TaxTMI 
TaxTMI 
2026 (7) TMI 345
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.... 2. Transfer pricing ("TP") adjustment amounting to INR 5,72,83,20,370 in respect of international transaction of payment of royalty: 2.1 That on the facts and circumstances of the case and in law, the AO/DRP/Transfer Pricing Officer ("TPO") have erred in making an upward TP adjustment of INR 5,72,83,20,370 in respect of the international transaction pertaining to payment of royalty (for use of Vodafone Trademark and Trade name / brand) by determining the arm's length price at 0.25% of gross sales. 2.2 That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in disregarding the royalty agreements selected by the Appellant as comparable for benchmarking the subject transaction under Comparable Uncontrolled Price method ("CUP") and erroneously accepting agreement between Virgin Enterprises Ltd. and Virgin Mobile USA LLC as a valid comparable. 2.3 Without prejudice, the AO / DRP / TPO have erred in disregarding corroborative Transaction Net Margin Method ("TNMM"), benchmarking analysis adopted by the Appellant; wherein the international transaction of payment of royalty was benchmarked on aggregate basis. 2....
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....bordination adjustment claimed by the Appellant. Payment of interest to Vodafone Investments Luxembourg SARL ("VLux") 3.8 That on the facts and circumstances of the case and in law, the AO / DRP/ TPO have erred in determining the arm's length interest rate at LIBOR + 3.72917% in respect of ECB's extended in US Dollars as against interest rate of LIBOR + 4.75% adopted by the Appellant. 3.9 That on the facts and circumstances of the case and in law, the AO / DRP/ TPO have erred in not appreciating that since the payment of interest on ECB's was based on the specific approval of the RBI, no transfer pricing adjustment was warranted. 3.10 That on the facts and circumstances of the case and in law, the AO / DRP/ TPO have erred in disregarding the quotations received from third party banks and corroborative benchmarking analysis undertaken by the Appellant using Reuters Loan Connector (DealScan) database, without providing any cogent reasons. 3.11 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 and erroneously / arbitrarily benc....
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....nt for furthering its own telecommunication business, and any incidental benefit, if any, has accrued to its AE does not warrant separate compensation/reimbursement from the AE. 4.6 That on the facts and circumstances of the case and in law, the TPO erred in suo-moto benchmarking the alleged international transaction related to excessive AMP expenditure without their being any order or reference from the AO in relation thereto. 4.7 That on the facts and circumstances of the case and in law, the AO / DRP / TPO grossly erred in applying Bright Line Test ("BLT") under the garb of Residual Profit Split Method ("RPSM") for benchmarking the alleged excessive AMP expenditure, without appreciating that BLT has been expressly rejected by various decisions of the High Court. 4.8 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily applying RPSM as the most appropriate method for benchmarking the alleged excessive AMP expenditure without appreciating that the conditions prescribed for applicability of PSM under Rule 10B(1)(d) of the Income Tax Rules, 1962 ("Rules") are not satisfied. Without prejudice to ground....
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.... spectrum under section 32 of the Act, alleging that the same is amortizable under section 35ABB of the Act. 5.2 That on the facts and circumstances of the case and in law, the AO / DRP erred in not appreciating that the spectrum fees paid was not incurred for the acquisition of right or license for operating telecommunication services as envisaged under section 35ABB of the Act. 5.3 That on the facts and circumstances of the case and in law, the AO / DRP erred in disallowing the claim of depreciation under section 32 of the Act, even after admitting that the expenditure was incurred towards acquisition of an intangible asset. 6. Disallowance of INR 27,75,78,909 being penalty imposed by Department of Telecommunication ("DOT") for subscriber verification: 6.1 That on the facts and circumstances of the case and in law, the AO / DRP erred in disallowing INR 27,75,78,909, being amount paid to DOT on account of failure to comply with subscriber verification guidelines, alleging it to be penal in nature. 6.2 That on the facts and circumstances of the case and in law the AO / DRP erred in disallowing penalty imposed by DOT without appreciating ....
