TaxTMI 
TaxTMI 
2026 (6) TMI 1253
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness of providing cellular mobile telephony services in the State of Gujarat. For the year under consideration, the assessee filed its original return of income on 29.11.2011, declaring total income of Rs. 2,40,92,73,724/-. Subsequently, the assessee filed a revised return of income on 25.03.2013, declaring total income of Rs. 2,65,96,62,719/-. The assessee also declared book profit of Rs. 4,06,12,37,150/- under section 115JB of the Act. 3. The case was selected for scrutiny and notices under sections 143(2) and 142(1) of the Act were issued. Since the assessee had entered into international transactions as reported in Form No. 3CEB, a reference was made to the Transfer Pricing Officer (TPO) under section 92CA of the Act for determination of the arm's length price of such transactions. Thereafter, the Assessing Officer passed a draft assessment order dated 31.03.2015 under section 143(3) read with section 144C(1) of the Act, proposing various additions and disallowances, including transfer pricing adjustments. 4. Aggrieved by the variations proposed in the draft assessment order, the assessee filed objections before the Dispute Resolution Panel-2, Mumbai (DRP) under section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt of receipt for pre-paid services which crystallized during the year itself. 10. The DRP, Mumbai has erred in law and on facts in deleting the disallowance of Rs. 176,50,23,617/- made on account of license fees u/s. 37(1) of the Act. 11. The DRP, Mumbai has erred in law and on facts in deleting the disallowance of Rs. 130,62,03,715/- made on account of Royalty to WPC (Wireless planning commission). 12. The DRP, Mumbai has erred in law and on facts in directing to delete the proportionate disallowance on account of depreciation of 3G spectrum license. 13. The DRP, Mumbai has erred in law and on facts in deleting the addition made on account of Arm's Length Price of international transaction as under: 13a) The DRP, Mumbai has erred in law and on facts in deleting the adjustment made in respect of the determination of ALP for royalty payments for use of brands "Essar" & "Vodafone". 13b) The DRP, Mumbai has erred in law and on facts in accepting TNMM as the most appropriate method with the comparison being carried out at entity level, in alternative analysis. 13c) The DRP, Mumbai has erred in law by incorrect application....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... learned DRP has erred in holding that transfer of PI assets by the Appellant to VInL without consideration does not qualify as a 'gift' and hence, not exempt under section 47(iii) of the Act. 1.3 On facts and circumstances and in law, the learned AO, based on the directions of the learned DRP has erred in not appreciating that in absence of any consideration received/accrued to the Appellant, the computation mechanism provided under section 48 of the Act fails and accordingly, the charging section 45 of the Act also fails and hence, no capital gain/income could arise in the hands of the Appellant. 1.4 On the facts and in the circumstances of the case and in law, the learned AO, based on the directions of the learned DRP has erred in imputing a notional sale consideration, when no such provision exists in the Act which permits the learned AO to notionally assume a consideration in absence of receipt of any consideration by the Appellant. 1.5 On the facts and in the circumstances of the case and in law, the learned AO, based on the directions of the learned DRP has erred in applying the provisions of section 50D of the Act, which are neither applicable to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aming charges respectively paid by the Appellant to other telecom operators. 4.1 On the facts and circumstances of the case and in law, the learned AO, based on the directions of the learned DRP has erred in holding that taxes are deductible on the roaming charges paid by the Appellant. 4.2 On the facts and circumstances of the case and in law, the learned AO, based on the directions of the learned DRP has erred in holding that human intervention is present in providing roaming services and ignoring the judicial precedents relied upon by the Appellant. 4.3 Without prejudice to the above ground 4 and 4.1, on the facts and circumstances of the case and in law, based on the directions of the learned DRP, the learned AO has erred in holding that human intervention is present in roaming services by placing reliance on a technical expert opinion obtained for another entity without providing any opportunity of being heard to the Appellant. 4.4 Without prejudice to the ground 4, 4.1 and 4.2, on the fact and in the circumstances of the case and in law, the learned AO, based on the directions of the learned DRP has erred in not giving effect to taxes paid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in rejecting the external search process undertaken by the Appellant for determining the ALP of international transaction pertaining to payment of interest and upfront fee by the Appellant to VOFL. 7.3 On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in holding that the ALP of upfront fee paid by the Appellant cannot be determined by apportioning such fee over the tenor of the ECB facility and computing the net effective interest rate. 7.4 On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in conducting a fresh search using inappropriate search filters for determining the ALP of international transaction pertaining to payment of interest and upfront fee by the Appellant to its AE without taking into account the terms of the ECB agreement entered into by the Appellant with its AE. 7.5 On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in re-characterizing the unsecured ECB facility availed by the Appellant from its AE as a secured loan and thereby erred in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in the assessee's own case for the earlier assessment years. It was submitted that the facts and circumstances of the year under consideration are identical and no distinguishing feature has been pointed out by the lower authorities so as to warrant a different view. The learned Departmental Representative (DR) fairly conceded to that. 9. In view of the aforesaid submissions of the parties, we now proceed to adjudicate the issues arising in these cross-appeals issue-wise, one by one, by taking into consideration the respective grounds raised by the assessee and the Revenue, the findings of the Assessing Officer and the directions of the DRP, and the judicial precedents. 