TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 1111
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....fone Infrastructure Limited (VInfL.') with effect from 01.04.2009. The Demerger Scheme in case of two erstwhile entities, as approved by the Hon'ble Delhi High Court (in the case of erstwhile VSL) and Madras High Court (in the case of VCL) provided that book value of the "PI" assets transferred shall be carried to the Balance Sheet as miscellaneous expenditure and amortized over a period of 10 accounting years beginning from 01 April 2009. The unamortized balance of the said miscellaneous expenditure amounted to Rs. 1879,70,00,000/- reported in the stand-alone Balance Sheets of the erstwhile two entities as on 31 March 2011. Accordingly, as a result implementation of the Demerger Scheme, all the transferor entities therein (including erstwhile VSL and VCL) accounted for such transfer of "Pl" assets as per the accounting treatment provided as per the method prescribed in the Demerger Scheme. While erstwhile VCL and VSL (ie. Fifth and Seventh Transferor Company in the Demerger Scheme) followed the treatment specified in clause (b) above. Other transferor companies (including the Assessee on a standalone basis) followed the accounting treatment specified in clause (a) above. T....
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....eting Limited ("VIML") and Vodafone Sales and Services Limited ("VSSL") for use of 'VODAFONE'. Agreement to pay royalty fee @ 0.70% of Net services revenues. Rs. 19,17,63,087/- paid to Rising Group Limited ("RGL") for use of "ESSAR" in terms of Agreement dated 19.12.2008. Agreement to pay royalty fee @ 0.35% of Net services revenues. The assessee benchmarked the transaction using CUP as the most appropriate method and TNMM at entity level. The assessee benchmarked the transaction with three comparables as under:- Licensor Licensee Rate Jeanmichel Cousteau ocean future society Inc. Ultrastrip systems Inc. 2.00 % Inc NetTalk.com OmniReliant Inc. 1% Harnishfeger Technologies Inc. Morris material handling 075% 4.3 The ldAO/TPO rejected the TNMM method and held that 'Essar' has no brand recognition and alleged that Assessee has not substantiated any benefit derived from use of the said trademark and therefore, payment of royalty for Essar to be taken at Nil. For 'VODAFONE; it rejected the three comparables selected by the Assessee and proposed 0.25% as the royalty rate based on the following comparable: i. Virgin Enterp....
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....19,17,63,087/- paid by the Assessee in respect of 'ESSAR', it is submitted that royalty payments made for "Essar" is purely a business decision of the Assessee which cannot be questioned by the learned TPO. Reliance in this regard is placed on: a. Cushman and Wakefield (India) Pvt. Ltd. [ITA No. 475/2012] b. CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 4.6 The ld DR vehemently relied on the orders of the lower authorities. 4.7 Considered the rival submissions and material placed on record. We observed that ITAT Ahmedabad Bench had considered the similar issues and decided the similar issues under consideration as under: "30. A perusal of the case record indicates that the assessee had paid brand royalty fee amounting to Rs. 5,37,37,397/- and Rs. 2,68,68,699/- to its overseas associate enterprises, namely, M/s. Vodafone Ireland Marketing Ltd. and M/s. Rising Groups Ltd.; respectively. It adopted the transaction net margin method (TNMM) to benchmark the same. We find from Transfer Pricing Officer's order dated 28.01.2013 that he rejected assessee's method after holding that the same was an indirect one liable to give way to the other ....
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....ed by the Finance Act, 2001 w.e.f. 01-04-2002. The impugned assessment year before us is the first full fledged year of business thereafter. Section 92(1) mandates any income arising from an international transaction to be computed having regard to arms length price. The same admittedly applies in case of international transactions; as it then was, between two associate enterprises illustrated in section 92A of the Act. We repeat that this assessee and its overseas associate enterprise admittedly fall in this category. There is further no quarrel about its Deltamethrin sale to be in the nature of international transactions u/s. 92B of the Act. We notice that section 92C(1) of the Act postulates arms length price computation by applying six methods namely; comparable un-controlled price method (CUP), re-sale price method (RPM), cost method (CPM), profit split method (PSM), transactional net margin method (TNMM) and the residuary one such other methods as may be prescribed by the Central Board of Direct Taxes. An Assessing Officer's jurisdictional flows thereafter u/s. 92CA of the Act to make reference to the TPO for ascertaining arms length price of the relevant international tr....
