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Issues: (i) transfer pricing adjustment on royalty payment for use of trademark and trade name; (ii) transfer pricing adjustment on specified domestic transaction relating to passive infrastructure charges and rent; (iii) disallowance of depreciation on right to use 3G spectrum; (iv) disallowance of penalty paid to the Department of Telecommunication; (v) disallowance of depreciation on asset restoration cost; (vi) addition for liabilities written back; (vii) disallowance under section 40(a)(ia) on discount extended to prepaid distributors; (viii) disallowance of license fee and related amortization claim; (ix) disallowance of payments made to IBM; (x) disallowance of royalty WPC expense; (xi) short credit of tax deducted at source and interest on refund.
Issue (i): transfer pricing adjustment on royalty payment for use of trademark and trade name.
Analysis: The royalty transaction was benchmarked by the assessee under CUP, while the transfer pricing authority substituted TNMM and adopted controlled arrangements as comparables. The Tribunal treated the controversy as covered by its earlier order in the assessee's own case for the preceding year and followed the same reasoning to test the comparability exercise.
Conclusion: The transfer pricing adjustment on royalty payment was deleted in favour of the assessee.
Issue (ii): transfer pricing adjustment on specified domestic transaction relating to passive infrastructure charges and rent.
Analysis: The Tribunal held that the specified domestic transaction adjustment had been omitted from the statute and relied on the effect of such omission to hold the reference and consequent adjustment unsustainable. It also accepted the revenue-neutral character of the transaction in the factual setting of the case.
Conclusion: The adjustment on passive infrastructure charges and rent was deleted in favour of the assessee.
Issue (iii): disallowance of depreciation on right to use 3G spectrum.
Analysis: The claim was examined in light of prior co-ordinate bench rulings in the assessee's own case and related group matters, where spectrum-related expenditure was treated as eligible for depreciation as an intangible asset rather than being confined to amortization under the competing provision relied upon by the Assessing Officer.
Conclusion: The disallowance of depreciation on right to use 3G spectrum was deleted in favour of the assessee.
Issue (iv): disallowance of penalty paid to the Department of Telecommunication.
Analysis: The Tribunal followed its earlier view that the payment arose from breach of contractual obligations under the licence arrangement and not from an infraction of law attracting the bar on deduction. The same approach was applied to the analogous penalty relating to the Universal Service Obligation Fund.
Conclusion: The disallowance of the Department of Telecommunication penalty was deleted in favour of the assessee.
Issue (v): disallowance of depreciation on asset restoration cost.
Analysis: The Tribunal followed the earlier decision in the assessee's own case and the later High Court ruling recognising the allowability of the underlying obligation as revenue expenditure under section 37. On that basis, the assessee's claim was restored in substance, with verification of the expenditure directed at the assessment stage.
Conclusion: The claim relating to asset restoration cost was allowed for statistical purposes in favour of the assessee.
Issue (vi): addition for liabilities written back.
Analysis: The Tribunal noted that the liability written back related to capital equipment and that the issue had already been decided against the assessee in the prior year on the footing that the remission constituted a business liability within the charging provisions invoked by the Revenue.
Conclusion: The addition for liabilities written back was sustained against the assessee.
Issue (vii): disallowance under section 40(a)(ia) on discount extended to prepaid distributors.
Analysis: The Tribunal applied the Supreme Court ruling that such discount is not commission and therefore does not attract the TDS obligation under the provision invoked by the Revenue. The earlier year's order in the assessee's own case was followed.
Conclusion: The disallowance under section 40(a)(ia) was deleted in favour of the assessee.
Issue (viii): disallowance of license fee and related amortization claim.
Analysis: The Tribunal followed the Supreme Court authority holding the licence fee to be capital in nature and amortizable under the specified provision. The assessee was therefore directed to have the claim examined and allowed in accordance with that framework.
Conclusion: The issue was allowed for statistical purposes in favour of the assessee.
Issue (ix): disallowance of payments made to IBM.