10. We first deal with Assessee's Appeal in ITA No. ITA 571/Ahd/2016. Disallowance of depreciation on Passive Infrastructure assets transferred to Vodafone Infrastructure Limited - (Assessee's Ground No. 1 and sub-grounds 1.1 to 1.6) 11. The first issue for adjudication arises from Ground No. 1 raised by the assessee, wherein the assessee has challenged the action of the Assessing Officer, taken in pursuance of the directions of the DRP, in disallowing depreciation of Rs. 26,85,91,500/- on Passive Inf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ically be treated as a gift and that the entire transaction must be viewed in the context of the overall restructuring of the Vodafone Group. The Assessing Officer observed that the transfer of PI assets was undertaken with the objective of consolidating the passive infrastructure assets of the Vodafone Group and another telecom operator into a single entity, thereby enabling operational synergies and reduction in operational costs. On this premise, the Assessing Officer held that the transaction was essentially a business reorganisation and not a gift. Accordingly, the Assessing Officer rejected the contention of the assessee that the transfer of PI assets was a gift covered under section 47(iii) of the Act. The Assessing Officer adopted the market value of the PI assets at Rs. 503.86 crores as the deemed sale consideration. Since the assets were depreciable assets forming part of the block of plant and machinery, the Assessing Officer reduced the written down value of the block by the said deemed consideration. Taking note of the fact that the assessee had already reduced Rs. 292.30 crores from the block of assets suo motu in Assessment Year 2010-11, the Assessing Officer further....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1.12.2025, which has been relied upon by the learned AR. We find that the issue arising in the present appeal is identical to the issue which came up for consideration before the Tribunal in the aforesaid decision. 19. The Co-ordinate Bench, while adjudicating the identical controversy relating to disallowance of depreciation on account of transfer of Passive Infrastructure assets to Vodafone Infrastructure Ltd. pursuant to a Scheme of Demerger, examined the factual matrix as well as the legal position in detail. The Tribunal noted that the transfer of PI assets had been effected without consideration and formed part of a Scheme of Demerger duly sanctioned by the Hon'ble High Court, and therefore the character of the transaction had to be examined in the light of the statutory provisions and the judicial approval accorded to the scheme. 20. The Co-ordinate Bench further observed that the Scheme of Demerger itself specifically contemplated transfer of PI assets to Vodafone Infrastructure Ltd. by way of gift. It was also noted that the Revenue had raised objections before the Hon'ble Delhi High Court contending that such transfer by way of gift was impermissible. However, those....
X X X X Extracts X X X X
X X X X Extracts X X X X
....paid to M/s. Indus Towers Ltd.(Assessee's Ground No. 2) 26. The next issue arising for our consideration relates to the disallowance of network site rentals paid by the assessee to M/s. Indus Towers Ltd. The brief facts of the case, as emanating from the record, are that during the course of assessment proceedings it was noticed by the Assessing Officer that the assessee had paid network site rentals amounting to Rs. 225.82 crore to M/s. Indus Towers Ltd. for the use of Passive Infrastructure (PI) assets. These PI assets had earlier been transferred by the assessee to M/s. Vodafone Infrastructure Services Ltd. with effect from 01.04.2009, which in turn was merged with M/s. Indus Towers Ltd. with effect from 01.04.2009 for Nil consideration. In view of the above, the assessee was asked to show cause as to why the payment made to M/s. Indus Towers Ltd. for use of such PI assets should not be treated as excessive or unreasonable and disallowed under the provisions of section 40A(2)(b) of the Act. After considering the submissions filed by the assessee, the Assessing Officer, in the Draft Assessment Order, held that the entire scheme of transfer of PI assets to M/s. Vodafone Infrast....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... depreciation on towers owned by the assessee, site rentals paid for towers of other telecom operators, power and fuel costs, security expenses, and repairs and maintenance. It was contended that after the transfer of PI assets, these operational responsibilities were taken over by M/s. Indus Towers Ltd., and therefore the assessee now pays network site rentals to that entity. It was further submitted that although these costs were earlier being incurred directly by the assessee, they were substantially rationalised after the restructuring, since M/s. Indus Towers Ltd. assumed responsibility for the operation and maintenance of the tower infrastructure. It was contended that the restructuring was expected to yield greater operational efficiencies in the long run, as increased tower sharing among telecom operators would reduce the overall service cost incurred by the assessee. The learned AR also submitted that earlier the assessee was receiving Rs. 37.9 crore from M/s. Indus Towers Ltd. as IRU revenue, since the assessee