AGRAWAL DISTILLERIES PVT LTD,INDORE V. COMMISSIONER OF INCOME TAX (APPEALS), DELHI

ITA 1169/MUM/2024

AI Insights

The case involves Vodafone Digilink Limited appealing against the orders of the Deputy Commissioner of Income Tax and the Dispute Resolution Panel, which had made transfer pricing adjustments concerning royalty payments and AMP expenditures for the assessment year 2009-10. The primary legal issues revolved around whether the transactions were at arm's length and whether the adjustments made by the tax authorities were justified. The Tribunal examined the methods used to determine the ALP of the transactions and found discrepancies in the application of these methods, leading to the decision to allow the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474425 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: misc
• Other Referred Cases: CIT v/s. EKL Appliances Ltd., LG Polymers India Pvt. Ltd. v/s. ACIT, Vodafone India Ltd. v/s. ACIT, Maruti Suzuki India Ltd. v/s. CIT, Whirlpool of India Ltd. v/s. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VATSALA JHA PCIT
• Assessee Lawyers: PERCY J. PARDIWALLAWSHRI
• Keywords: Set aside; Business income; Revised return; Transfer pricing; International transaction; Depreciation; Commercial expediency; Bonafide belief; TDS; Initiation of penalty proceedings; Non-deduction of tax; Tangible material; Related party transaction
• Section: 143(3); 271(1)(c); 48; 68; 92CA; 144C; 244A; 37(1); 40(a)(ia); 92B; 92C; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “J”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No.1169/Mum/2014 (Assessment Year: 2009-10) M/s Vodafone Digilink Limited, C-48, Okhla Industrial Area, Phase-II, New Delhi-110 020 PAN: AAACA3202D vs Deputy Commissioner of Income Tax, Cir.17(1), New Delhi APPELLANT RESPONDENT Assessee by : Shri Percy J. Pardiwalla/wShri Ketan Ved Respondent by : Ms. Vatsala Jha(PCIT) Date of hearing : 23/12/2024 Date of pronouncement : 12/02/2025 O R D E R PER ANIKESH BANERJEE: Instant appeal of the assessee was filed against the order of the Learned Dispute Resolution Panel-II, New Delhi-02 *for brevity, ‘Ld.DRP’) passed under section 144C(5) of the Income-tax Act, 1961 (for brevity, ‘the Act’), dated21/11/2013 for A.Y. 2009-10. The impugned order was emanated from the draft assessment order U/s 144C(1) r.w.s. 143(3) of the Actdated 28/03/2013 of the Ld.DCIT, Circle-17(1), New Delhi (for brevity the Ld. AO). 2 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 2. The assessee has raised the following grounds of appeal: - “The Appellant respectfully submits that: On the facts and circumstances of the case and in law, the learned Dispute Resolution Panel -11. New Delhi (DRP\") has erred in passing the order under section 144C(5) of the Income Tax Act, 1961 (Act\"), partly confirming the adjustments proposed by the Deputy Commissioner of Income Tax, Circle 17(1) New Delhi (\"AO') in the draft assessment order and the learned AO has accordingly erred in passing the assessment order under section 143(3) read with section 144C of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. On Amortization Of Revenue Based License Fee u/s 35ABB Of The Act 1.1. On the facts and circumstances of the case and in law, the learned AO/DRP has erred in treating the annual revenue share based license fee of Rs 2,05,38,20,412, payable by the Appellant to Department of Telecom (DoT), as a 'capital\" expenditure being consideration for obtaining the telecom license and hence, amortisable u/s 35ABB of the Act 2. Disallowance of depreciation claimed on the addition to fixed assets on account of Asset Restoration Cost (ARC) obligation. 2.1. On the facts and circumstances of the case and in law, the learned AG DRP has erred in disallowing the depreciation amounting to Rs 5,10,79,752 claimed on fixed assets on account of ARC obligation. 2.2. On the facts and circumstances of the case and in law, the learned AO/DRP has erred in not including the amount of ARC as a part of the cost of the telecom towers under section 43(1) of the Act. 2.3. In the alternative to ground 2.1 and 2.2 above, on the facts and circumstances of the case and in law, the learned AO/DRP has erred in not allowing deduction for ARC as a revenue expense under section 37(1) of the Act. 3 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 2.4. In the alternative to ground 2.1 to 2.3 above, on the facts and circumstances of the case and in law, the learned AO/DRP has erred in not allowing deduction for ARC on a proportionate basis over the period of lease. 