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....ddition in toto made in this regard. 8.2 Without prejudice, that on the facts and circumstances of the case and in law, the AO erred in not giving effect to directions given by DRP by restricting the disallowance to the amount of depreciation actually granted to the Appellant in the earlier year(s). 9. Disallowance amounting to INR 3,06,84,13,975 under section 40(a)(ia) in respect of discount extended to prepaid distributors: 9.1 That on the facts and circumstances of the case and in law, the AO / DRP erred in making disallowance of INR 3,06,84,13,975 under section 40(a)(ia) of the Act on account of non-deduction of tax at source in respect of discount allowed to prepaid distributors. 9.2 That on the facts and circumstances of the case and in law, the AO / DRP erred in holding that relationship between the Appellant and its prepaid distributors is that of principal and agent, therefore the discount extended to prepaid distributors is in the nature of commission warranting deduction of tax at source under section 194H of the Act. Without prejudice to the above: 9.3 That on the facts and circumstances of the case and in law, the A....
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.... / DRP ought to have allowed depreciation at the rate of 60% under section 32 of the Act on the amount alleged as capital expenditure for acquisition of computer hardware / software. 12. Disallowance amounting to INR 12,78,68,29,868 in respect of royalty WPC expense: 12.1 That on the facts and circumstances of the case and in law, the AO / DRP erred in holding that amount of INR 17,04,91,06,491 incurred for use of spectrum and microwave frequency to WPC wing of DOT as capital expenditure and allowing depreciation of INR 4,26,22,76,623. 12.2 That on the facts and circumstances of the case and in law, the AO / DRP erred in not appreciating that WPC-royalty expense is an expenditure for use of spectrum in the relevant frequencies, based on the revenues earned by the Appellant and therefore allowable as revenue expenditure under section 37(1) of the Act. 12.3 That on the facts and circumstances of the case and in law, the AO / DRP erred in not appreciating that INR 15,49,09,00,000 and not INR 17,04,91,06,491 was incurred by the Appellant for the use of spectrum and microwave frequency to WPC wing of DOT. 12.4 That on the facts and circumstan....
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....of the Act vide order dated 20/09/2019, pursuant to which the Ld. AO passed the impugned final assessment order under section 143(3) read with section 144C of the Act dated 31/10/2019. Aggrieved by the additions/disallowances sustained by the Ld. DRP, the assessee is in appeal before us. The grounds raised by the assessee comprise transfer pricing adjustments as well as additions/disallowances made under the normal provisions of the Act. The grounds are dealt with in seriatim hereinafter. 2. Ground No. 1 is general in nature and does not call for any specific adjudication. The same is, accordingly, dismissed as infructuous. 3. The issue arising in Ground No. 2 and its sub-grounds pertain to the transfer pricing adjustment amounting to Rs. 5,72,83,20,370/- made in respect of the international transaction of payment of brand royalty. 3.1. The brief facts of the case, as emanating from the record, are that the assessee, pursuant to an agreement entered into with Vodafone Sales and Services Ltd. ("VSSL") for the use of the brand name and trademarks/trade name "Vodafone", paid brand royalty amounting to Rs. 6,68,30,40,435/- during the year under consideration. Since the p....