was allowing the use of its tower infrastructure. However, after the transfer of these towers to M/s. Indus Towers Ltd., the towers were being entirely utilised by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sent year are identical and no distinguishing feature has been brought to our notice by the Revenue, respectfully following the decision of the Co-ordinate Bench in the assessee's own case for the immediately preceding year, we restore this issue to the file of the Assessing Officer for de novo adjudication in accordance with law after examining the submissions and evidences that may be furnished by the assessee. Needless to state, the Assessing Officer shall afford reasonable opportunity of being heard to the assessee before deciding the issue. Accordingly, Ground No. 2 raised by the assessee is allowed for statistical purposes. Disallowance under section 14A of the Act(Assessee's Ground No. 3) 33. During the assessment proceedings, it was noted that the assessee has an investment in shares, which stands at Rs. 1855 million, however the assessee has not disallowed any expenditure incurred for earning exempt income under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 ("the Rules"). The assessee submitted that no disallowance is called for under section 14A of the Act, read with rule 8D of the Rules, as the assessee has not earned any exempt income and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tfully following the decisions of the Co-ordinate Bench in the assessee's own case as well as the binding judgment of the Hon'ble jurisdictional High Court, we hold that the disallowance made under section 14A read with Rule 8D of the Rules is not sustainable. 38. Accordingly, the disallowance of Rs. 92,75,000/- is directed to be deleted and Ground No. 3 raised by the assessee is allowed. Disallowance of roaming charges under section 40(a)(ia) and section 40(a)(i) of the Act on account of non-deduction of tax at source(Assessee's Ground No. 4) 39. During the year under consideration, the assessee paid an amount of Rs. 74,21,91,150/- as roaming charges to domestic and overseas service providers. Out of the above roaming expenses Rs. 12,17,15,462/-pertained to international roaming charges paid to foreign companies and the balance Rs. 62,04,75,688/- pertained to roaming charges paid to domestic companies. During the assessment proceedings, it was noticed that the assessee had not deducted tax at source on these payments. The AO, vide Draft Assessment Order, disagreed with the submissions of the assessee and held that during the process of carriage of calls, the intervention ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder dated 11.12.2025 for Assessment Year 2010-11. In the said decisions, the Co-ordinate Bench held that roaming charges paid to other telecom operators do not involve human intervention in the technical sense so as to fall within the scope of fees for technical services, and consequently no tax was required to be deducted at source under the relevant provisions of the Act. Accordingly, the Co-ordinate Bench deleted the disallowance made under section 40(a)(ia).The learned AR further submitted that the Co-ordinate Bench, while deciding the issue in the assessee's own case, had followed the decision of the Co-ordinate Bench in the case of the assessee's sister concern Vodafone East Ltd. in ITA No. 1864/Kol/2012, wherein on identical facts it was held that roaming services between telecom operators are provided through an automated and standardised process without human intervention, and therefore the payments made for such services cannot be characterised as fees for technical services. The learned AR also placed reliance on the decision of the Co-ordinate Bench in the case of another group concern, Vodafone Digilink Ltd. vide order dated 14.10.2025, wherein under identical circums....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder section 32 of the Act, amounting to Rs. 149,76,81,244/-, on the ground that the asset had been acquired and put to use for less than 180 days during the year. Further, the assessee capitalised interest expenditure of Rs. 123,92,61,917/- incurred in connection with the payment of the 3G spectrum fees in terms of the provisions of section 43(1) of the Act. 46. During the course of assessment proceedings, the Assessing Officer called upon the assessee to furnish a detailed note on the acquisition of the spectrum licence along with supporting documentary evidence and to justify the claim of depreciation. The assessee was also required to explain as to why the capital expenditure incurred towards acquisition of spectrum fees should not be amortised under section 35ABB of the Act, which deals with deduction in respect of expenditure incurred for acquiring telecommunication licences. The assessee submitted that the spectrum acquired constituted an intangible asset eligible for depreciation under section 32, and therefore the claim of depreciation was in accordance with the provisions of the Act. The Assessing Officer, however, did not accept the submissions of the assessee. In the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... We have carefully considered the rival submissions and perused the material available on record. The issue involved in the present ground relates to the allowability of depreciation on 3G spectrum fees claimed by the assessee as an intangible asset under section 32 of the Act, as against the stand of the Assessing Officer that the expenditure is required to be amortised under section 35ABB of the Act. 50. We find that an identical issue has been considered by various Co-ordinate Benches of the Co-ordinate Bench in the cases of the assessee's group entities, wherein it has been consistently held that the right to use telecom spectrum represents an intangible asset eligible for depreciation under section 32 of the Act. In the decisions relied upon by the learned AR, including those in the cases of Vodafone India