TaxTMI 
TaxTMI 
2026 (3) TMI 1481
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of the assessee was selected under CASS and notice u/s 143(2) was issued on 03.09.2014. Since, the assessee has carried out international transactions and specified domestic transactions with its Associate Enterprises (AEs), therefore, a reference was made u/s 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) of international and specified domestic transactions carried by the assessee. The TPO vide its order dated 26.10.2016 u/s 92CA(3) of the Act has made onward adjustments which are (i) payment of royalty of Rs. 221,27,39,573/- and (ii) Passive Infrastructure charges-rent Rs. 29,57,02,005/- Thereafter, the AO passed the draft assessment order u/s 144C(3) dated 20.09.2018 wherein, besides addition for the TP adjustment made by the TPO, certain other additions/disallowance were also made and the total assessed income was proposed to be assessed at a loss of Rs. 30,79,32,76,535/-. Against the said order, assessee filed objections before the Ld. Dispute Resolution Panel (DRP) who vide order dated 27.06.2019 disposed of the objections either rejected the objections of the assessee or give certain directions to the AO/TPO. Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent: 3.2 That on the facts and circumstances of the case and in low, the AO/DRP/ TPO have erred in not appreciating that provision of section 40A(2)(b) of the Act are not applicable in the absence of tax arbitrage from such payments. 3.3 That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in rejecting the benchmarking analysis adopted by the Appellant using CUP method and erroneously / arbitrarily benchmarking each sub-category of the transaction separately, which is not in accordance with the provisions of the Act read with Income-tax Rules, 1962. 3.4 Without prejudice, the AO/DRP/TPO have erred in disregarding corroborative TNMM benchmarking analysis adopted by the Appellant, wherein the SDT of payment of passive infrastructure charges was benchmarked on aggregated basis at segment level. Corporate Tax Grounds: 4. Disallowance amounting to INR 10,47,25,37,853 in respect of depreciation on right to use spectrum: 4.1 That on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing the claim of depreciation amounting to INR 10,47,25,37,853 in respect of expenditure incu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and circumstances of the case and in law, the AO/DRP erred in not appreciating that ARC, being directly attributable to the acquisition of capital asset, is includible in cost of telecom towers under section 43(1) of the Act. 7.3 Without prejudice to grounds of appeal nos. 5.1 and 6. 2, the AO/DRP erred in not allowing the deduction for provision in respect of ARC obligation on proportionate basis over the period of lease. 7.4 Without prejudice to grounds of appeal nos 6.1 to 6.3, the AO/DRP erred in not allowing the deduction under section 37(1) of the Act as revenue expenditure in respect of provision for ARC obligation. 7.5 Without prejudice to ground of appeal nos. 6.3 and 6.4, the AO/DRP erred in not allowing the deduction in respect of ARC expenditure amount actually incurred by the Appellant during the year. 8. Disallowance amounting to INR 68, 10,57,201 in respect of liabilities written back: 8.1 That on the facts and circumstances of the case and in law, the AO erred in making an addition of INR 68,10.57.201 invoking provisions of section 41(1) and/or section 28(iv) of the Act, in respect of capital account liabilities written ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... disallowance relating to the discount should have been restricted to 30% of the sum payable in view of amendment to section 40(a)(ia) of the 10. Disallowance of license fees amounting to INR 8,99,73,07,416 under section 37(1) of the Act: 10.1 That on the facts and circumstances of the case and in law, the AO/DRP erred in holding that annual license fee payable to DOT, based on percentage of revenue earned, is in the nature of capital expenditure amortizable under section 35ABB of the Act. 10.2 That on the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that annual revenue share license fee payable to DOT is allowable as deduction under section 37(1) of the Act. 11. Disallowance amounting to INR 1,07,15,34,153 in respect of payments made to IBM: 11.1 That on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing support service charges amounting to INR 1,58, 12, 16,814 paid to IBM as capital expenditure and restricting the allowance to INR 50.96,82.661 by amortizing the same over the period of agreement. 