TaxTMI 
TaxTMI 
2025 (10) TMI 1335
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....sessee filed revised return of income on 29/03/2012, inter-alia, on account of demerger of passive infrastructure assets. In the revised return the Assessee declared losses of INR. 2,19,52,80,641/- under normal provisions of the Act; and Book Losses of INR. 11,91,28,65,401/- for the purpose of Minimum Alternative Tax. The case of the Assessee was selected for regular scrutiny. The Assessing Officer noted that the Assessee Company is engaged in the business of providing cellular mobile telephony services in telecom sector of Haryana, Rajasthan and Uttar Pradesh. Since, the Assessee had entered in the international transactions with its Associate Enterprises. A reference was made to the Transfer Pricing Officer-II(4), New Delhi (in short 'TPO') under Section 92CA(1) of the Act to determine the Arms Length Price (ALP) of the international transactions. The TPO passed the Order, dated 27/01/2014, under Section 92CA(3) of the Act proposing the following transfer pricing adjustments - (a) Upward adjustment of INR. 27,20,28,430/- in relation to brand royalty payments and (b) Upward adjustment of INR.167,83,26,579/- in respect of reimbursement of advertisement & marketing expenses.....
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....ar 2009-2010 [ITA Nos. 1169&1950/Del/2014, dated 14/03/2018, titled Deputy Commissioner of Income Tax, Circle-17(1), New Delhi vs Vodafone Essar Digilink Ltd. reported in [2018] 92 taxmann.com 234 (Delhi)] and therefore, the Assessing Officer passed the Final Assessment Order without making any addition/disallowance in respect of the aforesaid commission expenses. 3.3. Being aggrieved, the Revenue is now in appeal before this Tribunal on this issue. 3.4. We have considered the rival submissions and have perused the material on record. 3.5. We find that the DRP had followed the decision of the Tribunal in the case of the Assessee for the immediate preceding Assessment Year 2009-2010 [ITA No.1950/Del/2014, dated 14/03/2018] (Supra). We have perused the aforesaid decision of the Tribunal and we find that in identical facts and circumstances, the ad-hoc disallowance of 10% of commission paid to agents proposed by the Assessing Officer for the Assessment Year 2009-2010 was not accepted by the DRP and the DRP had allowed the objection raised by the Assessee by following the decision of Tribunal in the case of Vodafone Mobile Services Ltd. (a sister concern of the Assessee) for t....
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....the first appellate authority before the Tribunal. In Dy. CIT v. Vodafone Mobile Services Ltd. [2017] 83 taxmann.com 7 (Delhi - Trib.), the Tribunal has upheld the deletion of addition. Relevant discussion has been made and the conclusion drawn by the Tribunal in para 9 of its order, in which deletion of such ad hoc disallowance has been upheld. No distinguishing factual feature of the assessee vis-a-vis its sister concern, namely, Vodafone Mobile Services Ltd. was placed on record by the ld. DR. Respectfully following the precedent, we uphold the impugned order in deleting the disallowance of commission amounting to Rs. 14.23 crore." 3.6. The Revenue has failed to bring any material on record to distinguish the above decision of the Tribunal either on facts or in law. Therefore, respectfully following the above decision of the Tribunal, we decline to interfere with the directions issued by the DRP and the Final Assessment Order passed by the Assessing Officer on this issue. Accordingly, Ground No. I raised by the Revenue is dismissed. Ground No. II 4. The Ground No. II raised by the Revenue reads as under: "II. On the facts and in the circumstances of the case, t....
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....issue was squarely supported by the decision of the Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Fascal Limited [017 DTR 306] 2009 whereby a decision of Delhi Bench of the Tribunal allowing deduction for royalty-WPC expenses as revenue expenditure was confirmed by the Hon'ble High Court. However, the Assessing Officer was not convinced with the submissions made by the Assessee and proceeded to make the disallowance holding as under: "Thus, this royalty is being paid in order get the right to use the spectrum and is therefore clearly an expenditure of a capital nature. This right is in the nature of an intangible asset which would bring enduring benefit to the assessee and is therefore capitalized. After allowing depreciation @ 25% amounting to Rs. 35,08,26,348/- the remaining amount of Rs. 105,24,79,043/- (i.e. Rs.140,33,05,390/- - Rs. 35,08,26,348/-) is hereby disallowed and added to the income of the assessee. In addition to this amount, a deduction amounting to Rs. 19,68,66,057/- is allowed in respect of amounts similarly treated as capital expenditure in earlier years. Though Hon'ble Delhi High Court has decided the issue in the fa....
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....in this regard upon the judgment of the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Bharti Hexacom Ltd. [2023] 155 taxmann.com 322 (SC), dated 16/10/2023. 4.7. Per Contra it was contended on behalf of the Assessee that in the case of Bharti Hexacom Ltd. (Supra), it was held by the Hon'ble Supreme Court that the entry fee as well as variable license fee payable to Department of Telecom were capital in nature. Whereas fee under consideration is payable to the Wireless Planning and Co-ordination ('WPC') Wing of the Ministry of Communications. The said fee was in the nature of a regulatory payment which is necessarily to be incurred on a regular basis for the conduct of its business and it is booked as expenses towards have been claimed as revenue expenditure by the Assessee in the year under consideration. This issue under consideration i.e. whether it is capital or revenue in nature, has been decided in favour of the Assessee in its erstwhile group entity case i.e. CIT Vs. Fascel Ltd. ('Vodafone West Limited') (2009) 221 CTR 305 (Delhi). It was vehemently contended that the issue under consideration was different from the one decided....
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....10.2023. 5. Learned Additional Solicitor General submitted that insofar as the issue regarding varied license fee is concerned, insofar as this assessee also, the matter has attained finality. However, only for the purpose of considering the royalty expense for spectrum usage to be treated as revenue or capital expenditure, the mater may be de-tagged. 6. Considering the aforesaid submission we observe insofar as the allowability of a varied license fee as capital expenditure is concerned, the said issue is covered insofar as this assessee is concerned by the judgment dated 16.10.2023 referred to above. However, this appeal is detagged from the rest of the appeals disposed of on 16.10.2023 and restored on the file of this Court for the purpose of considering the issue regarding the nature of royalty payment made by the appellant herein. In the circumstances, the office is directed to de-tag this appeal (C.A. No. 153/2021) from the rest of the civil appeals disposed of on 16.10.2023 as the same is restored on the file of this court for the purpose of the considering the same on the aforesaid issue only. 7. The miscellaneous application is consequen....
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....on revenue share basis at 2% of Adjusted gross revenue and the same was eligible for deduction. The AO treated such amount as a capital expenditure incurred to get the right to use spectrum and hence covered it under section 35ABB of the Act. After allowing depreciation @ 25%, he made an addition of Rs. 61,85,57,975/-. The DRP ordered to delete the addition, against which the Revenue has come up in appeal before the Tribunal. 8. We have heard both the sides and perused the relevant material on record. It is observed that the AO invoked the provisions of section 35ABB for making the addition. This section, in turn, provides that expenditure for obtaining licence to operate telecommunication services, in so far as it is of the nature of capital expenditure, shall be allowed as deduction for each of the relevant previous years on proportionate basis. It transpires that in order to be covered within the ambit of this provision, it is sine qua non that the expenditure for obtaining licence must be of capital nature at the first instance. If payment is in the revenue field, it goes out of purview of this provision. When we advert to the nature of royalty paid by the assessee, it....
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.... vide Reply, dated 24/02/2014, submitted that this aforesaid expenditure represented the boards displayed at various locations including at the dealer shops. The granty signs have a very short shelf-life as the same are required to be changed with the change in the product line of the Assessee and did not bring into existence any tangible assets or enduring benefit. The Assessee, thus, argued that the aforesaid expenditure was in the nature of normal advertisement expenditure and should be allowed as revenue expenditure. The Assessee also relied on the judicial precedents in support of the aforesaid contentions. However, the Assessing Officer was not convinced. According to the Assessing Officer the aforesaid advertisement expenditure brought into existence an advantage of enduring nature. The Assessing Officer was of the view that the dealer sign boards were in the nature of assets which would bring enduring benefits to the Assessee by giving wide publicity to the Assessee's brand name and increased the visibility of the Assessee's products. The aforesaid advantage was not limited to one year alone and the same spread over life of product spanning over 3 to 4 years. Theref....