Analysis: The Tribunal treated the payment as lease-related expenditure where beneficial ownership remained with the supplier and the tax treatment was governed by the substantive provisions rather than accounting classification. It followed the earlier co-ordinate bench decision allowing the expenditure as revenue outgo.
Conclusion: The disallowance of payments made to IBM was deleted in favour of the assessee.
Issue (x): disallowance of royalty WPC expense.
Analysis: The Tribunal followed the jurisdictional High Court and its own earlier decision that the recurring spectrum-related payments were revenue in nature and not capital expenditure requiring capitalization.
Conclusion: The disallowance of royalty WPC expense was deleted in favour of the assessee.
Issue (xi): short credit of tax deducted at source and interest on refund.
Analysis: The Tribunal directed verification of the assessee's entitlement and instructed the Assessing Officer to grant credit and refund interest according to law.
Conclusion: These issues were allowed for statistical purposes in favour of the assessee.
Final Conclusion: The appeal succeeded on most substantive grounds, with several additions and disallowances deleted, some claims restored for verification or allowed for statistical purposes, and the addition relating to liabilities written back sustained against the assessee.
Ratio Decidendi: For transfer pricing, controlled transactions cannot be treated as comparable uncontrolled transactions for CUP analysis, and a tax adjustment based on an omitted domestic transfer pricing provision cannot survive; further, contractual lease-related outgoings and prepaid distributor discounts are deductible where the governing tax characterisation supports revenue treatment.
Transfer pricing and revenue deduction disputes resolved in favour of the taxpayer on royalty, spectrum rights, and distributor discounts.
ITAT Delhi dealt with multiple transfer pricing and deduction disputes, deleting the royalty adjustment on trademark and trade name use by following its own prior year ruling and rejecting the substitution of TNMM comparables. It also deleted the domestic transfer pricing adjustment on passive infrastructure charges and rent after noting the relevant provision had been omitted. Depreciation was allowed on 3G spectrum rights, Department of Telecommunication penalty, IBM-related payments, and WPC royalty expense as revenue or intangible-related claims, while prepaid distributor discounts were held not to attract section 40(a)(ia). The liabilities written back addition was sustained, and the TDS credit and refund interest issues were remitted for verification.
Transfer pricing on royalty - Specified domestic transactions after statutory omission - Depreciation on spectrum rights - Allowability of contractual payments under section 37(1) - Taxability of liabilities written back - Discount to prepaid distributors - Capital or revenue nature of telecom licence fee - Lease rentals for use of assets - WPC royalty expenditure Transfer pricing on royalty - Comparable uncontrolled price - payment of brand royalty made for obtaining the right to use of ‘Vodafone’ trademarks and trade names - HELD THAT: - The Tribunal held that the issue stood covered by the order in the assessee's own case for the immediately preceding year. Following that decision, it accepted that the adjustment had been made by relying on related-party agreements for benchmarking under CUP, and therefore the adjustment could not be sustained. [Paras 9] TP Adjustment - specified domestic transaction (“SDT”) of passive infrastructure charges of rent - HELD THAT: - The Tribunal held that, after omission of the relevant statutory provision governing specified domestic transactions, the basis for determination of arm's length price in such transactions no longer survived. As decided in the case of CIT vs. Texport Overseas [2019 (12) TMI 1312 - KARNATAKA HIGH COURT] after further considering the facts has held that the reference made u/s 92CA is invalid and bad in law, since, the provisions with respect to determination of ALP of specified domestic transactions has been omitted from the statute It also noted that the payee was a profit-making taxable entity while the assessee was incurring losses, making the exercise revenue neutral. On these grounds, the adjustment was deleted. [Paras 13, 14] Depreciation on spectrum rights - right to use 3G Spectrum - Intangible assets - assessee claimed depreciation as Spectrum fee was not covered u/s 35ABB of the Act which is applicable with respect to amortization of expenditure incurred for obtaining