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....submitted that the aforesaid view has consistently been followed by the Coordinate Benches in the assessee's own case for Assessment Years 2011-12, 2012-13 and 2013-14, wherein identical transfer pricing adjustments on payment of brand royalty were deleted. Reliance was also placed upon the decisions rendered in the cases of the assessee's group companies, namely, DCIT v. Vodafone West Ltd. in ITA No.443/Ahd/2016 for Assessment Year 2011-12, DCIT v. Vodafone West Ltd. in ITA No.1634/Ahd/2015 and ITA No.944/Ahd/2015 for Assessment Year 2010-11, and Vodafone Digilink Ltd. v. DCIT in ITA No.1073/Del/2015 for Assessment Year 2010-11, wherein identical additions were deleted. 3.5. Per contra, the Ld. DR relied upon the orders of the Transfer Pricing Officer, the Ld. DRP and the Assessing Officer. 3.6. We have perused the submissions advanced by both sides in light of the record placed before us. We find that the controversy involved in the present ground is no longer res integra. The Coordinate Benches of the Tribunal, while dealing with identical transfer pricing adjustments in the assessee's own case for Assessment Years 2011-12, 2012-13 and 2013-14, as well as in th....
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....e and interest was paid by the assessee at the all-in-cost ceiling of LIBOR plus 475 basis points as approved by the RBI. 5.3. For benchmarking the aforesaid international transactions, the assessee adopted the Comparable Uncontrolled Price ("CUP") Method as the Most Appropriate Method. It was contended that the specific approvals granted by the RBI constituted reliable Comparable Uncontrolled Prices for determining the arm's length price of the ECB facilities. Without prejudice thereto, the assessee also carried out an external benchmarking analysis by identifying comparable third-party loan tranches through Reuters' Loan Connector database. On the basis of such analysis, the assessee concluded that the effective interest paid on both the ECB facilities was lower than the arm's length interest spread emerging from the comparable uncontrolled borrowings. 5.4. The Transfer Pricing Officer, however, rejected the RBI approvals as a valid CUP and also rejected the economic analysis undertaken by the assessee. The TPO held that the benchmarking carried out by the assessee suffered from various deficiencies, inter alia, on the ground that current year financial data had....
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....the preceding years. 5.6. The Ld. AR further submitted that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in the case of the assessee's group concern, Vodafone West Ltd. for Assessment Year 2011-12 in ITA No. 571/Ahd/2016 vide order dated 02.04.2026, wherein, on identical facts, the transfer pricing adjustment in respect of interest and upfront fee paid on ECB facilities was deleted. Reliance was also placed upon the orders passed by the Coordinate Benches in the assessee's own case for the earlier assessment years, wherein identical transfer pricing adjustments had been deleted. 5.7. Per contra, the Ld. DR relied upon the orders of the TPO, the Ld. DRP and the Assessing Officer. It was submitted that the RBI approval merely prescribes the maximum permissible borrowing cost under the Foreign Exchange Management framework and cannot, by itself, determine the arm's length price under Chapter X of the Act. It was further submitted that the TPO had independently benchmarked the transactions by selecting comparable uncontrolled borrowings and had rightly determined the arm's length interest after carrying out the re....
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....l facts, we direct the Ld. AO/TPO to delete the transfer pricing adjustment made in respect of the interest and upfront fee paid on the ECB facilities obtained from the Associated Enterprises. Accordingly, Ground No. 3 along with all its sub-grounds is allowed. 6. The issue arising in Ground No. 4 pertains to the transfer pricing adjustment made on account of Advertisement, Marketing and Promotion ("AMP") expenditure. 6.1. The brief facts of the case, as emanating from the record, are that during the year under consideration, the assessee incurred expenditure towards distribution and advertisement/sales promotion in the course of carrying on its telecommunication business. The Transfer Pricing Officer held that the said expenditure resulted in promotion of the "Vodafone" brand owned by the Associated Enterprises and, therefore, constituted a separate international transaction requiring compensation by the Associated Enterprises. The TPO further applied the Bright Line Test and held that the AMP expenditure incurred by the assessee was excessive vis-à-vis comparable entities. Accordingly, a transfer pricing adjustment was proposed. 6.2. The Ld. DRP, following its ....