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....hoarding was rejected. 5.4. We have heard the rival submissions and perused the material on record on this issue. It emerges that identical issue had come up for consideration before the Delhi Bench of the Tribunal in the Assessee for the immediate preceding Assessment Year 2009-2010 [ITA Nos. 1169&1950/Del/2014, dated 14/03/2018, titled Deputy Commissioner of Income Tax, Circle-17(1), New Delhi vs Vodafone Essar Digilink Ltd. reported in [2018] 92 taxmann.com 234 (Delhi)]. Dismissing identical ground raised by the Revenue, the Co-ordinate Bench of the Tribunal held as under: "9. Ground No. 3 of the Revenue's appeal is against the deletion of addition of Rs. 2,52,28,036/- on account of 'Advertisement expenses.' The assessee claimed deduction for advertisement expenses amounting to Rs. 97.63 lac on product launches and Rs. 14.81 crore on granty signs. The AO opined that since the benefit of this expenditure would be reaped in subsequent years as well, he treated the said amount of advertisement expenses as capital. After allowing deduction @ 25%, he made an addition of Rs. 2,52,28,03,617/-. The DRP got convinced with the assessee's submissions and ordered....
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....(iii) of the Act. It was contended that based on general/commercial parlance, with respect to the telecommunications business, 'extension' of business may be construed to mean an extension of the geographical area wherein telecommunications services are rendered. The Assessee also submitted that the Assessee had incurred expenditure on CWIP for facilitating its existing operations and not in connection with extension of its existing operations. No disallowance on interest cost was liable to be made since interest on borrowed capital for acquiring assets for the normal running of business (not leading to extension per se) was not covered by the said proviso and was clearly deductable under the provisions of Section 36(1)(iii) of the Act. However, the Assessing Officer was not convinced. The Assessing Officer noted that the Assessee had raised both secured and unsecured loans during the year under consideration and was also paid huge interest on the said loans. The details filed during the course of assessment proceedings clearly showed that as on 31/03/2009, there was CWIP amounting to INR. 1531.4 million. The figures of CWIP submitted by the Assessee alongwith the figures o....
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....ost incurred on such capital work-in-progress should not be disallowed in terms of proviso to section 36(1)(iii), the assessee submitted that there was no 'extension of existing business' as a result of such capital work-in-progress and, hence, disallowance of interest was not called for. The AO did not concur with the assessee's arguments. Relying on certain decisions, he held that the amount of interest incurred in respect of such capital work- in-progress should be disallowed @ 7.7% of monthly outstanding balances as per the Table given on page 43 of the assessment order. The assessee failed to convince the DRP on its line of reasoning as well. This resulted into an addition of Rs. 26,45,28,627/-. The assessee is aggrieved against this addition. 21. After considering the rival submissions and perusing the relevant material on record, it is first necessary to understand the nature of the capital work-in-progress capitalised in the balance sheet at Rs. 2789 million. On a pertinent query, the ld. AR submitted that this amount represents the cost of installing new cell site towers to be used for providing better network to its customers. It was stated that rough....
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....idered as 'extended' only when some new Circles are added to the existing Circles in which the business is carried on. This was opposed by the ld. DR who submitted that extension can be within the existing circles de hors new circles. 24. We are not convinced with the contention advanced by the ld. AR. The words 'for extension of the existing business' presuppose that there is already a business in existence and capital is borrowed for acquisition of asset for extension of such existing business. 'Extension' can be vertical as well as horizontal. Existing telecommunication business can be extended in different forms. One of such forms can be the one described by the ld. AR in which a Cellular mobile service provider (CMSP) expands its area of business to a different Circle which was not hitherto in its reach. In the same breath, there can be an extension of existing business when a CMSP increases its reach within the allotted Circle itself by means of setting up new towers. To put it simply, if a CMSP has a licence to operate in a particular State, it may initially set up cell towers catering to urban areas for meeting the requirements of population....
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....hich is the centre of dispute. On having a glimpse at the balance sheet of the assessee, it becomes evident that it has paid up Share capital to the tune of Rs. 1011.0 Million and Reserves and Surplus for a sum of Rs. 4571.8 Million. Thus, it is palpable that as against the investment of Rs. 2789.6 Million in CWIP, the assessee has its own shareholders fund for a sum of Rs. 5582.9 Million, which is roughly double the amount of Capital work in progress. 28. Section 36(1)(iii) provides for deduction of interest of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The essence of this provision is that the interest should be allowed so long as the capital borrowed, on which such interest is paid, is used for the purpose of business or profession. If, however, an assessee is having its own interest free surplus funds and such funds are utilised as interest free advances even for a non-business purpose, there cannot be any disallowance of interest paid on interest bearing loans. The Hon'ble Bombay High Court in CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135, has held that where an assessee possesse....
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....olders' fund to the tune of over Rs. 172 crore was utilized for the purpose of fixed assets in terms of the balance-sheet as on March 31, 1999, is fallacious." In upholding the order of the Tribunal, the Hon'ble High Court held that: "If there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be presumed that the investments were from the interest free funds available". Thereafter, the judgment of the Hon'ble Supreme Court in the case of East India Pharmaceuticals Works Ltd. v. CIT [1997] 224 ITR 627/91 Taxman 185 (SC) and also the judgment of the Hon'ble Calcutta High Court in Woolcombers of India Ltd. v. CIT [1981] 134 ITR 219/[1981] 7 Taxman 188 were considered. It was finally concluded that: "The principle, therefore, would be that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that the investments would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment". Consequently the interest was held to be deductible in ful. ....
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....vesting in CWIP, then interest paid on such borrowing shall be disallowed. If, on the other hand, there is no specific borrowing, the financing of CWIP has to be treated as out of interest- free shareholders' fund, and in such a scenario, no disallowance of interest shall be made since the interest-free shareholders' fund would be higher than the amount of investment in CWIP. In terms of aforesaid Ground No. IV raised by the Revenue is allowed for statistical purposes. Ground No. V 7. Ground No.V raised by the Revenue reads as under: "V. On the facts and in the circumstances of the case, the DRP-II erred in directing to delete the addition of Rs.33,00,00,000/- on account of subscriber based fraud." 7.1. The relevant facts in brief are that the Assessing Officer had proposed disallowance of deduction of INR.33,00,000/- claimed by the Assessee in respect of subscriber fraud under Section 37(1) of the Act. Before the DRP, the Assessee submitted that the Assessing Officer has made a factually incorrect observation that the fraud was towards 'embezzlement of money' by the employees of the Assessee company. Whereas, the deduction of INR.33,00,000/- claim....
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....th the Final Assessment Order passed by the Assessing Officer as per directions issued by the DRP on this issue whereby identical loss of INR.33,00,000/- was allowed as deduction under Section 37(1) of the Act. Accordingly, Ground No. V raised by the Revenue is dismissed. Ground No.VI 8. Ground No.VI raised by the Revenue reads as under: "VI. On the facts and in the circumstances of the case, the DRP-II erred in directing to delete the addition of Rs.88,64,94,300/- on account of disallowing depreciation on Passive Infrastructure Assets (PI)." 8.1. The relevant facts in brief are that in terms of the Scheme of Demerger the Assessee transferred certain PI Assets to Vodafone Infrastructure Ltd. without any consideration. This Scheme of Demerger was approved by the Hon'ble Delhi High Court vide Order dated 29/03/2011. No loss, either capital or otherwise was claimed by the Assessee in relation to the above transfer of PI Assets. The loss on transfer of PI Assets of INR.986 Crores debited to the Profit & Loss Account was added back while computing total income for the relevant previous year. It was contended by the Assessee that in absence of any consideration, the....