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....trolled transaction between two associate enterprises negating the basic fundamental condition of CUP methods application. 32. We proceed further to observe here that various coordinate benches of this tribunal have already adjudicated this issue as to whether an accepted net profit margin from a transaction with an associate enterprise can be taken as comparable or not being an internal comparable for determining arms length price. Two tribunals decisions reported as (2012) 24 taxmann.com 28 (Mum) (TM) Technimont ICB Pvt. Ltd. vs. ACIT as reiterated in ITA 2587/Ahd2012 Pino Bisazza Glass Pvt. Ltd vs. ACIT already decide this issue in assessee's favour to conclude that such a comparable is not to be adopted as comparable un-controlled transaction price in question. 33. We have already noticed that a comparable un-controlled transaction instead of a controlled forms sine qua non for determining ALP of an international transaction between two associate enterprises leaving behind no scope of application of estoppel principle or acceptance of agreed prices in absence of an comparable un-controlled transaction. The Revenue's vehement contentions advanced in the....
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....payment of royalty. 5. Ground No. 3 to 3.3 raised by the assessee is about Disallowance of depreciation amounting to Rs. 12,47,17,47,967/- in respect of right to use 3G Spectrum. 5.1 Considered the rival submissions and material placed on record. Brief facts of the issue is, assessee paid fees for acquisition of 3G spectrum and treated the same as capital expenditure and claimed depreciation u/s 32 of the Act as "Spectrum" was mentioned as "intangible asset" in Note 12 of its audited financials. Assessee claimed depreciation during the year under consideration, spectrum fee was not covered u/s 35 ABB of the Act since the same is only with respect to amortization of expenditure incurred for obtaining license for telecommunication services. As regards amortization u/s 35ABA of the Act, it was submitted that it has been inserted only by Finance Act, 2016, w.e.f. 01.04.2017 and therefore, the same is not applicable for the year under consideration. 5.2 We observed that the AO disallowed the claim of depreciation and amortized the same u/s 35ABB of the Act. The ld DRP upheld the action of the AO. 5.3 At the time of hearing, the ld AR submitted that this issue is identical to....
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....p company:- a. Erstwhile Vodafone East Ltd. v/s. ACIT (2016) 156 ITD 337 (Kolkata Trib.) b. DCIT v/s. Erstwhile Vodafone Essar Digilink Ltd. (2018) 193 TTJ 150 (Delhi Trib.) c. Order dated 17 May 2024 passed by the Tribunal in the case of the erstwhile "Vodafone India Ltd." for the A.Y. 2011-12 d. Commissioner of Income- tax vs. Enchante Jewellery Ltd. [2014] 220 Taxman 8 (Delhi) (Mag.)[20-11-2012] 6.5 On careful perusal of the above decisions relied upon by the assessee, we find that similar issues are involved in this ground of appeal. Therefore, respectfully following the decisions and in view of the facts and circumstances of the instant case, we find that this issue is squarely covered in favour of the assessee. Hence, ground No. 4 raised by the assessee is allowed. 7. Ground No. 5 raised by the assessee is about Disallowance of depreciation amounting to Rs. 2,36,69,878/- claimed on the addition to fixed assets on account of Asset Restoration Cost ("ARC") obligation. 7.1 Considered the rival submissions and material placed onrecord. Brief fact of the issue is, Assessee entered into lease agreement with various owners for setting up ....
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....ble u/s 37 of the Act. Therefore, this issue stands covered in favour of the assessee by the decision of the Tribunal in the assessee's group company's case i.e. erstwhile "Vodafone India Limited" has set-aside the issue to the files of the Assessing Officer vide: a. Order dated 16 March 2023 for the A.Y. 2006-07 b. Order dated 08 May 2023 for the A.Y. 2008-09 c. Order dated 08 November 2023 for the A.Y. 2009-10 7.5 The ld DR vehemently relied upon the decision of the ld AO and prayed for confirmation of the addition. 7.6 On careful perusal of the above decisions relied upon by the assessee, we find that similar issues are involved in this ground of appeal of the assessee. Therefore, respectfully following the decisions and in view of the facts and circumstances of the instant case, we find that this issue is squarely covered in favour of the assessee. Hence, ground No. 5 raised by the assessee is allowed. 8. Ground No. 6 raised by the assessee is about disallowance amounting to Rs. 2,50,57,883/- in respect of liabilities written back. 8.1 Considered the rival submissions and material placed on record. Brief fact of the issue is, the assessee ....
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....siness or profession. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession: ................................. (iv) the value of any benefit or perquisite, whether convertible into money or not. arising from business or the exercise of a profession" Section 28(iv) of the Act seeks to tax only such benefit or perquisite that may be arise to an assessee in consideration of exercise of his business or profession. Therefore, not only the business or profession should have been carried out by an assessee but such benefit should have been received in consideration of rendering of services by the assessee. The reversal of a capital liability cannot be said to have arisen from the business or exercise of the profession by the Assessee and thus, it is submitted that such reversal cannot be brought to tax u/s. 28(iv) of the Act. Further more, it is submitted this issue is also covered its favour by the decision of the Supreme Court in the case of CIT v/s. Mahindra & Mahindra Ltd. (2018) 404 ITR 1 (SC) wherein it has been held that waiver of loan for acquiring capital assets cannot be taxed u/s. 28(iv) ....