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....erefore, the assessee ought to have been suitably compensated. It was further submitted that the TPO had correctly benchmarked the alleged international transaction and determined its arm's length price by applying the Bright Line Test. Accordingly, it was prayed that the adjustment sustained by the Ld. DRP be upheld. 6.6. We have perused the submissions advanced by both sides in light of the record placed before us. We find that the controversy involved in the present ground is no longer res integra. The Hon'ble Delhi High Court in Maruti Suzuki India Ltd. v. CIT (2016) 381 ITR 117 (Del.) and CIT v. Whirlpool of India Ltd. (2016) 381 ITR 154 (Del.) has categorically held that the existence of an international transaction in respect of AMP expenditure cannot be inferred merely because the assessee has incurred substantial advertisement and marketing expenditure or by applying the Bright Line Test. The Revenue is required to establish, on the basis of tangible material, the existence of an arrangement or understanding between the assessee and its Associated Enterprise for incurring such expenditure. In the absence of such material, no transfer pricing adjustment can be su....
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.... 2012-13. The Ld. AR further relied upon the order dated 22.10.2024 passed by the Tribunal in the case of the erstwhile Vodafone India Ltd. for A.Y. 2013-14 in ITA No. 6671/Mum/2017, the order dated 18.02.2025 passed by the Tribunal in the case of the erstwhile Vodafone India Ltd. for A.Y. 2014-15 in ITA No. 316/Mum/2019, the order dated 22.04.2026 passed in the case of the erstwhile Vodafone West Ltd. for A.Y. 2011-12 in ITA No. 571/Ahd/2016 and the order dated 28.08.2020 passed in the case of the erstwhile Vodafone India Ltd. for A.Y. 2011-12 in ITA No. 3327/Mum/2018. Reliance was also placed upon the decision of the Tribunal in the case of the erstwhile Idea Cellular Ltd. v. PCIT (ITA No. 360/Mum/2016), wherein an identical claim was accepted. 7.2. Per contra, the Ld. DR relied upon the assessment order, the order of the Ld. AO and the directions of the Ld. DRP and submitted that the disallowance has rightly been made. 7.3. We have considered the rival submissions and perused the material available on record. We find that the issue arising in the present ground is no longer res integra. The Coordinate Bench of the Tribunal, in the assessee's own case for A.Y. 2012-13 i....
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.... issue is no longer res integra and stands concluded in favour of the assessee by the decisions of the Coordinate Benches in the assessee's own cases. 8.2. Reliance was placed on the orders of the Tribunal in the assessee's own case for A.Y. 2012-13 in ITA No. 8361/Del/2019 and for A.Y. 2013-14 in ITA No. 8362/Del/2019, wherein the disallowance of similar payments made to the Department of Telecommunication was deleted. The Ld. AR further relied upon the order dated 14.10.2025 passed in the case of the erstwhile Vodafone Digilink Ltd. for A.Y. 2010-11, the decision of the Kolkata Bench in Vodafone East Ltd. v. ACIT [(2016) 156 ITD 337 (Kol. Trib.)], the decision of the Delhi Bench in DCIT v. Erstwhile Vodafone Digilink Ltd. [(2018) 193 TTJ 150 (Delhi Trib.)] and the consolidated order dated 17.05.2024 in DCIT v. Erstwhile Vodafone India Ltd. (ITA No. 1919/Mum/2016), wherein identical disallowances were deleted. 8.3. Per contra, the Ld. DR relied upon the orders of the lower authorities and submitted that the payment represented penalty for violation of the terms of the licence granted by the Department of Telecommunication and was, therefore, hit by the provisions of ....