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....-moto, reduced the `tax WDV' of PI Assets transferred from the Plant and Machinery Block. The aforesaid submissions found favour with the DRP as the DRP concluded that it cannot be said that the Respondent had transferred the PI Assets to Vodafone Infrastructure Ltd. with a view to evade taxes. DRP held that the transaction under consideration was driven by commercial expediency and had been duly approved by the Hon'ble High Courts. Thus, the DRP allowed the objections filed by the Assessee and directed the Assessing Officer to allow deprecation as claimed by the Assessee. The Assessing Officer passed by the Final Assessment Order without making proposed disallowance of depreciation of INR.88.65 Crores. 8.3. Being aggrieved, the Revenue has carried the issue in appeal before the Tribunal. 8.4. We have heard both the sides and have perused the material on record. 8.5. On perusal of the order passed by the DRP, we find that the DRP has made following observations while deciding the issue in favour of the Assessee: "18.3 The panel has carefully considered the submission of the assessee in this regard. The assessee has tried to justify the aforesaid transactio....
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.... for the purpose of the Companies Act, the same is with consideration is completely misplaced" It has been further contended by the assessee that it has merely transferred its PI assets to Vinfl, without any consideration. The loss to VDL (assessee) on such transfer was duly added back by VDL in its return of income. Further, even though in absence of any sale consideration, the assessee was not required to adjust its tax block, the assessee Suo-moto reduced the tax WDV of such PI assets from its P&M block. Therefore, it cannot be stated that the assessee transferred Pl assets to VinfL in order to evade taxes but the aforesaid transfer of Pl assets was driven solely by business expediency. On careful consideration of the facts of the case, it is amply clear that the business purpose and commercial expediency were the only factors that led to the transfer of the Pl assets, as duly approved by the Hon'ble High Court of Delhi. Even otherwise a company is an artificial juridical person with a separate legal entity of its own, unless the Corporate Veil is lifted by court orders. The case of the assessee is that of a real gift and not deemed gift as in the case of CIT V. Tib....
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....nafter in seriatim. Ground No.1 11. The Ground No.1 raised by the Assessee reads as under: "1. Ground No. 1- Deduction u/s 80IA on other income 1.1. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in excluding the following incomes while computing deduction u/s 80IA of the Act: ● Cellsite sharing revenue amounting to INR 0.81 crores; ● Miscellaneous income amounting to INR 5.81 crores; ● Interest Income amounting to INR 0.86 crores, which has already been excluded by the Appellant while computing business income; ● Provisions no longer required written back amounting to INR 51.58 crores, out of which the Appellant has already excluded INR 49.9 crores while computing business income; ● Profit on sale of fixed assets (net) amounting to INR 6.48 crores, which has already been excluded by the Appellant while computing business income; ●Foreign exchange gain (net) amounting to INR 6.47 crores, out of which the Appellant has already excluded gains of INR 10.473 crores while computing business income being capital in nature and the b....
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....ing that the Assessee had not claimed deduction in respect of provisions no longer required written back amounting to INR. 515.80 Million]: S. No Particulars Amount (INR Million) 1. Interest Income 8.6 2. Cellsite Sharing revenue 8.1 3. Foreign Exchange Gain (net) on revenue account 64.7 4. Profit on sale of fixed assets 64.8 5. Misc Income 58.1 11.3. However, the DRP declined to grant any relief. Accordingly, the Assessing Officer passed Final Assessment Order, dated 27/01/2015, concluding as under: "10. Deduction u/s. 80IA of the Act The assessee had claimed and was allowed deduction u/s 80IA of the Act for the first time in AY 2008-09. As per the provisions of section 80IA the eligible telecom. undertaking is allowed a deduction for the period of 10 consecutive AY's once the deduction has been claimed. In the subject year, the assessee on account of losses has not claimed any deduction in the return of the income. However, while making the assessment for the subject year, the assessed income has turned positive Accordingly the deduction u/s.80IA of the Act amounting to Rs. 7,105,530,405 was a....
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.... (Emphasis Supplied) 11.4. Being aggrieved the Assessee has carried the issue in appeal before the Tribunal. 11.5. We have heard both the sides and have perused the material on record. 11.6. We find that Assessee had furnished details of Other Income credited to the Profit and Loss Account during the relevant previous year. Vide letter dated 19/12/2013 the Assessee had furnished details of other income credited to the Profit & Loss Account. The relevant extract of the aforesaid letter reads as under: "18. Details of other income credited to profit and loss account. (Point 34 of the notice dated 12th July 2013) Details of 'Other income' of INR.720.1 million credited to the profit and loss account of VDL for the subject year is as follows: Particulars Amount (INR million) Liabilities/provisions no longer required written back 515.8 Interest income 8.6 Foreign exchange gain (net) 64.7 Profit on sale of fixed assets (net) 64.8 Cellsite sharing revenue 8.1 Indefeasible right to use ('IRU') revenue - Miscellaneous Income 58.1 Total 720.1 From the above it is clear that the basis on which t....
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....xable income under normal provisions of the Act' we find that the Assessee has excluded 'Realized Foreign exchange fluctuation gain on capital account' of INR.7,66,32,862/- and 'Unralized Foraging exchange fluctuation gain on capital account' of INR.3,81,00,013/-. Thus, foreign fluctuations gains (realised and unrealized) on capital account aggregating to INR. 11.47 crores were disallowed by the Assessee while computing its business income and therefore, the said amount was also not considered for the purpose of computing deduction under Section 80-IA of the Act. Therefore, the Assessing Officer is directed not to exclude foreign exchange fluctuation (net) of INR.6.47 Crores while computing deduction under Section 80IA of the Act. Cellsite Sharing Revenue 11.10. As regards cellsite sharing revenue is concerned, the Learned Authorized Representative for the Assessee had placed reliance upon the order passed by Co-ordinate Bench of the Tribunal in Assessee's own case for the Assessment Year 2009-2010 [ITA Nos. 1169&1950/Del/2014, dated 14/03/2018, titled Deputy Commissioner of Income Tax, Circle-17(1), New Delhi vs Vodafone Essar Digilink Ltd. reported i....
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....ct of Cellsite Sharing Revenue of INR.0.81 Crores. Miscellaneous Income 11.11. As regards Miscellaneous Income of INR.5.81 Crores are concerned, reliance was placed on behalf of the Assessee upon the decision of Mumbai Bench of the Tribunal in group company's case of the Assessee (erstwhile 'Vodafone India Ltd.'). In that case, vide Order dated 28/11/2022 passed in ITA No. 5078/Mum/2017 (AY 2005-06), the Co-ordinate Bench of the Tribunal had concluded that Assessee was entitled for deduction under Section 80IA of the Act in respect of miscellaneous income since in terms of non-obstinate clause used in Section 80IA(2A), deduction for telecommunication services is available in respect of "profits of eligible business" and is not restricted to "profits derived from eligible business" as mentioned in Section 80IA(1) of the Act. The relevant extract of the aforesaid decision of the Tribunal reads as under: "23. The assessee has filed appeal assailing the findings of CIT(A) in respect of disallowance of deduction u/s. 80IA of the Act on other incomes. The assessee in appeal has raised three grounds. The ld. Counsel for the assessee stated at Bar that he is not ....
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....RP for assessment year 2013-14. He referred to the findings of DRP at para 12, wherein the DRP had recorded," the Hon'ble Delhi High Court has held the deduction u/s. 80IA(2A) of the Act is also allowable in respect of other incomes, which are part of profits and gains of eligible business. The decision of Hon'ble Delhi High Court has been accepted by the Revenue as no SLP has been filed by the Revenue against aforesaid decision." 26. Per contra, the ld. Departmental Representative vehemently defended the findings of CIT(A) on this issue. 27 Both sides heard. The short issue for adjudication in the appeal by assessee is: Whether interest income and miscellaneous income earned by the assessee would be eligible for deduction u/s. 80IA of the Act? We find that similar issue had come up before the Tribunal in the case of BSNL vs. DCIT (Supra). The Tribunal after examining and comparing the provisions of section 80IA(1) and 80IA(2A) held as under: "13.2. On a reading of sub-section (1) of section 80-IA, we find that the legislature specifically uses the words meaning and import of which is plain and unambiguous in the context it is to be construed. Ded....