11.2 That on the facts and circumstances of the case and in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....E Vodafone Ireland Marketing Limited in terms of agreement made with AE assessee has to paid royalty fee @ 0.70% of Net services revenues. The assessee benchmarked the transaction by using Comparable Uncontrolled Price method ("CUP") as the most appropriate method (MAM). The TPO rejected the same and applied Transactional Net Margin Method ("TNMM") and also rejected three comparable selected by the assessee and included two new comparables and proposed 0.25% as the royalty rate and made the adjustment of Rs. 221,27,39,573/-. The assessee claimed that M/s Vergin Enterprises Ltd. and M/s Virgin Mobile USA LLC taken as new comparables to benchmarking transactions is erroneous as transaction between these two enterprises is control transactions and, thus, cannot be considered as valid comparable for benchmarking the royalty transaction in the case of the assessee. 7.2. It is submitted that that the identical issue as came up for consideration before the Co-ordinate Bench of ITAT, Delhi in assessee's own case for Assessment Year 2012-13 wherein in ITA No.8561/Del/2019, the Co-ordinate Bench by placing reliance on the judgment of Hon'ble Co-ordinate Bench of ITAT, Ahmedabad in the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard adjustment on the basis of related party transactions after adopting CUP method instead of TNMM hereinabove, we find that a co-ordinate bench of this tribunal in ACIT vs. Bilag Industries Pvt. Ltd. ITA No. 1441 & 1670/Ahd/2006 and 343/Ahd/2012 quotes a catena of case law to disagree with such an approach as follows: "28. We have heard both the sides. Learned representatives reiterate their respective pleadings in support of and against the impugned transfer pricing adjustment. There is hardly and dispute that the assessee agreed to supply Deltametrin and its intermediate chemical solutions to the above stated associate enterprise or its designee. This lis however is confined to arms length price determination of 18 tones supplied to the foreign entity. The assessee charges @ US $ 126.2 per kg by following cost + 55% markup. Its agreement quoted Deltametrin price to be @ 161.20 US $ per kg. The assessee also admitted the latter rate to be at arms length price as already indicated in page 292 of the paper book. This made the TPO to inter alia to rejectassessee's other contentions for making impugned upward transfer pricing adjustment of Rs. 2,96,10,000/-subject matte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TNMM method for charging @ cost + 55% markup i.e. an indirect method for declaring its ALP. The TPO adopted its direct sale price @ 161.2 US $ per kg for making the impugned upward adjustment. We do not find a single observation even in his order rejecting assessee's TNMM method before adopting the agreement price in question under the CUP method. 31. We stay back on Rule 10B(1)(a) at this stage. It is evident that this clause prescribes CUP methods application to determine controlled price of an international transaction by the price charged or paid for property transfer or services provided in a comparable uncontrolled transaction; or a number of transaction, as identified. The same forms a price charged or paid in relation to property or services as the basis of ALP transaction. We referred to the above stated rule 10A(a) to observe here that the expression 'comparable un-transaction between controlled transaction' signifies enterprises other than associate ones; whether resident or non-resident. It has already come on record that the TPO in the instant case relied upon assessee's agreed price rate of US $ 161.20 per kg for Deltamethrin supply in order t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....e. to be paid or charged in such a comparable controlled transaction in comparison to a comparable un-controlled transaction. We repeat that the TPO has not kept in mind this fine distinction. We accordingly reverse his action on this sole legal principle. Needless to say, the CIT(A) has already deleted the impugned adjustment. We find no reason to interfere in the lower appellate order albeit on a different score as enumerated hereinabove. This Revenue's ground is declined accordingly." We have given out thoughtful consideration to rival contentions Ld. Departmental Representative fails to pinpoint any exception in facts of the instant case vis-à-vis those extracted hereinabove with regard to the impugned upward transfer pricing adjustment based on related party agreements only. We thus find no reason to interfere with the DRP' direction under challenge on this count alone. This substantive ground is