Limited, Vodafone Digilink Limited and Idea Cellular Ltd., the Co-ordinate Bench has examined the nature of spectrum rights and held that such rights constitute business or commercial rights of similar nature, falling within the scope of intangible assets specified in section 32(1)(ii) of the Act. 51. The Co-ordinate Bench in those cases further held that the provision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resaid amount from the eligible profits in the Draft Assessment Order. The Assessing Officer further observed that such income does not have a direct nexus with the business of the undertaking and therefore cannot be regarded as income "derived from" the eligible business. Against the Draft Assessment Order, the assessee filed objections before the DRP. However, the learned DRP did not issue any specific direction on this issue in its order dated 28.12.2015. In view thereof, the Assessing Officer, in the Final Assessment Order passed under section 143(3) read with section 144C(13) of the Act, proceeded to exclude an amount of Rs. 40,26,263/- being scrap sales income from the profits eligible for deduction under section 80IA of the Act. 57. The learned AR submitted that the issue relating to inclusion of scrap sales income of Rs. 40,26,263/- in the eligible profits for the purpose of deduction under section 80IA of the Act is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for Assessment Year 2010-11 in ITA No. 1634/Ahd/2015, wherein the Co-ordinate Bench has allowed the claim of the assessee. The learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In the present case also, the income from scrap sales has arisen in the course of carrying on the telecommunication business of the assessee and forms part of its business receipts. In view of the above binding precedent in assessee's own case and in absence of any distinguishing facts brought on record by the Revenue, we find no justification in excluding the same from the eligible profits. 63. Further, as regards the alternative contention relating to disallowance under section 14A, it is an admitted position that the said disallowance has already been deleted while adjudicating Ground No. 3 of the present appeal. Accordingly, the said aspect does not survive for separate adjudication in the context of computation of deduction under section 80IA. 64. In view of the above, we hold that the scrap sales income of Rs. 40,26,263/- is eligible for deduction under section 80IA of the Act. The action of the Assessing Officer in excluding the same is therefore set aside. Accordingly, Ground No. 6 of the assessee's appeal is allowed. Transfer Pricing Adjustment of Rs. 16,15,68,785/- on account of interest paid on External Commercial Borrowings (ECB) (Assessee's Ground No. 7) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rrowing (ECB) agreement with its Associated Enterprise, namely Vodafone Overseas Finance Limited, for availing a loan facility amounting to JPY 15.23 billion. The said agreement was amended and restated on 22.03.2010 and was duly approved by the Reserve Bank of India on 31.03.2010. Pursuant to such approval, disbursements were made during the year and the interest was paid within the all-in-cost ceiling of LIBOR plus 500 basis points, as prescribed by the RBI. 71. It was submitted that since the approval granted by the RBI was specific in nature, the assessee had adopted the same as a valid Comparable Uncontrolled Price for benchmarking the international transaction. Without prejudice, the assessee had also carried out an external benchmarking analysis using Reuters Loan Connector database, wherein comparable loan tranches were identified and it was demonstrated that the effective interest rate paid by the assessee, being LIBOR plus 500 basis points, was lower than the arm's length interest spread of comparable uncontrolled transactions. 72. The learned AR further submitted that the TPO erred in rejecting the RBI approval as a CUP without appreciating that the regulatory appr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ility is subordinated in nature, which increases the risk borne by the lender. The AE had agreed not to receive principal and interest payments during the period of subordination, thereby assuming higher risk. The assessee, based on a bond yield analysis, computed a subordination adjustment of 1.03%, which was unjustifiably rejected by the TPO. It was submitted that the comparables selected by the TPO pertain to senior debt, whereas the assessee's borrowing is subordinated, thereby rendering the comparison inappropriate. 76. On the issue of upfront fee, the learned AR submitted that the same has to be amortized over the tenure of the ECB facility, and the RBI itself, while prescribing the all-in-cost ceiling, has taken into account the interest rate along with the amortized portion of upfront fee. Therefore, the approach adopted by the TPO in treating the upfront fee separately is erroneous. 77. Without prejudice, it was submitted that the ECB facility was utilized for acquisition of 3G spectrum, which has been capitalized as an intangible asset, and interest incurred prior to put-to-use has also been capitalized. Accordingly, even if any adjustment is to be made, the same ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th regard to the rate of interest is a relevant factor while determining the arm's length rate of interest, and that the rate of interest has to be determined with reference to the rate prevailing at the time of availing the loan. The High Court further upheld the Co-ordinate Bench's view that the Revenue could not make a departure in one year when the same rate stood accepted in other years. 