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....sub-section (1) of section 80-IA in the face of the non- obstante clause coupled with the specific omission to use the well understood term "derived from". This argument is notwithstanding the argument that considering the assessee's nature of business the direct nexus presumed by sub-section (1) of section 80-IA is also fulfilled. On a careful reading of the above provisions, we find that the legislature has left no ambiguity in the wording of the sub- section (2A). Having started with the non-obstante clause in sub-section (2A) which over-rides the mandate of sub- section (1) and (2), the legislature is well aware that the phrase "derived from" has been used only in subsection (1). The meaning of the said terms is judicially well- accepted and understood and it is not the case of that Revenue that the legislature was not conscious of the said term. It is seen that the import of this term continues to exist for an assessee covered under subsection (2) of section 80-IA. The legislature has consciously retained it for enterprise/undertaking falling in sub-section (2) and the proviso thereto only keeping in mind the nature of the enterprises/undertakings contemplated under sub-se....
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....l miscellaneous income. Ground No. 2 of the assessee's appeal is thus allowed." In view of the above decision of the Co-ordinate Bench of the Tribunal, exclusion of miscellaneous income of INR.5.81 Crores from the business income while computing deduction under Section 80IA of the Act cannot be sustained. Therefore, the Assessing Officer is directed to grant benefit of Section 80IA of the Act in respect of miscellaneous income of INR.5.81 Crores. 11.12. In view of the Paragraph 12.6 to 12.11 above, Ground No.1 raised by the Assessee is partly allowed. Ground No.2 12. Ground No.2 raised by the Assessee reads as under: "2. Ground No. 2-Disallowance of license fee u/s 37(1) of the Act 2.1. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in holding that the annual revenue share based license fee of INR 2,26,09,97,608 payable by the Appellant to the Department of Telecommunications ('DoT'), qualifies as a capital expenditure being consideration for obtaining the telecom license and hence, amortisable u/s 35ABB of the Act. 2.2. On the facts and in the circumstances of the case and in law, the l....
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....quential deduction would be allowed to the Assessee over the balance period of license on amortization basis which shall also include consequential deduction towards past year disallowance. During the course of appellate proceedings, the Learned Authorised Representative for the Assessee filed working showing that in view of the aforesaid a disallowance to the extent of INR1.41 Crores would get sustained as per the aforesaid judgment of the Hon'ble Supreme Court. Accordingly, we direct the Assessing Officer to verifying the working furnished by the Assessee and compute the quantum of disallowance as per the judgment of the Hon'ble Supreme Court in the case of Bharti Hexacom Ltd. (Supra). Accordingly, in terms of aforesaid, Ground No.2 raised by the Assessee is partly allowed. Ground No.3: 13. Ground No.3 raised by the Assessee reads as under: "3. Ground No. 3-Disallowance of depreciation on provision for Asset Restoration Cost ('ARC') obligation 3.1. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in disallowing tax depreciation of INR 16,00,000 claimed by the Appellant on the addition to fixed asse....
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....the lease. The Assessing Officer rejected the aforesaid contentions and disallowed the depreciation claimed concluding that the obligation cost was in the nature of unascertained liability; it was not possible for anybody to say with certainty as to what will be the expenditure required to restore the leased premises to original position at the time of vacating it; and therefore; any allocation made in that regard at the time of acquisition of the assets was only in the nature of the provision for an unascertained liability, which was not allowable as deduction under the provisions of the Act. 13.3. The objections filed by the Assessee before the DRP were rejected and the Assessing Officer passed Final Assessment Order making disallowance of depreciation of INR. 16,00,000/- concluding as under: "3. Disallowance of depreciation claimed on the addition to fixed assets on account of Asset Restoration Cost Obligation As per the tax audit report filed by the assessee for the subject assessment year, the assessee has capitalized certain sum on account of asset restoration cost obligation, being the estimated cost to be incurred at leased and shared network sites and ....
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....makes it clear that the outflow on account of ARC is probable and the amount of outflow of resources on account of restoration is purely estimated. Further, it has to be analyzed as to whether there is any legal obligation cost on the assessee company to restore the leased premises to its original position after the expiry of the lease period. It is a fact that the lease periods are having gestation period of 15 to 20 years and thus the assessee as a lessee is going to enjoy the leased premises for a sufficient long period of time. However, it is not clear as to show the assessee has calculated the expenses, which he is supposed to incur in future and that also after a period of 20 years. To examine further, it is worthwhile to refer to the sample lease agreement filed by the assessee company. The assessee has relied on the 'Sample Agreement to claim that there is liability on assessee Company to restore the leased premises to its original condition. In this regard, it is submitted that there is nothing in the agreement, which casts an obligation on the assessee to incur expenditure after the expiry of the lease period for restoration of the leased premises. T....
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....is further to see that as to whether the expenses which have to be incurred in future can be set to form part of the 'actual cost' as per sub section (1) of Section 43. The definition of the term "Actual Cost" as per Section 43(1) is reproduces hereunder: - 1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Thus, actual cost means the actual cost of the assessee but does not include estimated cost to be incurred by the assessee in future. So, the natural question which arises is -" What is includible in actual cost? The expression "actual cost" should be construed in the sense in which no man of commerce would misunderstand. For this purpose, it would be necessary to ascertain the connotation of the expression in accordance with the normal rules of accountancy prevailing in commerce and industry. The accepted accounting rule for determining cost of fixed asset is to include all expenses directly relatable to acquisition of the asset (viz, cost price of the asset, interest on money borrowed for the purchase of the ....
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....on. Further, the claim of the assessee that liability on account of ARO has arisen in the year in which the lease agreement has been entered into is also without any basis. The expense on account on account of ARO on leased premises is allowable u/s 37(1) to the assessee company in the year in which such expenses are actually incurred by the assessee on the completion of the lease period or on termination of the lease agreement, whichever is earlier. The Hon'ble DRP, New Delhi on similar facts for the assessee's own case for AY 2009-10 has upheld the disallowance. Thus, it is clear that at the time of the acquisition of the asset, the liability to restore the asset to its original form at the time of vacating it is still an unascertained liability. At the time of the acquisition of the asset, it is not possible for anybody to say with certainty as to what would be the expenditure required to restore the asset to its original form at the time of vacating it. Thus, any allocation made in this regard at the time of acquisition of the asset is only in the nature of a provision for an unascertained liability which in any case is not allowable, Therefor....
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.... Delhi) [ITA No.4189/Del/2017, Assessment Year 2007-2008, dated 22/05/2025]. After taking into consideration the identical contentions raised by both the sides, the Tribunal disposed off the issue with the following directions: "9. Before us the Ld. counsel for the assessee submitted that similar disallowances of depreciation on ARC obligation was made by the Assessing Officer in subsequent assessment year 2009-10, which was challenged before the Tribunal but the Tribunal vide order dated 14.03.2018 reported in (2018 117 ITAT 430)(Delhi Tribunal) upheld the stand of the Assessing Officer and the Ld. dispute resolution panel (DRP) that depreciation was in the nature of unascertained liability. Further the Ld. counsel submitted that the appeal was filed by the assessee against the said order of the Tribunal before the Hon'ble Delhi High Court and Hon'ble Delhi High Court in its recent decision reported in the (2025) 172 taxman.com 378 (Delhi) has held that ARC is allowable as deduction u/s 37(1) of the Act. The finding of the Hon'ble Delhi High Court is reproduced as under: "34. One cannot possibly doubt the imperative requirement of civil works being un....
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.... countenance the view expressed by the Ld.AO and the Tribunal in this respect. 36. A provision can be validly made, provided it be in line with the prescriptions set out in AS-29. That accounting standard is not concerned with events of certainty or an ascertained liability as the AO and the Tribunal understood. In our considered view, the stand taken by the respondents firstly proceeds on the incorrect premise of the liability being one which already exists and in respect of which there cannot possibly be a doubt. It is while proceeding on this fundamental postulate which has led to the Tribunal seeking to discern the existence of an ascertained liability. This clearly rans contrary to the express language of AS 29 when it defines a liability to be one whose settlement is expected to result in an outflow. AS 29 while explaining when a provision may be justifiably made speaks of the probability of an outflow. The usage of the expression probable' is equated to more likely than not. Thus, it is the reasonable likelihood of the outflow as opposed to a remote or uncertain possibility which is deemed to be germane and relevant. It thus has to be viewed as distinct from unf....
