TaxTMI 
TaxTMI 
2025 (2) TMI 867
X X X X Extracts X X X X
X X X X Extracts X X X X
....tfully submits that: On the facts and circumstances of the case and in law, the learned Dispute Resolution Panel-II, Mumbai ("DRP") has erred in passing the order under section 144C(13) of the Income Tax Act, 1961 (Act'), partly confirming the adjustments proposed by the Deputy Commissioner of Income Tax, Circle 8(3)(2), Mumbai (AO) [jurisdiction later transferred to Assistant Commissioner of Income Tax 5(3)(2) pursuant to merger of Vodafone India Limited with Idea Cellular Limited] in the draft assessment order, and the learned AO has accordingly erred in passing the assessment order under section 143(3) read with section 144C of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Disallowance under section 14A of the Act 1.1. On the facts and circumstances of the case and in law, the learned DRP/AO has erred in invoking the provisions of section 14A of the Act and thereby, has erred in making a disallowance of INR 362,23,34,000 under section 14A of the Act under normal provisions of the Act, as well as special provision of computing book profit section 115JB of the Act. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the tax depreciation amounting to INR 2,61,29,65,700, claimed by the Appellant under section 32(1) of the Act for the subject AY on the written down value of capital expenditure incurred by the Appellant on acquisition of right to use 3G spectrum in AY 2011-12. 3.2. On the facts and in the circumstances of the case and in law, once the learned DRP/AQ has clearly held that one-time expenditure incurred on acquisition of 3G spectrum is capital expenditure which is in nature of 'intangible asset and also that the spectrum was de-linked from telecom license, it was axiomatic for them to allow tax depreciation under section 32 of the Act. 3.3. On the facts and in the circumstances of the case and in law, the learned DRP has erred in confirming the observation of the learned AO that right to use 3G spectrum is covered by the specific provision of 35ABB of the Act which overrides the general provision of section 32 of the Act. 4. Disallowance of payments made to IBM 4.1. On the facts and in the circumstances of the case and in law, the leamed DRP/AO has erred in disallowing service charges paid to IBM, amounting to INR 14,66,83,051 on the premis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e name at Nil price without application of any method as prescribed under section 92C of the Act. 6.1.4. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in rejecting the economic analysis undertaken by the Appellant using comparable uncontrolled price method ("CUP") and not considering the economic analysis undertaken by the Appellant using transactional net margin method (TNMM') to determine the ALP of the royalty payment made for grant of right to use of 'Vodafone trademark and trade name. 6.1.5. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in determining the ALP of royalty payment for grant of right to use "Vodafone trademark and trade name at Nil price by questioning the commercial expediency of such expenditure. 7. TP adjustment amounting to INR 2,45,23,347 on account of re-imbursement of expenses to AE 7.1. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in determining the ALP of the international transaction pertaining to reimbursements made in relation to PwC consulting charges and people survey costs at Ni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounds of appeal and the facts and circumstances of the case." 3. The relevant facts, in brief, are that Appellant is a company engaged, inter alia, in providing cellular telecommunication services. The Appellant filed its return of income for the Assessment Year 2014-2015 on 27/11/2014 declaring total loss of INR 474,26,15,918/-. Subsequently, the Appellant filed revised return on 27/02/2017 declaring total loss of INR 474,26,15,918/-. The case of the Appellant was selected for regular scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm's Length Price (ALP) of the international transactions. The TPO, vide order, dated 30/10/2017, passed under Section 92CA(3) of the Act proposed, inter alia, the following transfer pricing adjustments: S.No. Nature of Transaction Amount (INR) 1 Payment of Royalty 35,97,56,258/- 2 Payment of Centralized support service (Machine to Machine) 84,57,000/- 3 PwC recharges and ot....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rules']. 4.1. The facts relevant for adjudication of the above grounds are that during the assessment proceedings, the Assessing Officer noted that the Appellant has earned exempt dividend income of INR 219,99,12,000/-. Therefore, the Appellant was asked to explain why disallowance should not be made under Section 14A of the Act read with Rule 8D of the IT Rules. In response, vide reply letter dated 24/08/2017, it was submitted by the Appellant that during the relevant previous year no fresh investments were made by the Appellant. Further, no finance cost has been incurred in relation to investments made in the prior years. The investments in the prior years were sourced from shares swap, issue of shares by way of rights issue and internal cash accruals. Further, during the relevant previous year the Appellant had earned exempt dividend income of INR.220 Crores from Indus Towers Limited. However, no expenditure was incurred in relation to earning the said dividend income. It was further contended the management/administrative expenses incurred by the Appellant during the relevant previous year were recovered by the Appellant from its subsidiaries as management support services ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... record. 