also rejected." Respectfully following the above decision and other decisions relied upon by the Id AR, in view of the facts and circumstances of the case, we are of the considered opinion that the issue involved in ground No. 2 of the assessee is squ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....profits and paid taxes on such income, whereas the assessee is incurring huge losses, therefore, there is no loss to the Revenue nor any benefit to the assessee by paying higher amount to its related party. In this regard, reliance is placed on the judgment of CIT vs. Glaxo Smithkline Asia (P.) Ltd. reported in [2010] 195 Taxman 35 (SC) dated 26.10.2010. It is further submitted by Ld. AR that vide Finance Act 2017, the adjustment with respect to specified domestic transactions has been omitted and thus, it should be taken as the said provisions was never existed in the statute. For this reliance is placed on the judgment of Hon'ble Karnataka High Court in the case of Pr. CIT v. Texport Overseas (P.) Ltd. reported in [2020] 114 taxmann.com 568 (Karnataka). Ld. AR further submits that the assessee has entered into a single agreement with Indus Tower and third party passive Infrastructure Providers and thus the overall average rates should be considered for computing the transfer pricing adjustment. However, the TPO has aggregated the transactions for individual category which should not be done. Ld. AR therefore, requested for the deletion of the adjustment so made. 12. On the oth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision." 6. In fact, Co-ordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act we.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of section 10B. In the matter of General Finance Co. v. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of section 92BA(1) of the Act. Thus, when clause (1) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of section 92B1 and reference made to the order of Transfer Pricing Officer-TPO under section 92CA could be invalid and bad in law." 14. It is further observed that M/s Indus Tower is declaring profits on regul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue is squarely covered in favour of the assesse. Hence, ground No.3 raised by the assessee is allowed." Admittedly the facts are identical, thus, by respectfully following the aforesaid judgement of the coordinate bench in assessee's own case, the disallowance made of Rs. 10,47,25,37,853/- is deleted. Ground of Appeal No.3 is accordingly allowed. 17. Ground of appeal No. 4 is with respect to disallowance of penalty of Rs. 18,96,32,587/- imposed by the Department of Telecommunication. 18. Heard both the parties and considered the material available on record. It is observed that this issue is covered by the decision of the Co-ordinate Bench in assessee's own case for Asst. Year 2012-13 in ITA No.836/Del/2019 wherein the Co-ordinate Bench had in para 6.1 to 6.5 after considering the factual aspect as deleted the disallowance by following decision of Co-ordinate Bench in group case. The relevant observations are as under: "6.1 Considered the rival submissions and material placer onrecord. Brief fact of the issue is, assessee incurred expenditure on account of penalty paid to DOT for non-compliance of terms of the license agreement entered between the Assessee and DOT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d of Rs. 19, 19130/- is hereby deleted. Ground of appeal No.5 of the assesse is allowed. 22. Ground of Appeal No.6 is with respect to disallowance of depreciation of Rs. 8,10,99,490/- claimed on the addition to fixed asset on account of Asset Restoration Cost ("ARC"). 23. Heard both the parties and perused the materials available on record. It is observed that identical issue was came up for consideration before the Co-ordinate Bench in assessee's own case for AY 2012-13. The Co-ordinate Bench after considering the submissions and the judgment of Hon'ble Delhi High Court dated 11.03.2025 in the case of Vodafone Mobile Services Ltd. vs. DCIT in ITA No.660/2018 for Assessment Year 2009-10 held the said expenses are allowable u/s 37 of the Act and, thus, allowed the deduction. The relevant observations of the Co-ordinate Bench as contained in para 7.2 to 7.6 are reproduced as under: "7.2 The Id. AO rejected the contention of the Assessee and held that there was no legal obligation on the Assessee to incur the ARC and hence, the same is neither allowable u/s 37 of the Act nor it can be capitalized under the provisions of the Act. It also held that the liability to incur ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee is withdrawn and AO is directed to verify the expenditure and allowed the same as per section 37 of the Act. This ground of appeal is thus, allowed for statistical purposes. 