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....peaking of provisions for liabilities being made, clearly interpreted the words laid out or expended as including an expenditure likely to be incurred in the future. It was thus held that the provision so made, on the basis of and informed by commercial prudence would clearly qualify the prescriptions of Section 37. 40. We are thus of the considered opinion that the provisioning for ARC qualified the prescriptions of AS 29 and the assessee was thus justified in accounting for the same. The ARC obligation clearly met the test of a positive obligation flowing from a past event, being a conceivable probability as well as being measurable. In any event, both the AO as well as the Tribunal appear to have proceeded on the basis that only an ascertained liability could have been provisioned for. That view is not only erroneous but also unsustainable in law. 41. We are also of the view that the Tribunal in any case failed to notice or engage with the contention of the assessee in the alternative and which was based on Section 37 of the Act. By placing its case within the ambit of Section 37, the assessee stood relieved of getting into the quagmire of actual cost' and ....
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....on'ble Delhi High Court (supra) and also examine the depreciation already claimed by the assessee for deletion. The ground No.2 of the appeal of the assessee is accordingly allowed for statistical purposes. 12. In the result, the appeal of the assessee is allowed for statistical purposes." 13.7. We concur with the above view taken by the Co-ordinate Bench of the Tribunal rendered in identical factual matrix. Admittedly, there is no change in the facts and circumstances of the present case. For the Assessment Year 2010-2011 also, the quantum of claim made by Assessee was not examined or verified during the assessment proceedings. Therefore, respectfully following the above decision of the Tribunal, we restore the issue back to the file of the Assessing Officer with the direction for deciding the issue in the light of the judgment of the Hon'ble Delhi High Court [reported in the (2025) 172 taxman.com 378 (Delhi)] after verifying the quantum and computation of deduction/depreciation claimed by the Assessee in respect of obligation cost. Thus, Ground No.3 raised by the Assessee is allowed for statistical purposes. Ground No.4 14. Ground No.4 raised by the Assessee....
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....tax authorities in Coimbatore during proceedings conducted in the case of a group company of the Appellant Vodafone Cellular Limited, in the context of roaming services, wherein it has been clearly observed that roaming services are automated services requiring no human intervention. 4.7. On the facts and in the circumstances of the case and in law and without prejudice to Grounds 4.2 to 4.6, the learned DRP/AO have erred in not holding that characterization of a payment must be done having regard to the dominant purpose/ intention of the payment. Grounds with respect to applicability of section 40(a)(ia) these grounds are without prejudice to the grounds stated above with respect to applicability of TDS on roaming charges: 4.8. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in not holding that no disallowance can be made u/s 40(a)(ia) of the Act since the Appellant is of a bonafide belief that no tax was required to be deducted at source on roaming charges. 4.9. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in not restricting the disallowance u/s 40(a)(ia)....
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....) of the Act on account of non deduction of tax at source on domestic roaming charges paid/payable to other telecom operators of Rs. 88,88,09,342/- for the F.Y. relevant to the subject AY. The assessee has contended that roaming charges do not qualify as Fee for Technical Services (FTS) under the Act since roaming services are standard automated services i.e. standard facility requiring no human intervention, as the entire process of transmission of the call is fully automatic. 12.2 However, the panel is of the opinion that provisions of section 194J of the Act is clearly applicable in case of roaming charges as in the case of Inter connect services (IVC Services), [Refer CIT v. Bharti Cellular Ltd (2011) 330 ITR 239 (SC)), where human intervention is required. Therefore, the stand taken by the assessing officer is ratified by the panel. The alternative plea of the assessee that provision of section 40(a)(ia) of the Act is only applicable for the amount which remains 'payable' at the year end cannot be accepted in view of the decision of Hon'ble Gujarat High Court in the case of CIT v. Sikandar Khan N. Tunvar (Tax Appeal No. 905, 709, 710, 832, 857, 894 and 928....
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....on domestic roaming charges on which no deduction of tax at source was made. On being called upon to explain as to why such payment be not considered as 'fees for technical services' under section 9(1)(vii) of the Act, the assessee contended that the payments made for inter-connectivity/roaming charges did not involve any human intervention and, hence, such amount could not be considered as 'fees for technical services.' In support of its contention, the assessee relied on the judgment of the Hon'ble jurisdictional Delhi High Court in CIT v. Bharti Cellular Ltd. [2009] 319 ITR 139/[2008] 175 Taxman 573 (Delhi) in which it has been held that the services rendered by MTNL and other telecommunication companies qua inter-connection do not involve any human interface and, hence, the same cannot be regarded as a 'technical service' so as to require deduction of tax at source u/s. 194J of the Act. Not convinced, the AO treated such payment as 'fees for technical services' requiring deduction of tax at source and in the absence of non-deduction of tax, the disallowance was made. The assessee has come up in appeal before the Tribunal on the disallowance. ....
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....k Securities Ltd. [2016] 383 ITR 1/239 Taxman 139/67 taxmann.com 356 (SC), the Hon'ble Supreme Court, after considering its earlier decision in Bharti Cellular Ltd. (supra), observed that: "modern day scientific and technological developments tend to blur the specific human element in an otherwise fully automated process by which such service may be provided." It was held that: 'the transaction charges, which were core of dispute in that case, were paid for services fully automated in respect of every transaction.' The Hon'ble Supreme Court held that if there is certain exclusive or customised service rendered by the Stock Exchange to individual person, that would fall within the ambit of 'technical services' and, if, however, such services are available to all the members of the Stock Exchange, it will cease to be a technical service. Similar view has been reiterated in DIT (IT) v. A.P. Moller Maersk A.S [2017] 392 ITR 186/246 Taxman 309/78_taxmann.com 287 (SC) in which their Lordships applied the test laid down in Kotak Securities Ltd. (supra), and held that automated software based communication system set up by the assessee for use to its agent enabling ....
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....earned DRP/AO have erred in not holding that no disallowance can be made u/s 40(a)(ia) of the Act since the Appellant is of a bonafide belief that no tax was required to be deducted at source on discount extended to distributors of prepaid SIM cards/talktime. 5.4. On the facts and in the circumstances of the case and in law and without prejudice to Grounds 5.1 to 5.3, the learned DRP/AO have erred in not restricting the disallowance u/s 40(a)(ia) of the Act to the amount which remains payable at the end of the year which stands at 'NIL'. 5.5. On the facts and in the circumstances of the case and in law and without prejudice to Grounds 5.1 to 5.4, the learned DRP/AO have erred in not adjudicating and holding that the insertion of second proviso to section 40(a)(ia) of the Act vide Finance Act, 2012 is curative in nature and its benefit should be extended to the past years and accordingly the learned AO be directed to allow benefit of the same after verification of supporting documents to be submitted by the Appellant and accordingly, the learned AO be directed: a. to allow deduction in respect of the disallowance of INR 1,44,45,51,001 made u/s 40(a....
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....relevant observations are extracted below:- "3.30. In view of the above observations, we hold that the decision rendered by us in assessee's own case for A.Y.2008-09 in ITA No.2285/Mum/2014 dated 12/10/2022 would be squarely applicable to the facts of the assessee"s case before us for the year under consideration also. The relevant operative portion of the said order of this Tribunal is reproduced hereunder :- "2.8.2. We find that in the case before the Co-ordinate Bench of Pune Tribunal in the case of Idea Cellular Limited vs DCIT (TDS ) in ITA Nos. 1041, 1042, 1953 -1955/Pun/2013 and ITA Nos. 1867 19 M/s. Vodafone India Ltd. 1870 /Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its distributors was Principal and Agent. It was only the Pune Tribunal which after examining the distributors agreement came to the conclusion that the relationship is that of Principal to Principal. In fact Pune Tribunal also examined the very same agreement which is the subject matter of agreement before us in the instant case before us, as it is not in dispute that all the distributors agreements are standard agreements across India....