4.7. It is admitted position that the Appellant has earned exempt dividend income of INR 404.98 Crores from investments made in 'Indus Towers Limited' during the relevant previous year. It is also admitted position that no investments were made by the Appellant during the relevant previous year. Further, it has not been disputed by the Revenue that total investments of INR 7,122.51 Cores were made by the Appellant in prior years either by share swap arrangement, or by issuance of shares by way of rights issue or by way of internal cash approvals. On perusal of paragraph 5.2.25 of the Assessment Order we find that the investments made by the Appellant as on 01/04/2012 and 31/03/2013 stood at INR 7,122.60 Crores and INR 7,122.40 Crores, respectively. At the same time the Aggregate Share Capital and Reserves & Surplus of the Appellant stood at INR 8,043.90 Crores and 7,701.10 Crores as on 01/04/2012 and 31/03/2013, respectively. The contention of the Appellant is that no disallowance of interest in terms of Rule 8D(2)(ii) of the IT Rules can be made in respect of interest expenses since the Appellant had sufficient own funds. On the other hand, the Assessing Officer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../09/2017 also do not contain any directions to the Assessing Officer to make any adjustment to Book Profits computed in terms of Section 115JB of the Act. Accordingly, the adjustment made by the Assessing Officer in respect of addition/disallowance under Section 14A of the Act to the Book Profits computed under Section 115JB of the Act in the Final Assessment Order is deleted." (Emphasis Supplied) 4.5. The Revenue has failed to bring on record any material to differentiate the above decision of the Co-ordinate Bench of the Tribunal either in law or on facts. Therefore, respectfully following the same, we accept the contention of the Appellant that no disallowance under Section 14A read with Rule 8D(2)(ii) of the IT Rules was warranted in the present case and therefore, addition of INR.326.6214 Crores made by the Assessing Officer by disallowing proportionate interest cost is deleted under the normal provisions. 4.6. As regards disallowance of INR.35.612 Crores made by the Assessing Officer under Rule 8D(2)(iii) of the IT Rules is concerned, we find that Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investments Pvt. Ltd. (2017) 82 taxmann.com 415 (Delhi Trib.) (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant had failed to deduct tax at source, the Assessing Officer passed the Final Assessment Order, dated 30/11/2018, making disallowance of INR 68,19,45,415/- under Section 40(a)(ia) of the Act. 5.2. Being aggrieved, the Appellant has carried the issue in appeal before this Tribunal. 5.3. We have considered the rival submissions and perused the material on record. 5.4. It emerges that identical issue had come up for consideration before the Mumbai Bench of the Tribunal in case of the Assessee for the Assessment Year 2009-10 [ITA No. 1121 & 1885/Mum/2014, common order dated 08/11/2023], and identical disallowance made under Section 40(a)(ia) of the Act by the Assessing Officer in respect of the upfront discount was deleted by the Tribunal holding as under: "11. The next issue urged in Ground no.9 relates to disallowance of discount extended on pre-paid cards/recharge vouchers u/s 40(a)(ia) for non-deduction of tax at source. It was brought to our notice that an identical issue was examined by the co-ordinate bench in ITA No.3425/Mum/2014 relating to AY 2009-10 in the case of M/s Vodafone Idea Ltd (As successor to Spice Communications Ltd) and the Tribunal, vide its....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2. The Appellant-Revenue challenges the order dated 4 January 2017 passed by the Income Tax Appellate Tribunal in Income Tax Appeal No.1041, 1042 and 1953 to 1955/PUN/2013. 3. This Appeal pertains to the Assessment Year is 2010-11. 4. The Appellant-Revenue has raised the following questions as a substantial questions of law :- "(a) Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in holding the discount given by the assessee to its distributors on prepaid SIM Cards does not require deduction of tax under Section 194H of the Income Tax Act ? (b) Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in setting aside the case to the Assessing Officer?" 5. The Tribunal noted the observations of the Assessing Officer that the discount allowed to the distributors by the Respondent - assessee company is on account of principal to principal relationship and not that of principal to agent. The Tribunal followed the decision of the Karnataka High Court in the 20 M/s. Vodafone India Ltd. case of Bharati Airtel Ltd.