82. A similar approach is found in Ion Exchange (I) Ltd., where the Mumbai Bench affirmed the view that, when the TPO's adjustments were founded on hypothetical assumptions and without proper comparable circumstances, the proper benchmark for foreign currency lending was the rate prescribed by RBI in its ECB Master Circular, namely LIBOR plus the relevant spread depending upon the tenure of the borrowing. In Firmenich Aromatics India Pvt. Ltd., the Mumbai Bench again held that where the TPO benchmarked ECB interest on the basis of an average of 46 entities from Bloomberg database without clarity regarding the nature of the loan, whether secured or unsecured, the tenure, and the purpose of borrowing, such comparables could not be treated as valid, and in such circumstances the ALP of ECB int....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as unsecured. The assessee also pointed out that its ECB was cross-guaranteed but not secured by collateral, and that the audited financial statements as well as the RBI-related documentation described the borrowing as unsecured. The TPO has brushed aside these objections, but has not brought any cogent material to show that the lender had recourse to any collateral security which would justify treating the borrowing as a secured loan in the strict sense. In transfer pricing, a guaranteed unsecured borrowing cannot be casually equated with a secured borrowing backed by collateral, because the risk profile is materially different. 86. We also find merit in the grievance of the assessee regarding the treatment of the purpose filter. The TPO observed that the purpose of loan is an important criterion, yet the final analysis does not convincingly demonstrate that the comparables used were functionally similar in this regard. The assessee's case was that the ECB was availed for import of capital goods and payment of 3G licence fee, that is, for a specific long-term corporate purpose, whereas the TPO faulted the assessee for not applying the filter while at the same time not showing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubordinated or the senior lenders had been repaid. The assessee further undertook a bond search and computed, after adjustments, a spread difference of about 1.03% between senior unsecured and subordinated unsecured bonds. The TPO rejected the claim, not because the subordination did not exist, but because he did not have data regarding whether the comparable loan tranches were themselves subordinated or not. The learned DRP has also upheld the rejection on the same reasoning. In our considered view, this very reasoning militates against the validity of the TPO's comparables. If the TPO's final comparable set does not carry adequate information regarding such a critical economic feature as subordination, the same cannot be treated as a dependable benchmark for a borrowing whose subordination is admittedly documented. The absence of data on this aspect does not justify denying the assessee's claim while simultaneously retaining the comparables as valid. On the contrary, it exposes the incompleteness of the TPO's search. 90. We also find merit in the assessee's submission regarding the treatment of upfront fee. The assessee's case consistently has been that the upfront fee is part....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terest and the approval given by the Reserve Bank of India with regard to rate of interest is a relevant factor while determination of the rate of interest." "It is also pertinent to mention here that the rate of interest has been accepted by the Assessing Officer for the earlier assessment years... Therefore, the revenue cannot be allowed to make a departure in case of rate of interest for the relevant assessment year." 92. In Ion Exchange (I) Ltd., the Co-ordinate Bench upheld the RBI ECB circular as an appropriate benchmark where the TPO's assumptions as to credit rating and transaction cost were not supportable. In Firmenich Aromatics India Pvt. Ltd., the Co-ordinate Bench specifically held that where the TPO's ECB comparables were deficient in basic parameters, the arm's length rate could be more accurately determined by following the interest rate fixed by RBI in respect of ECB loan. 93. In the present case, we are of the considered view that these authorities squarely support the assessee's contention that once the TPO's comparables are found to be deficient on critical parameters and the borrowing is a specific ECB approved by RBI with a stated all-in-cost ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Rs. 16,15,68,785/- made on account of interest and upfront fee paid on ECB obtained from VOFL is directed to be deleted. 97. Even otherwise, and without prejudice, we may observe that if at all any adjustment were to survive on account of upfront fee, the same could only be restricted to the amortized portion for which tax deduction has actually been claimed during the year, since the borrowing was utilised for acquisition of 3G spectrum and the related borrowing costs were capitalised. However, in view of our primary conclusion deleting the entire adjustment, this alternative contention does not survive for separate adjudication. 98. Accordingly, Ground No. 7 and sub-grounds 7.1 to 7.8 raised by the assessee are allowed. Addition of Rs. 92,75,000/- under section 14A while computing book profit under section 115JB(Assessee's Ground No. 8) 99. On perusal of the assessment order and the directions of the learned DRP, it is observed that the Assessing Officer made a disallowance of Rs. 92,75,000/- under section 14A of the Act while computing income under the normal provisions. Subsequently, while computing the book profit under section 115JB, the Assessing Officer adde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....both counts: (i) the disallowance under section 14A itself having been deleted, and (ii) the settled legal position that section 14A disallowance cannot be mechanically added while computing book profit, the addition made by the Assessing Officer and sustained by the DRP cannot be upheld. 