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....to the distributors was not commission and therefore not liable to deduct the TDS under Section 194H. The Tribunal noted that there was no decision of this Court on this issue on that date. 6. Learned counsel for the parties have tendered the copy of the order passed in Income Tax Appeal No. 702 of 2017 subsequently in the case of Pr. Commissioner of Income Tax-8 vs. M/s. Reliance Communications Infrastructure Ltd ., where same issue arose for the consideration of this Court. The Division Bench of this Court while holding against the Appellant - Revenue observed thus :- "3. Having heard the learned Counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The Tribunal, as noted, besides holding that the Commissioner's order setting aside the order passed under Section 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the payment was not for commission or brokerage."....
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....ble Rajasthan High Court on 18/10/2016 relates to assessee herein for Rajasthan Circle in respect of the identical issue. The question no. 1 raised before the Hon'ble Rajasthan High Court is as under: - 1. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that whether the assessee is liable to deduct TDS u/s. 194-H of IT Act, as the relation between assessee and distributor is that of Principal to Agent? 2.8.4.1. We find that the Hon'ble Rajasthan High Court after considering the plethora of judgements on the impugned issue of various High Courts (which includes the three High Court decisions of Kerala, Delhi and Calcutta relied upon by the ld. DR before us herein) had rendered its decision as under :- "Idea Cellular 58. As the agreement is produced, issues are answered in favour of assessee in the departmental appeals. 59. Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form. ..................... 61. In view of the above discussion, all the appe....
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....jasthan High Courts and Hon'ble Jurisdictional High Courts and Hon'ble Karnataka High Court had not attained finality as they had been appealed by the revenue before the Hon'ble Supreme Court. This argument of the revenue, in our considered opinion, cannot be a deterrent for this Tribunal to follow those High Court orders. We find that the similarly worded distribution agreement had been subject matter of adjudication and examination by the Hon'ble Rajasthan High Court and Hon'ble Jurisdictional High Court wherein the Hon'ble High Courts had taken a categorical view that the relationship between assessee and distributor is only that of Principal to Principal. Hence this finding cannot be disturbed by this tribunal by respectfully following the judicial hierarchy. Infact no contrary materials on facts were even brought on record by the revenue before us to disturb the findings of Hon'ble High Courts. Hence we have no hesitation in holding that the relationship between assessee and distributor is only that of Principal to Principal and not that of Principal to Agent and accordingly there is no obligation for the assessee to deduct tax at source in terms of....
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....lly following the above decisions of the Tribunal in the case of the Assessee, the disallowance of INR.1,44,45,51,001/- made under Section 40(a)(ia) of the Act in respect of the upfront discount extended to Pre-paid Distributors is deleted. Ground No. 5 raised by the Assessee is allowed. Ground No.6 16. Ground No.6 raised by the Assessee is as under: "6. Ground No. 6-On Disallowance of Penalty paid to DoT: 6.1. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in disallowing penalty paid to the DoT amounting to INR 2,41,63,000 under section 37(1) of the Act." 16.1. Ground No. 6 raised by the Assessee pertains to disallowance of penalty paid to Department of Telecommunications ('DoT'). During the relevant previous year, the Assessee paid INR.2,41,63,000/- to DoT as penalty for non-compliance of the various requirements prescribed by the DoT in connection with verification of subscribers. According to the Assessee the aforesaid penalty was levied on account of default committed in compliance with the terms of the license agreement entered into between the Assessee and DoT, it represented a contractual liabil....
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....and are flowing through the license agreement is not true as the terms provided in the license agreement arise from section-7(3) of the Indian Telegraphs Act, 1885 which clearly states that that in the event of any breach of any conditions of license, the Central Government may by rules, prescribe fines for the conduct of any telegraphs established, maintained or worked by any person licensed under the act. The penalties have arisen on account of anomalies and irregularities in the Customer Identification Form (CIF) and Customer Acquisition Form (CAF) are serious in nature and pertain to the security of the nation and as such do not constitute contractual violations but are arising out of non-adherence to law. As per the explanation provided under section-37(1) of the Income Tax Act, 1961, whereby it is declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure, the said payment towards penalty which is an infringement of law amounting to Rs. 2,41,63,000/- was disal....
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....f this ground are that the assessee paid a sum of Rs. 63,83,000/- to DoT as penalty for non-compliance. The AO observed that the penalties were levied on account of anomalies and irregularities in the Customer Identification Form (CIF) and Customer Acquisition Form (CAF). Such amount was considered as hit by Explanation 1 to section 37(1) as in the opinion of the AO, it was an expenditure incurred for a purpose which is an offence or prohibited by law. No relief was allowed by the DRP which resulted into an addition of Rs. 63.83 lac by the AO in the impugned order. The assessee has assailed this addition before the Tribunal. 45. We have heard both the sides and perused the relevant material on record. The AO has correctly recorded that penalty of Rs. 63.83 lac was paid by the assessee on account of anomalies and irregularities in CIF and CAF. For giving a hue of penalty to such an amount as magnetized under Explanation 1 to section 37(1) of the Act, the AO referred to the provisions of section7(3) and section 20 of the Indian Telegraphs Act, 1885. We have gone through the relevant provisions of the Indian Telegraphs Act, 1885 and find that anomalies and irregularities in C....
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.....2. 7.3. On the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing expense of INR 396.25 crores appearing as 'network site rental' in the P&L account for the subject year. 7.4. On the facts and in the circumstances of the case and in law, the learned AO has erred in alleging that the Appellant has failed to furnish any evidence to substantiate whether such expenses crystallized in the subject AY 7.5. Without prejudice to grounds 7.3 and 7.4, on the facts and in the circumstances of the case and in law, the learned AO has erred in rejecting the Master Services Agreement under which the aforesaid charges were billed by Indus, audited financial statements and list of Passive Infrastructure sites, which were furnished by the Appellant as evidence of crystallisation of the aforesaid expenses. 7.6. On the facts and in the circumstances of the case and in law, the learned AO grossly. erred in directing the Appellant to justify reasonableness/genuineness of network site rental expense, despite express directions of the Hon'ble DRP which required him to allow deduction for "network site rentals' ....
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.... charges paid to Indus and also to justify the reasonability of the rent so paid. In response, the Assessee filed Reply Letter, dated 23/01/ 2015 [placed at page Nos. 375 to 376 Paper Book-Vol. 2 filed by the Assessee] furnishing certificate issued by Indus confirming that it has billed service charges to the Appellant for the captioned year towards rendition of passive infrastructure services. Reference was made to (a) the Master Service Agreement entered into between Indus and the Appellant (alongwith supplementary agreements) documenting the arrangement between Indus and the Appellant for rendition of the passive infrastructure services; (b) the Tax Audit Report obtained by the Appellant wherein no qualification under clause 17(k) 'amount debited to Profit & Loss A/c. which is of contingent in nature' was made; and (c) the Financial Statements of the Appellant. The Assessee also furnished details/chart of Network Site Rental charges paid to Indus. Thus, perusal of record shows that the Assessee had furnished the aforesaid documents/details for substantiating crystallisation of the expenses during the relevant previous year and therefore, we reject the contention of the R....
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....bstantial interest, was brought in by the Finance Act, 2012, w.e.f 1 April, 2013 and accordingly the said amendment is not applicable for the AY 2010-11. Moreover, the payment made to Indus for availing tower services does not fall under the purview of the provisions of section 40A(2)(b) of the Act, since there is no substantial interest of indus in the business of VDL. From the shareholding structure of the Vodafone group Indus Towers Ltd (Ann I), it is evident that the basic requirement of section 40A(2)(b) of the Act i.e. the recipient of the payment (i.e. Indus) having a substantial interest in the payer company (i.e. VDL) is not met. Without prejudice to the above, the site network rentals were genuine business expenses and the very provisions of section 40A(2)(b) of the Act, under which expenses have been disallowed by the AO cannot be applied to the facts of the present case. As regards whether Vodafone Group (the ultimate holding company of VDL) has received any dividend from M/s Indus Towers Ltd, the assessee has submitted that Indus was operative from 1 April, 2009 and it has distributed dividend to its shareholders for the first time in F.Y. 2012-13 and the details of di....