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....d in disallowing depreciation on the Asset Restoration Cost capitalised by the assessee as part of the cost of the relevant assets. Without prejudice, it was contended that even if the capitalization of the Asset Restoration Cost is not accepted, the entire expenditure ought to be allowed as a deduction under section 37(1) of the Act, being wholly and exclusively incurred for the purposes of the business. It was submitted that the issue relating to depreciation on Asset Restoration Cost stood decided against the assessee by the Coordinate Bench in the case of the erstwhile Vodafone Digilink Ltd. for A.Y. 2010-11 in DCIT v. Erstwhile Vodafone Digilink Ltd. [(2018) 92 taxmann.com 250 (Delhi Trib.)]. However, it was pointed out that, in further appeal, the Hon'ble Delhi High Court vide judgment dated 11.03.2025, reported in (2025) 172 taxmann.com 192 (Delhi), while affirming the disallowance of depreciation, accepted the assessee's alternate contention and held that the Asset Restoration Cost was allowable as revenue expenditure under section 37(1) of the Act. The Ld. AR further submitted that, following the aforesaid judgment, the Coordinate Benches in the assessee's own ....
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....w erred in treating the amount of liabilities written back as taxable income. It was contended that a substantial portion of the liabilities written back represented customer security deposits received by the erstwhile group companies, which had subsequently amalgamated with the assessee. According to the Ld. AR, such security deposits are in the nature of capital receipts and, therefore, their write back does not attract the provisions of section 41(1) or section 28(iv) of the Act. Reliance was placed on the decisions of the Hon'ble Bombay High Court in Mahindra & Mahindra Ltd. v. CIT [(2003) 261 ITR 501 (Bom.)] and the Hon'ble Supreme Court in CIT v. Mahindra & Mahindra Ltd. [(2018) 404 ITR 1 (SC)]. It was further submitted that the issue had earlier been decided against the assessee in its own case for A.Ys. 2012-13 and 2013-14 in ITA Nos. 8361/Del/2019 and 8362/Del/2019. However, the Ld. AR submitted that subsequent orders dated 31.10.2025 passed by the Coordinate Bench in the assessee's own case for A.Y. 2012-13 and dated 18.03.2026 in the assessee's own case for A.Y. 2013-14 have taken a view in favour of the assessee on this issue and, therefore, the addition....
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....sue is no longer res integra and stands squarely covered in favour of the assessee by the decisions of the Hon'ble Supreme Court as well as the Coordinate Benches in the assessee's own cases. Reliance was placed on the judgment of the Hon'ble Supreme Court in Bharti Cellular Ltd. v. ACIT [(2024) 160 taxmann.com 12 (SC)], wherein it has been held that discount allowed to pre-paid distributors does not partake the character of commission under section 194H of the Act. The Ld. AR further relied upon the orders of the Coordinate Bench in the assessee's own case for A.Y. 2012-13 in ITA No. 8361/Del/2019, A.Y. 2013-14 in ITA No. 8362/Del/2019, order dated 05.06.2024 in the assessee's own case for A.Y. 2012-13 in ITA No. 37/Del/2023, order dated 14.10.2025 in the case of the erstwhile Vodafone Digilink Ltd. for A.Y. 2010-11, order dated 18.02.2025 in the case of the erstwhile Vodafone India Ltd. for A.Y. 2014-15, consolidated order dated 17.05.2024 in the case of the erstwhile Vodafone India Ltd. for A.Ys. 2011-12 and 2012-13 and order dated 22.10.2024 in the case of the erstwhile Vodafone India Ltd. for A.Y. 2013-14, wherein identical disallowances were deleted follow....
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....isation under section 35ABB of the Act. 12.1. The Ld. AR submitted that though the issue regarding the nature of annual licence fee now stands concluded by the judgment of the Hon'ble Supreme Court in CIT v. Bharti Hexacom Ltd. (2023) 458 ITR 593 (SC), the assessee has raised an alternate plea that the consequential deduction under section 35ABB requires recomputation in the peculiar facts of the present case. Drawing our attention to Appendix-C placed in the Paper Book, the Ld. AR submitted that detailed workings have been furnished explaining the impact of the judgment of the Hon'ble Supreme Court after considering the amalgamation of various group entities, transfer of telecom licences, cancellation/extinguishment of licences pursuant to mergers and the balance licence period available for amortisation under section 35ABB of the Act. It was submitted that the judgment of the Hon'ble Supreme Court does not result in a permanent disallowance of the licence fee but merely postpones the deduction over the balance period of the licence. Therefore, the consequential deduction admissible under section 35ABB requires verification and recomputation by the Assessing Officer....