105. In view of the above, we hold that the addition of Rs. 92,75,000/- made while computing book profit under section 115JB is unsustainable and is hereby directed to be deleted. Ground No. 8 raised by the assessee is allowed. Initiation of penalty proceedings under section 271(1)(c)(Assessee's Ground No. 9) 106. The assessee has challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. This ground is premature in nature and does not call for adjudication at this stage. Accordingly, the same is dismissed. 107. Now we deal with Revenue's appeal in ITA No. 443/Ahd/2016. Ground No. 1 - Determination of Initial Assessment Year under section 80-IA 108. The issue arising in Ground No. 1 of the Revenue's appeal pertains to the determination of the initial assessment year for the purpose of deduction under section 80-IA of the Act. 109. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....call for any interference. 114. We find that the identical issue has been examined in detail by the Co-ordinate Bench in the assessee's own case for A.Y. 2006-07. The Co-ordinate Bench, after appreciating the entire factual matrix including the date of incorporation, grant of license, installation of infrastructure, and actual commencement of commercial operations, has categorically held that mere obtaining of license or commencement of preparatory activities does not amount to "starting of providing telecommunication services" within the meaning of section 80-IA(4)(ii) of the Act. 115. The relevant findings of the Co-ordinate Bench are reproduced as under: "Mere receipt of license to provide telecommunication services without any infrastructure or resources would not result in providing telecommunication services... the company has not commenced its commercial services during the year... the assessee did not start providing telecommunication services in the period relevant to the AY 1996-97." "The company started their commercial operations... only on 24-01-1997 and accordingly, sales and service revenue was reflected for the first time... These evidences l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owing the decision of the Co-ordinate Bench of the Tribunal in the assessee's own case for A.Y. 2006-07 as well as its own directions for A.Ys. 2009-10 and 2010-11, held that the assessee is entitled to the benefit of the amended provisions of section 80-IA. Accordingly, the DRP directed the Assessing Officer to apply the amended provisions applicable from A.Y. 2000-01 and to allow deduction under section 80-IA at the prescribed rate on the profits of the year under consideration. 123. We find that the identical issue has been examined by the Co-ordinate Bench of the Tribunal in the assessee's own case for A.Y. 2006-07. The Co-ordinate Bench, after considering the scheme of section 80-IA(4)(ii) as amended, has categorically held that the option to claim deduction for any 10 consecutive years out of 15 years is available even to those undertakings which commenced telecommunication services on or after 01.04.1995. 124. The relevant findings of the Co-ordinate Bench, as relied upon by the learned AR, are reproduced as under: "...we are of the opinion that the assessee was justified in exercising option in terms of the amended provisions, especially when the provisions o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is not engaged in the business of leasing of assets and that the income from sharing infrastructure with other operators is not directly derived from the activity of providing telecommunication services. Accordingly, the AO denied the deduction under section 80-IA in respect of such income. 131. The learned DRP, following the decisions of the Co-ordinate Bench of the Tribunal in the assessee's own case for earlier assessment years, held that the cell site sharing revenue and IRU revenue are intrinsically connected with the telecommunication business carried on by the assessee. Accordingly, the DRP directed the Assessing Officer to allow deduction under section 80-IA of the Act on such income. In conformity with the directions of the DRP, the AO allowed the claim in the final assessment order. 132. The learned AR submitted that the issue is squarely covered in favour of the assessee by the decisions of the Co-ordinate Bench in the assessee's own case as well as in the case of its group concerns. It was submitted that in assessee's own case for A.Y. 2009-10, the Co-ordinate Bench has allowed deduction under section 80-IA on income earned from sharing of passive infrastructure....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsistently held that income arising from sharing of passive infrastructure such as cell sites is intrinsically linked to the telecommunication business carried on by the assessee. 140. It has been observed that cell sites and related infrastructure are tools of the assessee's business, and any income arising from commercial exploitation of surplus capacity of such infrastructure retains the character of business income derived from telecommunication services. The Co-ordinate Bench has further held that in the case of telecommunication undertakings, section 80-IA(2A) operates as a special provision and the restrictive interpretation of "derived from" cannot be applied in a narrow sense. 141. We also note that the aforesaid view has been consistently followed in the assessee's own case for subsequent assessment years, including A.Y. 2010-11, and no distinguishing facts or contrary judicial precedent has been brought on record by the Revenue. 142. In view of the above, and respectfully following the binding decisions of the Co-ordinate Bench in the assessee's own case, we find no infirmity in the direction of the learned DRP in allowing deduction under section 80-IA of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and are intrinsically linked to its business operations. 149. We further note that the Hon'ble jurisdictional High Court in Nirma Industries Ltd.[283 ITR 402], as recorded by the DRP, has held that interest or similar receipts from trade debtors constitute business income and cannot be treated differently while computing deduction under Chapter VI-A. The ratio laid down therein supports the assessee's claim that such receipts retain the character of business income. 