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in 325 ITR 148 (Del) is concerned, we find that the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd (372 ITR 33) referred supra had after considering the decision of Hon'ble Delhi High Court referred supra and decided the issue in favour of the assessee. We find that the Hon'ble Karnataka High Court had also followed the decision of Hon'ble Jurisdictional High Court in the case of Qatar Airways reported in 332 ITR 21 M/s. Vodafone India Ltd. 253 (Bom). Hence the reliance placed on the decision of Hon'ble Delhi High Court by the ld. DR does not advance the case of the revenue. In any case, the decisions of Hon'ble Delhi High Court, Hon'ble Kerala High Court and Hon'ble Calcutta High Court referred supra had been considered and distinguished by the Hon'ble Karnataka High Court referred supra. 2.8.4. We further find that the Hon'ble Rajasthan High Court in the case of Hindustan Coca Cola Beverages (P) Ltd vs CIT III Jaipur reported in 402 ITR 539 (Raj) which had rendered a comprehensive judgement on the impugned issue together with various other assesses including Idea Cellular Ltd (assessee herein). The relevant Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was rendered in the context of determination of Annual Gross Revenue for the purpose of fixing the licence fee payable to Government by the telecom service providers. It further held that while reckoning the Gross Revenues, no deduction would be available such as discount, commission etc. First of all, we have already held that the assessee had not made any payment of discount to the distributors. In any case, we have already held that the entries in the books of accounts are not determinative of tax liability of an assessee by placing reliance on various decisions of Hon'ble Apex Court. Those decisions still rule the field as they were not overruled by the latest Supreme Court decision relied upon supra by the ld. DR. It is trite law that though the decision of Hon'ble Apex Court would be binding as per Article 141 of the Constitution of India, still the judgement of the Hon'ble Supreme Court should be understood from the issue raised before it. In our considered opinion, this decision has got absolutely nothing to do with the applicability of provisions of section 194H of the Act. Hence we hold that the reliance placed by the ld. DR on the said decision is grossly mis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Ground No. I is also allowed." (Emphasis Supplied) 11.1 Facts being identical, following the above said decision of the coordinate bench in the case of M/s Vodafone Idea Ltd (As successor to Spice Communications Ltd), we hold that the assessee is not liable to deduct tax at source from the discount paid on prepaid sim card/recharge vouchers. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 40(a)(ia) of the Act." 5.5. On perusal of above extract of the decision of the Co-ordinate Bench of the Tribunal it can be seen that the Tribunal had concluded that tax was not required to be withheld under Section 194H of the Act from the upfront discount offered to Pre-paid Distributors, and consequently, no disallowance could be made under Section 40(a)(ia) of the Act for failure to deduct tax at source. The above decision of the Tribunal has been followed by the Co-ordinate Benches of the Tribunal while deciding identical issue in favour of the Appellant in appeal preferred for the Assessment Years 2011-2012 & 2012-13 [ITA No.884/Mum/2016 & 2834/Mum/2017, common order dated 17/05/2024] and for the Assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tribunal. 6.3. We have considered the rival submission and perused the material on record. It is admitted position that 3G spectrum charges were paid by the Appellant during the previous year 2010-11 relevant to the Assessment Year 2011-12. For the Assessment Year 2011- 12, the depreciation in respect of spectrum charges as claimed by the Appellant was allowed by the Assessing Officer. Subsequently, order of revision was passed under Section 263 of the Act on the ground that depreciation in respect of the 3G spectrum charges was incorrectly allowed to the Appellant by the Assessing Officer and that the Appellant could only be allowed the benefit of amortization. In appeal preferred against the aforesaid order passed under Section 263 of the Act for the Assessment Year 2011-12, the Mumbai Bench of the Tribunal concluded that depreciation in respect of 3G spectrum charges was correctly allowed by the Assessing Officer [vide order dated 28/08/2020, passed in ITA No. 3327/Mum/2018 (Vodafone India Ltd. Vs. Principal Commissioner of Income Tax-8)] holding as under: "29. Accordingly, we can safely conclude that on the merits of the issue, the Mumbai Bench of the ITAT in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....old that this issue is squarely covered in favour of the assessee by the decision of the Jurisdictional Bench of the Tribunal in the case of Idea Cellular Limited (ITA No. 360/Mum/2016) dated December 6, 2017. In this context, we highlight that the Tribunal in identical fact pattern for the same assessment year has not only upheld claim of depreciation on the 3G spectrum fees under section 32(1)(ii) of the Act treating the right to use 3G spectrum as an intangible asset, but has also quashed the revisionary proceedings initiated by the Revenue authorities. The key observations of the Hon'ble Tribunal are as under: a. On maintainability of revisionary proceedings under section 263 of the Act: The Hon'ble Tribunal categorically held that since the assessment order was passed after