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....T DR vehemently relied upon the orders of the ld AO. 9.6 On careful perusal of the above decisions relied upon by the assessee, we find that similar issues are involvedare already considered by the apex court and other decisions of the coordinate benches in favour of the assessee. Therefore, respectfully following the decisions and in view of the facts and circumstances of the instant case, we find that this issue is squarely covered in favour of the assessee. Hence, ground No. 7 raised by the assessee is allowed. 10. Ground No. 8 raised by the assessee is with regard to disallowance of roaming charges amounting to Rs. 4,54,75,74,959/- under section 40(a)(ia) of the Act. 10.1 The ld AO/ DRP erred in making addition of Rs. 4,54,75,74,959/- u/s 40a(a)(ia) of the Act on account of non-deduction of tax at source on roaming charges incurred by the assessee. The ld DRP held as under:- "Identical ground was decided against the assessee in AY 2009-10, 2010-11 and 2011-12 DRP in A.Y 2011-12 had held as under: "The issue has been decided against the assessee by the prior DRP directions The same are respectfully followed in view of identical factual matrix. The Tribunal judg....
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....facts and circumstances of the instant case, we find that this issue is squarely covered in favour of the assessee. Hence, ground No. 8 raised by the assessee is allowed. 11. Ground No. 9 raised by the assessee is about disallowance amounting to Rs. 9,31,78,54,060 on account of capitalization of license fees u/s. 37(1) of the Act. 11.1 Considered the rival submissions and material placed on record. Brief fact of the issue is, assessee paid license fee amounting to Rs. 9,31,78,54,060/- which was claimed as revenue expenditure since it was not to obtain the license but to maintain the license obtained. 11.2 The ld AO disallowed the said expense holding it to be on account of capital expenditure and hence, not allowable. The ld DRP upheld the action of the ld AO. 11.3 In the facts and circumstances of the instant issue, we find that this issue is decided against the assessee by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Bharti Hexacom Ltd. reported in [2023] 458 ITR 593 (SC). However, considering the aforesaid decision of the Supreme Court, the assessee will be entitled to a deduction being the amortized value pertaining to the year under consider....
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.... entire amount of Rs. 96,71,96,490/- should be considered as capital in nature and should be amortized over a period of 5 years. Pursuant thereto, the Assessing Officer in terms of the impugned final Assessment Order, allowed a deduction of Rs. 19,34,39,298/- (1/5* of Rs. 96,71,96,490/-) and disallowed a sum of Rs. 77,37,57,192/-). 12.5 The ld counsel for the assessee submitted that the assessee submits that the difference in the description of the two items merely represents different description adopted by the erstwhile merging entities. There is no difference in the nature of the aforementioned expenditure. This expenditure represents payments made towards the use of hardware supplied by IBM which were capitalized in the Assessee's books of accounts in accordance with Accounting Standard - 19 on leases. It is imperative to note that IBM continued to be the owner of the hardware provided for use to the Assessee and the ownership of such assets was not transferred to the Assessee. For all practical purposes, IBM was exercising all ownership rights on the assets. For the purpose of computing income as per the provisions of the Act, since these charges were towards the use of har....
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....ar as Income Tax is concerned, the lease payments are considered as revenue expenditure whether they are operating or finance lease, they are allowed as revenue expenditure. We observe from the decision of coordinate bench in the case of Minda Corporation (supra), the bench had analyzed the issue under consideration in the right perspective and decided the issue as under: "5.1 After having heard rival submissions, we are of the view that AS-19 on accounting for "Leases" issued by the ICAI is only applicable for accounting the lease transaction in the books of accounts. It is a settled law that treatment in the books of accounts is not determinative of liability towards income-tax for the purpose of the Act. The liability under the Act is governed by provisions of the Act and is not dependent on the treatment followed for the same in the books of accounts. For above proposition, I reference is made to Sutlej Cotton Mills Ltd. vs. CIT: 116 ITR 1 (SC) and Kedarnath Jute Mfg. Co. Ltd. vs. CIT: 82 ITR 363 (SC). AS-9 on accounting for leases classifies lease transactions for accounting purposes as under: (i) Finance Lease (ii) Operating Lease 5.2 Finan....