license for telecommunication services - HELD THAT: - The Tribunal found that the controversy was covered by the decision in the assessee's own case for the preceding year [2025 (10) TMI 1111 - ITAT DELHI] which had accepted the claim following the group-company decision. Respectfully following that view, it held that the disallowance could not be sustained. [Paras 16] Allowability of contractual payments under section 37(1) - Penalty under telecom licence conditions - HELD THAT: - The Tribunal treated both items as covered by its earlier order in the assessee's own case [2025 (10) TMI 1111 - ITAT DELHI] Asst. Year 2012-13. Following that order, it accepted the claim that the payments were not disallowable on the footing adopted by the Assessing Officer, and extended the same treatment to the second payment since its nature was held to be identical. [Paras 18, 19, 21] Disallowance of depreciation claimed on the addition to fixed asset on account of Asset Restoration Cost (“ARC”) - Revenue deduction under section 37(1) - HELD THAT: - As in assessee’s own case for AY 2012-13 after considering the submissions and the judgment of Vodafone Mobile Services Ltd. [2025 (3) TMI 659 - DELHI HIGH COURT] for Assessment Year 2009-10 held the said expenses are allowable u/s 37 of the Act and, thus, allowed the deduction. [Paras 23] Taxability of liabilities written back - Section 28(iv) - HELD THAT: - The Tribunal recorded the assessee's fair concession that the issue stood concluded against it by the order in its own case for the preceding year [2025 (10) TMI 1111 - ITAT DELHI]. Following that decision, it upheld the addition arising from write-back of liability relating to capital equipment already purchased, capitalised and used in business. [Paras 25] Non deduction of tds on Discount to prepaid distributors - Commission under section 194H - The disallowance under section 40(a)(ia) on discount extended to prepaid distributors was deleted. - HELD THAT: - The Tribunal held that the issue stood covered by the Supreme Court decision in the case of Bharti Cellular Ltd. [2024 (3) TMI 41 - SUPREME COURT] holding that discount given to prepaid distributors is not commission. As section 194H was therefore inapplicable, the consequential disallowance under section 40(a)(ia) could not survive.The disallowance on prepaid distributor discount was deleted. [Paras 27] Disallowance on account of capitalization of license fee claimed u/s 37(1) as expenditure - Capital or revenue nature of telecom licence fee - Amortisation under section 35ABB - HELD THAT: - The Tribunal held that the controversy was settled by the Supreme Court, which had treated such licence fee as capital expenditure eligible for amortisation under section 35ABB. Applying that principle, it directed the Assessing Officer to verify the working and allow amortisation accordingly. [Paras 29] Lease rentals for use of assets - Revenue expenditure under section 37(1) - HELD THAT: - The Tribunal followed its order for the preceding year and the coordinate bench decision cited therein, holding that mere accounting treatment as finance lease is not determinative for tax purposes. Since the assessee had only paid for use of assets and had not acquired ownership, the expenditure was allowable as revenue expenditure. [Paras 31] WPC royalty expenditure - Revenue OR capital expenditure - disallowance of WPC royalty expense by treating it as capital expenditure - HELD THAT: - The Tribunal held that the issue was covered by the order in the assessee's own case for the preceding year [2025 (10) TMI 1111 - ITAT DELHI] which had followed the jurisdictional High Court in [2008 (12) TMI 743 - DELHI HIGH COURT] Respectfully following that view, it allowed the assessee's claim. [Paras 33] Short credit of taxes deducted at source - Refund interest under section 244A - The claims for TDS credit and refund interest were restored for verification. - HELD THAT: - The Tribunal did not adjudicate these claims on merits. It directed the Assessing Officer to verify the assessee's claim regarding credit of tax deducted at source with reference to income offered, and to compute and grant interest on refund in accordance with law. [Paras 35, 37] Final Conclusion: The appeal was largely allowed in favour of the assessee. The transfer pricing adjustments and most substantive disallowances were deleted, the addition on liabilities written back and the challenge to initiation of penalty were rejected, and limited matters relating to asset restoration cost, licence fee amortisation, TDS credit and refund interest were sent for verification or consequential relief.