conducting a detailed enquiry and adopting one of the legally permissible view, the revisionary proceedings initiated on such issue has no legs to stand on and is thus liable to be quashed. Refer paras 13 to 16 of the order (page no 19 to 25 of the order). b. On merits of allowability of depreciation claimed on 3G spectrum fees: The Hon'ble Tribunal observed that the telecom license and sp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Appellant had capitalized these expenses in the books of accounts. However, in the return of income the Appellant had claimed deduction for these expenses as revenue expenditure. Therefore, in the Draft Assessment Order the Assessing Officer proposed disallowance of the aforesaid service charge paid/payable to IBM observing that the aforesaid amount was capitalized in the books of accounts. According to the Assessing Officer there was no provision in the Act permitting the Appellant to claim deduction for expenditure in case the same was not claimed in the books of accounts. Further, Assessing Officer was of the view that service charge was paid/payable to IBM for a period of five years and therefore, the aforesaid expenditure was in the nature of pre-paid expenditure pertaining to the next four years for which deduction could not have been allowed during the relevant previous years under mercantile system of accounting followed by the Appellant. The objections filed by the Appellant before DRP on this issue were rejected on the ground that Appellant had failed to demonstrate before the DRP the exact nature of the expenses. Accordingly, in the Final Assessment Order disallowance of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erms of the aforesaid Ground No. 4 to 4.2 raised by the Appellant are allowed for statistical purposes. Ground No. 5 to 5.2 8. Ground No. 5 to 5.2 raised by the Appellant are general grounds relating to transfer pricing adjustment which do not require separate adjudication. Accordingly, Ground No. 5 to 5.2 are dismissed as being general in nature. Ground No. 6 to 6.1.5 9. Ground No. 6 to 6.1.5. raised by the Appellant pertains to transfer pricing adjustment of INR 35,97,56,258/- made in respect of the payment of brand royalty for obtaining the right to use of Vodafone trademark and trade name. 9.1. During the relevant previous year, the Appellant made royalty payments of INR 35,97,56,258/- [computed @ 1 % of net revenue] to its AE [i.e., Vodafone Sales and Services Limited (VSSL)] for grant of right to use "Vodafone" trademark and trade name. The Appellant contended that as per Comparable Uncontrolled Price Method (for short 'CUP Method') the royalty payment was at arm's length since on analysis of the comparables selected, the Appellant found that the mean of the royalty payments being made under comparable third-party arrangements was 1.25% which was more than the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s selected by the Appellant on account of significant differences in the functions, geography and level of operations. It has been submitted on behalf of the Appellant that the corroborative benchmarking using Transaction Net Margin Method (TNMM) had also not been considered by the Assessing Officer and the DRP. Given the aforesaid factual matrix and keeping in view the fact that for the three preceding Assessment Years 2011-12 to 2013- 14 the issue of benchmarking of the royalty transaction has been remanded back to the file of the TPO/Assessing Officer, we deem it appropriate to remand this issue back to the file of TPO/Assessing Officer with the directions to decide the issue of transfer pricing adjustment in relation to international transaction of royalty payment afresh after granting the Appellant reasonable opportunity of being heard. The Appellant is directed to file before the TPO/Assessing Officer such documents/details/report as the Appellant may deem fit to support the contention that the royalty payment made by the Appellant to its AE are at arm's length while the TPO is directed to examine the same afresh for determining the ALP and made consequent transfer pricing ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ple has accepted the fact that the payments were made towards reimbursement of salary and related cost of seconded employees on cost to cost basis and thus allowed substantial part of assessee's claim. However Rs. 3,63,31,007/- has been disallowed for the reason that the assessee has not been able to substantiate back to back payment of the said amount. Once it has been accepted that the five employees were seconded to India by overseas AEs, the relocation of those employees to India is a consequential step. There would be cost attached to relocation of such employees. The said cost has either to be borne by the AE or the assessee. This fact can be determined from the terms and conditions of secondment of employees. In case relocation costs/travel costs are borne by the assessee, the same deserves to be allowed if they are reimbursed on cost to cost or are paid directly to the seconded employees. Taking into consideration entire facts, we deem it appropriate to restore this issue back to the file of Assessing officer for re-examination. The assessee is directed to furnish relevant documents to substantiate that the costs disallowed by the DRP were in fact cost paid by the assessee ....