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....). However, companies having the same holding company are also to be included but effective from AY 2013-14. Therefore, the amendment that was brought in by the Finance Act 2012, applicable from 1" April, 2013 (AY 2013-14) is not applicable in the case of the assessee for the AY 2010-11. Moreover, the payment made to Indus by the assessee for availing tower services does not fall under the purview of substantial interest, as contemplated u/s 40A(2)(b), as there is no substantial interest of Indus in the business of the assessee. Therefore, the very provisions of section 40A(2)(b) of the Act under which the expenses have been disallowed by the AO cannot be applied to the facts of the present case .. Even otherwise, the payments cannot be termed as excessive or unreasonable as the AO has not provided the details regarding such excessiveness or unreasonableness based on certain instances except for merely stating that the entire scheme of transfer of Pl assets was to evade taxes and reduce tax liability and for using Pl assets that have been transferred by the assessee for nil consideration, the assessee has paid Rs. 393.92 crores (Rs. 396.25 crores has been claimed as deductible) as ....
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.... already been filed before your office on 19 December 2013 and 28th January 2014. However, for your ready reference the same is again attached as Annexure 2 and 3 respectively. ● Therefore, the aforesaid information is sufficient for your office to determine that such expenses indeed crystallized/ accrued in the subject AY. However, without prejudice to our contention that exercise undertaken and information sought by your office is patently illegal, in the interest of justice and to eliminate any doubt which your office may have on the question of crystallization of such charges, we wish to submit the following information/documents with your office: - Certificate issued by Indus confirming that Indus billed service charges amounting to Rs 418.71 crores to VDL during the subject AY towards rendition of Passive Infrastructure services to VDL Certificate enclosed as Annexure 6. - Indicative list of sites in the Rajasthan, UP (East) and Hariyana circles -enclosed in CD due to large file size - Master Services Agreement dated March 7, 2008 between Indus and VDI. (together with supplementary agreements) documenting the arrangement between Indus....
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....nish any confirmation or any other documentary evidence during the assessment proceedings and merely relied upon the particulars furnished by the tax auditor in their tax audit report. Therefore, the Assessing Officer concluded that the Assessee has failed to establish identity of lenders and the source of credit. Accordingly, in the Final Assessment Order addition of INR. 3,94,50,000/- was made in the hands of the Assessee invoking the provisions contained in Section 68 of the Act. 18.3. During the course of hearing both the sides had agreed that in case of Deputy Commissioner of Income Tax, Circle-17(1), New Delhi vs Vodafone Essar Digilink Ltd. [ITA Nos. 1169 & 1950/Del/2014, dated 14/03/2018, reported in [2018] 92 taxmann.com 234 (Delhi), Assessment Year 2009-2010] the Tribunal had set aside this issue to the files of the Assessing Officer with a direction to the Assessee to furnish all the relevant details/information to satisfy the Assessing Officer about the genuineness of the transactions. The relevant extract of the decision of Co-ordinate Bench of the Tribunal in the case of the Vodafone Essar Digilink Ltd. (Supra) for the Assessment Year 2009-2010 reads as under: ....
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....the facts of the instant case, we find that the claim of the assessee of having received such amounts from Distributors has not been corroborated before the AO and hence the same cannot be accepted. The ld. AR contended that the necessary details are available for production and one more opportunity be granted to it. Considering the totality of the facts and circumstances of the instant case, we are of the considered opinion that it would be in the fitness of things if the impugned order on this score is set aside and the matter is restored to the file of the AO for a fresh decision. We order accordingly and direct him to decide this issue afresh. The assessee is also directed to furnish all the relevant details/information as called for by the AO to satisfy himself as to the genuineness of the transactions. If the assessee again fails to furnish necessary details as called for, the AO will be entitled to draw an adverse inference against the assessee." 18.4. It is admitted position that in fact and circumstances identical to Assessment Year 2009-2010, addition of INR. 3,94,50,000/- was made under Section 68 of the Act for the Assessment Year 2010-2011. Therefore, in the line of....
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....ts to AEs and by erroneously holding that Appellant has not derived any benefits from royalty payments to AEs despite holding that the advertisement, marketing and promotion ('AMP') expenditure incurred by the Appellant has increased the value of the brands owned by such AEs. Transfer Pricing adjustment - Reimbursement of excessive advertisement & marketing spend 9.5. On the facts and in the circumstances of the case and in law, the learned TPO/AO/DRP have erred in holding AMP expenditure incurred by the Appellant is a separate international transaction u/s 92B of the Act, without appreciating the functional profile of the Appellant according to which such expenses were incurred as part of the Appellant's roles and responsibilities as a telecom service provider and not under a separate arrangement agreement with AEs to promote brands owned by such enterprises. 9.6. On the facts and in the circumstances of the case and in law, the learned TPO/Assessing Officer/DRP have erred in not appreciating the fact that the AMP expenses were incurred by the Appellant on its own account and the same didn't require any separate compensation/reimbursement....
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....Vodafone' and ESSAR' name and trademark while providing telecommunication services in India. In terms of the aforesaid agreements, the Assessee made following payments during the relevant previous year: S. No. Description of transaction Value (INR.) 1 Payment for software development charges to AE 1,06,49,210 2 Payment of royalty fee to AEs for the grant of right to use "Vodafone" and "Essar" trademark/trade name 27,20,28,430 Total 66,07,05,614 19.3. The Assessee bench-marked the royalty payments by using three comparables: S. No. Name of the Licensor Name of Licencee Royalty Rate (%) 1. OmniReliant. Inc. Net Talk.com Inc. 1 2. Harnishfeger Technologies Inc. .75 3. Jean michel Cousteau ocean future society Inc. UltrastripMorris material handling Inc. systems Inc. 2 Mean 1.25 It was contended on behalf of the Assessee Since the royalty payments of 0.5% and 0.25% of net service revenue was lower than the royalty payments being made under comparable third-party agreements (mean being 1.25%), the royalty payments made by Appellant were establis....
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.... returns from intangible assets such as distribution systems, trained workforce, etc. Allowances need to be made for them. In the absence of any data provided by the taxpayer, it is impossible to know what percentage of profits the licensee would like to share at an arm's length after removing the returns from assets employed and other economic factors. ● The taxpayer did not give the details of royalty rates in the industry and has not been able to benchmark this transaction properly so as to prove that it was at Arms Length. Thus the taxpayer has failed to discharge its onus to produce any primary evidence, e.g .. (0) how the royalty rate has been fixed to justify that the payment of royalty is at arm's length, (ii) cost benefit analysis, (iii) economic benefit derived by the assessee and (iv) details of royalty rates in the industry etc. CUP data or any other data to support its payment being at arm's length. 10. In view of the detailed discussions in the preceding paragraphs the arm's length price of royalty is determined at Rs. Nil in place of Rs. 27,20,28,430. The amount of Rs. 27,20,28,430 is treated as adjustments U/s 92CA as....
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....foresaid royalty rates, and therefore, no transfer pricing adjustments were warranted. Thereafter, the Assessee filed another submission on 06/06/2019 placing on record benchmarking analysis for the Assessment Year 2009-2010 which, according to the Assessee were also relevant for the Assessment Year 2010-2011. In response the Assessing Officer filed a common remand report for Assessment Years 2009-2010 to 2012-2013 objecting to the fresh comparability analysis done by the Assessee and reiterated the conclusion drawn by TPO. The Assessee was confronted with the aforesaid remand report and in response to the same the Assessee file submissions dated 16/09/2019 rebutting the objections raised in the remand report. 19.10. We find that the identical issue had come for consideration before the Co-ordinate Bench of the Tribunal in the case of the Assessee for the Assessment Year 2009-2010 [ITA Nos. 1169/Mum/2014, dated 12/02/2025, titled Vodafone Digilink Limited Vs. Deputy Commissioner of Income Tax, Circle 17(1), New Delhi]. Paragraph 4 of the said order of the Tribunal, recording identical set of the facts, reads as under: "4. Ground of appeal No.9 related Transfer Pricing a....