150. We also find that the Co-ordinate Bench in the assessee's own case for earlier assessment years, following the decision of the Hon'ble Delhi High Court in PCIT vs. BSNL Ltd., has held that in view of section 80-IA(2A), the restrictive interpretation of the expression "derived from" does not apply in the same manner to telecommunication undertakings and that income having proximate nexus with the eligible business qualifies for deduction. 151. In the present case, the impugned receipts are directly connected with the telecommunication services rendered by the assessee and form part of its operational income. No distinguishing feature has been brought on record by the Revenue to take a different view. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee's telecommunication business and were allowed as deduction in earlier years. Upon cessation of such liabilities, the same have been brought to tax as business income under section 41(1) of the Act. Thus, such income is nothing but business income of the eligible undertaking. The contention of the Assessing Officer that deduction cannot be allowed again is not tenable, inasmuch as the allowability of deduction under section 80-IA is to be examined with reference to the nature of income in the year under consideration. Once the income is assessable as business income of the eligible undertaking, the same forms part of profits and gains derived from such undertaking. 158. We further note that the learned DRP has allowed the claim by following the decision of the Co-ordinate Bench in the case of Radha Madhav Industries, wherein it has been held that write back of provisions, being in the nature of business income, is eligible for deduction under Chapter VI-A. 159. In the present case, no material has been brought on record by the Revenue to demonstrate that the provisions written back do not pertain to the eligible business of the assessee. 160. In view of the above, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kings, the provision operates as a special code and the restrictive interpretation of the expression "derived from" as contained in section 80-IA(1) is not applicable in the same manner. 166. In the present case, the impugned income has not been shown by the Revenue to be independent of or unconnected with the business operations of the assessee. On the contrary, the consistent view taken in assessee's own case is that such income forms part of business income eligible for deduction. 167. In view of the above, and respectfully following the decisions of the Co-ordinate Bench in the assessee's own case, we find no infirmity in the direction of the learned DRP in allowing deduction under section 80-IA of the Act on such income. Accordingly, Ground No. 6 raised by the Revenue is dismissed. Ground No. 7 - Deduction under section 80-IA of the Act in respect of income earned under the Served from India Scheme (SFIS). 168. During the year under consideration, the assessee received an amount of Rs. 2.58 Crores as SFIS income. Under the said scheme, the Government issues scripts on export of services, which can be utilised for payment of duty levied on imports made by the assessee.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bench of the Tribunal in assessee's own case as well as in similar matters has consistently held that where an income arises out of or is intrinsically connected with the business of the eligible undertaking, the same forms part of eligible profits for the purpose of section 80-IA of the Act. Further, in the context of telecommunication undertakings, section 80-IA(2A) operates as a special provision and the scope of eligible income is broader, as has been held in earlier years while relying on judicial precedents including the decision of the Hon'ble Delhi High Court in the case of PCIT vs. BSNL Ltd. 173. In the present case, the SFIS income arises only on account of export of telecommunication services rendered by the assessee and, therefore, has a direct and proximate nexus with the business of the undertaking. The Revenue has not brought on record any material to demonstrate that such income is independent of or unconnected with the business activity of the assessee. 174. In view of the above, we find no infirmity in the direction of the learned DRP in allowing deduction under section 80-IA of the Act on SFIS income. Accordingly, Ground No. 7 raised by the Revenue is dism....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tely utilised by the customers. The AO further held that even where a customer opts to cancel the service offered by the assessee, the unutilized balance is non-refundable and, thus, the amount paid is towards the outright purchase of "recharges" and not an advance to be set off against future use of the service. The AO held that the assessee acquired the absolute right to utilise the amount so received and thus the income from "prepaid services" crystallises as soon as the customer makes payment. Accordingly, the AO, vide Draft Assessment Order, proposed to add the entire amount at Rs. 1,444.80 Million towards "prepaid services" in the year under consideration. 181. The learned DRP, following its directions for the AY 2010-11, allowed the objections raised by the assessee and held that the assessee is engaged in the business of providing telecommunication services and once the assessee sells its SIM cards and prepaid vouchers, its liability arises to provide the telecommunication services throughout the validity period. Thus, the learned DRP held that even if the amount collected by the assessee on the sale of prepaid vouchers is not refundable, the assessee is still required t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h law. Accordingly, Ground No. 9 raised by the Revenue is allowed for statistical purposes. Ground No. 10 - Disallowance made by the Assessing Officer on account of license fees paid by the assessee to the Department of Telecommunication (DoT). 