years 2006-07 and 2007-08.

Special auditors have also been appointed for other telecom operators and they are likely to submit reports in next few months.

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