24. Ground of appeal No.8 is with respect to disallowance of Rs. 68,10,57,201/- made by AO in respect of liabilities written back. 25. Heard both the parties and perused the materials available on record. Before us, ld. AR fairly admitted that the issue in hand with respect to the liabilities written back pertaining to reversal of amount payable to 'Motorala Inc.' towards supply of capital equipment during the years 2004-2008 has already been decided against assessee, in assessee's own case for AY 2012-13 where the Co-ordinate Bench in ITA No.8361/Del/2009 after considering the facts has dismissed the claim of the assessee by making following observations in Para 8.1 to 8.6 of the order. "8.6 We observed from the submissions that the liability pertains to the supply of capital equipment during the years 2004 and 2008. It was agreed between the parties that the liability shall no longer be payable, therefore, the assessee written back the same. In our considered view, the assessee had purch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that license fee paid is Revenue expenditure as it was not paid for obtaining the license but to maintain the license obtained. However, the issue has been settled by the Hon'ble Supreme Court in the case of the CIT vs. Bharti Hexacom Ltd. reported in [2023] 458 ITR 593 wherein the Hon'ble Supreme Court has held the same as capital in nature and allowed amortization in accordance with section 35ABB of the Act. Further, the Co-ordinate Bench of the Tribunal in the case of ACIT vs. Vodafone Ltd. in ITA No.7658 and 8709/Del/2018has followed the decisions of Hon'ble Supreme Court in the case of Bharti Hexacom Ltd. (supra). Thus by respectfully following the same, we direct the AO to verify the working of the assessee and allow the amortization in accordance with provisions of section 35ABB of the Act. Thus, this ground of appeal of the assesse is allowed for statistical purposes. 30. Ground of Appeal No.10 is with respect the disallowance of Rs. 107,15,34,153/- paid to IBM and claimed as expenditure. 31. Heard the parties at length and perused the material available on record. The issue is identical to immediately preceding assessment year wherein the Co-ordinate Bench by followi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hould 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 Id 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 hardware owned by IBM and used by....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 account 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: (1) Finance Lease (ii) Operating Lease 5.2 Finance ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 transfe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mstances 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." Admittedly, the facts are identical, thus by respectfully following the decision of the Co-ordinate Bench in assessee's own case in preceding year (supra), we allowed this ground of appeal of the assesse. 32. Next ground of appeal No.11 is with respect to the disallowance of Rs. 619,21,83,223/- on account of capitalization of royalty. 33. Heard the parties and perused the materials available on record. It is observed that identical issue was raised in immediately preceding year where disallowance of similar nature was made towards the WPC royalty expenses. The Co-ordinate Bench in ITA No.8361/Del/2019 by following the judgment of Hon'ble Delhi High Court in the case of Vodafone West Limited reported in [2009] 221 CTR 305 (Delhi), has deleted the same. The relevant observations of the Co-ordinate as contained in para 13.1. to 13.6 are as under: "13.1 Brief facts of the Issue is, the assessee in its....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the assessee has furnish inaccurate particulars thereby concealing the particulars of its income anc rendering itself liable for initiation of penalty proceedings u/s 271(1)(c) read with section 274 of the IT Act, 1961. The same is being initiated separately. 13.4 The Id DRP did not make any variation in the addition in the draft assessment order, however, an addition 5,93,67,11,109/- was made to the total income on account of disallowance of WPC Royalty Expenses. 13.5 The Id counsel for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of Vodafone West Limited' (earlier known as Fascel Limited') by the Hon'ble Delhi High Court reported in (2009) 221 CTR 305 (Delhi). This issue has 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 Id 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 groun....