185. During the year under consideration, the assessee claimed license fees amounting to Rs. 205,91,94,220/- paid to DoT as deduction under section 37(1) of the Act. Further, an amount of Rs. 25,26,41,322/- in respect of earlier years payment was claimed under section 35ABB of the Act. As per the assessee, it entered into a license agreement with the Government of India on 11.06.1996 for obtaining the right to operate and provide the telecom service in the State of Gujarat. Since the license fees paid under the said agreement was for acquiring the telecom license, the assessee claimed that it capitalized the same in its books of account and appropriate deduction was claimed in the return of income in accordance with the provisions of section 35ABB of the Act. Subsequently, the Government announced the New Telecom Policy, 1999, applicable with effect from 01.08.1999, under which it granted an option to the telecom companies to migrate f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om Ltd. (2023) 155 taxmann.com 322. It was submitted that the Co-ordinate Bench of the Co-ordinate Bench in the case of the assessee's sister concern, Vodafone Digilink Limited, vide order dated 14.10.2025, after considering the aforesaid judgment of the Hon'ble Supreme Court, has held that even the annual variable license fees paid by telecom operators under the New Telecom Policy, 1999 is capital in nature and is required to be amortised under section 35ABB of the Act. 189. The learned AR further submitted that though earlier the assessee had claimed such variable license fees as revenue expenditure under section 37(1) of the Act, in view of the binding decision of the Hon'ble Supreme Court, the same is now required to be treated as capital expenditure eligible for amortisation under section 35ABB of the Act. It was further contended that the aforesaid judgment does not result in permanent disallowance but only leads to timing difference, as the expenditure would be allowed over the remaining period of license on amortisation basis, including consequential relief for earlier years. The learned AR also pointed out that the Co-ordinate Bench of the Tribunal in the assessee's own....
X X X X Extracts X X X X
X X X X Extracts X X X X
....served that the assessee had incurred expenditure of Rs. 152,39,04,334/- towards payment made to the Wireless Planning Commission (WPC), a wing of the Department of Telecommunication, for use of spectrum. The said payment was made on a quarterly basis as a percentage of revenue and was claimed by the assessee as revenue expenditure under section 37(1) of the Act on the ground that it was incurred for carrying on telecommunication operations. The Assessing Officer, however, did not accept the contention of the assessee and held that the said payment partakes the character of capital expenditure, being in the nature of payment for acquiring the right to operate telecommunication services. Accordingly, the Assessing Officer treated the expenditure as falling within the scope of section 35ABB of the Act and allowed deduction only to the extent permissible thereunder, resulting in disallowance of Rs. 130,62,03,715/-. 197. The learned DRP, following the decision of the Hon'ble Delhi High Court in the case of CIT vs. Fascel Ltd.[(2009) 221 CTR 305], held that the payment made to WPC is in the nature of revenue expenditure incurred for use of spectrum and not for acquisition of any capi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nse has already been undertaken while deciding the corresponding ground of the assessee. 203. While adjudicating Ground No. 5 of the assessee's appeal, we held that the right to use telecom spectrum constitutes an intangible asset eligible for depreciation under section 32 of the Act and that the provisions of section 35ABB are not applicable in such circumstances. Since the learned DRP has deleted the proportionate disallowance by following the same line of reasoning, and we have already upheld the allowability of depreciation on 3G spectrum fees while deciding the assessee's ground, the present ground raised by the Revenue does not survive. Accordingly, Ground No. 12 raised by the Revenue is dismissed. Ground No. 13 to 13(j) - Deletion of transfer pricing adjustment made by the Assessing Officer/TPO on account of payment of brand royalty by the assessee to its Associated Enterprises. 204. The facts emerging from the records are such that the assessee, pursuant to an agreement entered into with Vodafone Ireland Marketing Ltd. ("VIML") for the use of the brand name and trademarks/trade name "Vodafone" agreed to pay a royalty to VIML. Similarly, pursuant to an agreement ent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... USA LLC to be a comparable transaction. Since the royalty under this agreement was paid @ 0.25% of the gross sales, the TPO held that this rate has to be considered as arms' length price for the royalty to be paid for "Vodafone" brand. In the alternative, the TPO held that if the royalty payment for "Essar" brand is not required to be calculated at Nil, then the combined payment by the assessee, i.e. Rs. 29,05,25,588/- which comes to 1.05% of gross sales, needs to be benchmarked against the payment of arms' length price of 0.25%. 207. The learned DRP, following it Directions of the AY 2009-10 and 2010-11, allowed the objections raised by the assessee on this issue. In conformity, the AO, passed the impugned Final Assessment Order on this issue. 208. The learned AR reiterated that the transfer pricing adjustment made by the TPO by determining the arm's length price (ALP) of royalty payment at Nil is not sustainable in law. 209. It was submitted that identical issue has been consistently decided in favour of the assessee in earlier years by the Co-ordinate Bench of the Tribunal. Reliance was placed on the Co-ordinate Bench's orders in assessee's own case for Assessm....