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....-C placed before us. The detailed working furnished by the assessee demonstrates that the effect of mergers and transfer of licences has a direct bearing on the period over which amortisation under section 35ABB is to be granted. The verification of such factual workings is required to ensure that the deduction admissible under section 35ABB is correctly computed in accordance with the judgment of the Hon'ble Supreme Court. 12.6. We further notice that an identical issue had come up before the Coordinate Bench in the assessee's own case for Assessment Years 2012-13 and 2013-14 in ITA Nos. 8361/Del/2019 and 8362/Del/2019, wherein, following the judgment of the Hon'ble Supreme Court in CIT v. Bharti Hexacom Ltd. (2023) 458 ITR 593 (SC), the Tribunal restored the matter to the file of the Assessing Officer for the limited purpose of verifying the workings furnished by the assessee and allowing consequential deduction under section 35ABB of the Act. Similar directions have also been issued by the Coordinate Benches in the case of the erstwhile Vodafone Digilink Ltd. for Assessment Year 2010-11 in ITA No. 1079/Del/2018, vide order dated 21.03.2025, and in the case of the ....
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....elhi Bench of the Tribunal in Minda Corporation Ltd. v. DCIT (2016) 69 taxmann.com 317 (Delhi - Trib.), wherein lease rentals paid under a finance lease were held to be allowable as revenue expenditure. Further reliance was placed upon the judgment of the Hon'ble Rajasthan High Court in Rajshree Roadways v. Union of India (2003) 129 Taxman 663 (Raj.). 13.3. Per contra, the Ld. DR relied upon the orders of the lower authorities. 13.4. We have perused the submissions advanced by both sides in light of the record placed before us. We find that the controversy involved in the present ground is squarely covered in favour of the assessee by the decisions of the Coordinate Bench rendered in the assessee's own case. The Coordinate Bench in the assessee's own case for Assessment Years 2012-13 and 2013-14 in ITA No. 8361/Del/2019 and ITA No. 8362/Del/2019 has held that merely because the payments were capitalised in the books under Accounting Standard-19 as a finance lease, the same cannot be regarded as capital expenditure for the purposes of the Act where the ownership of the assets continued to vest with IBM. The Tribunal, after considering the judgment of the Hon'bl....
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....3 (ITA No. 8361/Del/2019); and * Order dated 18 March 2026 for the A.Y. 2013-14 (ITA No. 8362/Del/2019) 14.2.1. Also, similar issue has been decided by the Tribunal in favour of the assessee's group company viz. Vodafone West Ltd for the A.Y. 2011-12 vide Order dated 02 April 2026. The relevant extract from the Order dated 11 May 2026 passed in the assessee's own case for the A.Y. 2011-12 is reproduced below: ".................Ground No.5 pertains to capitalization of royalty- Wireless Planning Commission (WPC) expenses payable to DoT. The Ld. AR submitted at the outset that the DRP has allowed the relief and the issues is covered by the following decisions: (i) Vodafone West Ltd. (ITA No. 1634/Ahd/2025) for AY 2010-11; (ii) Vodafone West Ltd. (ITA No. 909/Ahd/2014) for AY 2009-10; (iii) Vodafone Digilink Ltd., (ITA No. 1158/Del/2015) AY 2010-11; (iv) in DCIT v/s. Vodafone Essar Digilink Ltd., (2018) 170 ITD 430 (Delhi Trib.) and (v) CIT v/s. Fascel Ltd., (2009) 221 CTR 305 (Delhi). We find that the Tribunal in ITA No.671 & 1634/Ahd/2025 (supra) has decided the issue in favour of the appellant by relying on ....