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....in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is allowed to the legal owner of the asset. Furthermore, not only the interest/finance/ other charges component in the lease payments, but the entire lease payments are treated as a deductible expense and no deduction is allowed for the impairment provision. In the hands of the lessor, the entire 'lease rentals' and not merely the finance charges component thereof is taxed as income. The lessor, who is the legal owner of the asset, is entitled to claim depreciation under the provisions of the Act. 5.5 The aforesaid legal position finds support from the decision of the Hon'ble Supreme Court in the case of ICDS Ltd. vs. CIT350 ITR 527, wherein the Hon'ble Court held that the lessor is the owner of the leased property in case of finance lease, entitled to depreciation of the same. The pertinent observation of the Hon'ble Court is reproduced hereunder: The revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is trans....
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.... circumstances of the case. It is ordered accordingly." Respectfully, following the same, we direct the AO to allow the finance lease paid by the assessee on the assets acquired from IBM as revenue expenditure. In the result, ground raised by the assessee is allowed. 13. Ground No. 11 raised by the assessee is with regard to disallowance on account of capitalisation of royalty - WPC expenses. 13.1 Brief facts of the issue is, the assessee in its P & L A/c had claimed Royalty-WPC expenses amounting to Rs. 791,56,14,811/-. The assessee was asked to furnish the details on the basis of these royalty expenses and also to justify such claim. In response the assessee vide its reply dated 24.01.2014 stated that Royalty-WPC expenses booked in the profit and loss account pertain to spectrum charges paid to DOT on quarterly basis, as a percentage of revenue. Every telecom operator in India, in addition to the initial operator license fee, is required to pay GSM spectrum royalty for the usage of spectrum and microwave royalty for given microwave frequency usage on a regular basis, year on year. It was submitted by the assessee before the AO that this fee, incurred by the assessee, is ....
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.... also been decided in favour in the assessee own case by the Hon'ble Delhi High Court vide an Order dated 07 November 2016 for the A.Y. 2008-09. 13.6 Considering the above submission and the decisions relied upon by the ld counsel for the assessee, we respectfully following the decision of the Hon'ble Jurisdictional High Court and also the decision of the coordinate bench, we are inclined to allow ground No. 11 of the assessee. 14. Ground No. 12 is with respect to upward adjustment on account of Miscellaneous expenditure written off for computing book profits u/s 115JB of the Act. 14.1 Brief fact of the issue is Rs. 18,79,70,00,000 for the purpose of computing book profits under section 115JB of the Act. That on the facts and circumstances of the case and in law, it was submitted that the AO/DRP erred in making an upward addition of INR 18,79,70,00,000 to the book profits computed under section 115.JB of the Act. That on the facts and circumstances of the case and in law, the AO/DRP failed to appreciate that the accounts drawn by the company and accepted as such by the auditors cannot be modified except for the adjustments specified in section 115JB of the Act. 14.2 The....
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....along with its erstwhile entities except one entity) had filed a demerger scheme ("Demerger Scheme") for transfer of their Passive Infrastructure ('PI') assets to Vodafone Infrastructure Limited ('VInfL') with effect from 01.04.2009. 14.6 The Demerger Scheme in case of two erstwhile entities, as approved by the Hon'ble Delhi High Court (in the case of erstwhile VSL4) and Madras High Court (in the case of VCL5) provided that book value of the PI assets transferred shall be carried to the Balance Sheet as miscellaneous expenditure and amortized over a period of 10 accounting years beginning from 01 April 2009. The unamortized balance of the said miscellaneous expenditure amounted to Rs. 1879,70,00,000/- reported in the standalone Balance Sheets of the erstwhile two entities as on 31 March 2011. Accordingly, as a result implementation of the Demerger Scheme, all the transferor entities therein (including erstwhile VSL and VCL) accounted for such transfer of Pl assets as per the accounting treatment provided as per the method prescribed in the Demerger Scheme. Relevant extract of the Demerger Scheme is being reproduced below for brevity: "3.2 ACCOUNTING ....
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....14.9 Accordingly, with respect to the accounting of PI assets transferred by the merging entities, since there was difference in the accounting policy of erstwhile VCL and VSLin comparison to the Assessee, which had written off the loss arising on transfer of Pl assets to Profit and Loss account. the unamortized balance of 'Miscellaneous Expenditure' reported in the standalone financial statements of erstwhile VCL and VSL (as on March 31, 2011) was written off to the profit and loss account of the Assessee during FY 2011-12 in line with the accounting policy followed by the Assessee (which was to debit the book value of the transferred PI assets to the profit and loss account). 14.10 The AO has made an adjustment amounting to INR 1,879,70,00,000 to the book profits under section 115JB of the Act for the reason that the same is debited to the Profit & Loss account but is not added back by the Assessee for the purpose of MAT calculation. 14.11 The said adjustment was upheld by the DRP. Pursuant thereto, the A.O., in terms of the impugned final Assessment Order, made an adjustment amounting to INR 1,879,70,00,000 to the book profits under section 115JB of the Act. 14.....