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....eas the assessee is engaged in providing telecommunications services. Thus, the royalty payments made by the assessee cannot be compared with the royalty payment made by Motorola. ● the payment of royalty by the assessee to its foreign AEs has not resulted in the increase in the profitability of the assessee and, hence, the use of Vodafone and Essar trademark/ trade name have not brought any commercial benefit to the assessee. ● the assessee did not produce any cost benefit analysis undertaken at the time of entering into the agreement with its AEs and hence, royalty rate paid by the assessee was not fed based on expected benefit accruing from the use of trademark trade name; ● the assessee did not provide any details of the royalty rates in the industry; and ● the increase in the sales of the assessee cannot be solely attributed to the big brands. A subscriber's choice of service provider is not exclusively dependent on a particular trademark/ trade name. Varied factors like overall service quality, free calls, free SMS's networks capability, reliability of services, network innovations, low rates charges, accessi....
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....nd 5.20% as external CUP basis a set of five comparable. 4.10. The TPO vide its letter dated 29/08/2019 furnished his Remand Report to the Tribunal. In terms of the said Remand Report, the TPO submitted that the ALP of payment of royalty to both AEs, i.e., Rising Group Ltd (in short RGL) and Vodafone Ireland Marketing Ltd (in short VIML) should be considered as Nil. Without prejudice to the aforesaid, the TPO also submitted that the agreement between Virgin Enterprises Ltd." and "Virgin Mobile USA LLC" may be taken as a comparable in respect of 'Vodafone' brand wherein royalty at the rate of 0.25% has been charged and on which detailed discussions have been made in the orders passed by the TPO for the AY 2013-14 to 2015-16 and also confirmed by the DBP for the AY 2013-14. 4.11. Further, in the said Remand Report, the TPO alleged that none of the comparable selected by the assessee by applying external CUP are comparable in true sense and the search conducted by the Appellant has not yielded correct results. With respect to the comparable agreement used by the assessee as an internal CUP, the TPO rejected the same by stating that no details of this transact....
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.... (b) On the other hand it was contended on behalf of the Revenue that: - Ld. DRP and TPO has been clearly established that regardless of the use of Vodafone' Brand, the assessee has not provided any evidence to show how the royalty payment has benefitted its business and so the ALP of the transaction has been determined at NIL - Without prejudice, the TPO in the Remand Report dated 29.08.2019 has discussed the comparables selected by the appellant using Powerk database for computing the ALP of royalty transactions under the Comparable Uncontrolled Price method (CUP) and has rejected all of the comparables due to differences in the functions performed by the tested party, le., the appellant and the comparables. As the CUP method requires strong similarity in the function, asset and risk analysis, the comparable selected by the appellant were very divergent from the functions of the appellant. The TPO thereafter, made an independent analysis and has stated in the Remand Report that the royalty agreement between Virgin Enterprises Ltd. and Virgin Mobile USA LLC as a valid comparable having close similarity in the functions performed, where the royalty was....
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....ge in the facts and circumstances of the case and the Revenue has failed to bring on record any material to distinguish the above decision in the case of the Assessee/Vodafone Digilink Limited (supra) for the Assessment Year 2009-2010 either on facts or in law. We note that even in the submissions filed on behalf of the Revenue vide a Letter, dated 16/07/2025, reliance was placed on the Order, dated 27/01/2014, passed by the Transfer Pricing Officer and not to the remand report dealing with the fresh benchmarking analysis furnished by the Assessee during the proceedings before the Tribunal. We note that identical contentions of the Revenue were taken into consideration and rejected by the Tribunal while deleting identical transfer adjustment made the case of the Assessee for the Assessment Year 2009-2010. For the Assessment Year 2010-2011 also, the Transfer Pricing Officer had questioned the commercial prudence of the Assessee to pay royalty and had arrived at ALP without referring to any of the prescribed methods. While the Assessing Officer has rejected the transfer pricing method and the comparable adopted by the Assessee, the TPO/Assessing Officer has failed to provide/apply al....
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....ns dated 18/12/2013, relying on the decision of the Special Bench of the Tribunal in the case of LG Electronics India Pvt. Ltd. vs. ACIT (2013) 140 ITD 41 (Delhi) (SB), upheld the applicability of the bight line test while computing the ALP of the AMP expenditure. It further upheld the TPO's stand of adding a markup of 15.46% on the ALP of the AMP expenditure. Pursuant to the DRP Directions, the Ld. AO in terms of the Final Assessment Order dated 30/01/2014 inter- alia made an addition of Rs. 2,84,68,27,994/- to the income of the assessee being the transfer pricing adjustment made by the TPO on the transaction of AMP expenditure. 11.4. Mr. Pardiwallasubmits that the revenue has not discharged the onus cast on it by bringing any material on record to prove that there is an understanding / arrangement or an action in concert between the assessee and the AEs for promotion of trademark/ trade name owned by the AEs. The AMP expenses have been incurred as a function as part of the assessee's roles and responsibilities as a service provider and not under a separate arrangement/ agreement with the AEs to promote brands owned by such AEs. The assessee has the licen....
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....ngs are extracted hereunder for ready reference: ".................. E 12.4. We have considered the rival submission and perused the material on record including the chart of issues filed by the Assessee. 12.5. We note that in the present case the TPO has arrived at a conclusion that there existed international transaction solely on the basis of the fact that the Assessee has incurred high AMP Expenditure at the rate of 6.2% of sales. While AMP Expenses may constitute an international transaction, the existence of an arrangement and consequently, an international transaction cannot be presumed on the basis of bright line test only. In the case of Maruti Suzuki India Limited Vs Commissioner of Income Tax: [2016] 381 ITR 117 (Delhi) it has been held by the Hon'ble Delhi High Court that the existence of AMP Expenditure, being an international transaction, will have to be established de hors the bright line test. In absence of any written agreement, whether any arrangement existed or the Assessee along with its AE acted in concert would depend upon the facts and circumstances of each case. Where an assessee denies existence of international transaction in case of ....
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....option of bright line test for holding the excessive AMP expenses compared to the third party comparables is erroneous as the TPO has not established functional similarities between the appellant and the comparables chosen by him for the application of bright line method. Further, the Ld. Counsel submits that the AMP issue is already covered in its favor by the decision of the Hon'ble Mumbai ITAT in the case of Vodafone India Ltd. in ITA No. 884/Mum/2016 dated 17.05.2024. In this regard, I rely on the order of the Transfer Pricing Officer and of the Ld. DRP wherein the TPO has discussed elaborately the details of the AMP transaction and the reasons for holding it as an international transaction and benchmarking it by adopting the most appropriate method." 11.9. This issue too, as was argued during the course of the hearing, has been addressed by the Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited (supra) - relevant portion of the same is extracted hereunder for ready reference: "73. ..... The argument of the Revenue, however, is that while such AMP expense may be wholly and exclusively for the benefit of the Indian entity, it a....
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....smissal of the revenue's SLP further reinforces this position. The AMP expenses incurred by the assessee were essential to its business functions as a telecom service provider and were aimed at expanding its subscriber base, not at promoting the brand of its AEs. These expenses were inextricably linked to the assessee's business operations and cannot be arbitrarily segregated as brand promotion for the AEs. The TPO's characterization of the assessee as a mere distributor, without any substantive reasoning, contradicts the assessee's established role as a full-fledged telecom service provider. The business model chosen by the assessee is to be respected, as per settled jurisprudence, and cannot be re- characterized arbitrarily by the revenue. The application of the bright line test without ensuring functional comparability of the selected comparable and without considering business-specific factors renders the adjustment methodologically flawed. In subsequent assessment years, no adverse inference has been drawn, and no transfer pricing adjustments have been made concerning AMP expenses. This consistency further weakens the revenue's case for the disputed year. ....