3. Disallowance of interest on capital work-in-progress ('CWIP\") 3.1. On the facts and circumstances of the case and in law, the learned AO/DRP has erred in disallowing interest expenses of Rs 26,45,28,627 on capital work-in- progress under section 36(1)(m) of the Act. 32. Without prejudice to Ground 3.1 above, on the facts and circumstances of the case and in law the learned AO/DRP has erred in not allowing depreciation on such capitalized interest expenses 4. Disallowance of roaming charges under section 40(a)(ia) of the Act 4.1. On the facts and circumstances of the case and in law, the learned AO/DRP has erred in making an addition under section 40(a)(ia) of the Act on account of non-deduction of taxes on the roaming charges of Rs 70,86,29,294, paid/payable by the Appellant to other telecom operators for the financial year relevant to the subject AY. 4.2. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in not holding that roaming charges do not qualify as Fee for Technical Services (FTS\") under the Act since roaming services are standard automated service requiring no human intervention. 4.3. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in not appreciating that the examination of technical experts by the TDS officer subsequent to the judgment of the Hon'ble Supreme Court in the case of the Vodafone Mobile Services Limited ('VMSL), a sister concern of the Appellant itself for AY 2003-04 was in the context of interconnect services and not roaming services. 4.4. On the facts and in the circumstances of the case and in law and without prejudice to Ground 43, the learned AO/DRP has erred in not appreciating that even as per the statement of technical experts recorded in the context of IUC services in the case of the VMSL, it has been stated that the carriage of calls is an 4 ITA No.1169 /Mum/2014 Vodafone Digilink Limited automatic activity and human intervention, if any, is required only at the stage of inter-connect set-up, capacity enhancement, monitoring, maintenance, fault identification, repair, etc. 4.5. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in ignoring the statement of technical experts recorded by the income-tax authorities in Coimbatore during proceedings conducted in the case of a group company of the Appellant - Vodafone Cellular Limited, in context of roaming services, wherein it has been clearly observed that roaming services are automated service requiring no human intervention. 4.6. On the facts and in the circumstances of the case and in law and without prejudice to Grounds 4.2 to 4.5, the learned AO/DRP has erred in not holding that characterization of a payment must be done having regard to the dominant purpose/intention of the payment. Grounds with respect to applicability of section 40(a)(ia) - these grounds are without prejudice to the grounds stated above with respect to applicability of TDS on roaming charges: 4.7. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in not holding that no disallowance can be made u/s 40(a)(ia) of the Act since the Appellant is of a bonafide belief that no tax was required to be deducted at source on roaming charges. 4.8. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in not restricting the disallowance u/s 40(a)(ia) of the Act to the amount which remains payable at the end of the year. 4.9. On the facts and in the circumstances of the case and in law and without prejudice to Grounds 4.2 to 4.8, the learned AO/DRP has erred in not adjudicating and holding that since the insertion of second proviso to section 40(a)(ia) of the Act vide Finance Act, 2012 is curative in nature, the benefit of the same should be extended to the past years and accordingly, the loaned AO be directed 5 ITA No.1169 /Mum/2014 Vodafone Digilink Limited to allow deduction in respect of the disallowance of Rs 70,86,29,294 made u's 40Kakia) of the Act for the subject AY in the subsequent year's, basis the conditions prescribed in the second proviso to section 40(a) Kia) of the Act, 5 Disallowance of discount extended to pre-paid distributors under section 40(a)(ia) of the Act. 5.1. On the facts and circumstances of the case and in law, the learned AD/DRP has erred in making an addition under section 40(a)(ia) of the Act on account of non-deduction of taxes on the discount of Rs 1,30,33,61,238 extended to distributors of prepaid SIM cards/talktime during the financial year relevant to subject AY 5.2. On the facts and circumstances of the case and in law, the learned AO/DRP has erred concluding that taxes are deductible at source under section 194H of the Act on the discount extended by the Appellant to distributors of prepaid SIM cards/talktime. 5.3. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in not holding that no disallowance can be made u/s 40(a)(ia) of the Act since the Appellant is of a bonafide belief that no tax was required to be deducted at source on discount extended to distributors of prepaid SIM cards/talktime, 5.4. On the facts and in the circumstances of the case and in law and without prejudice to Grounds 5.1 to 5.3, the learned AO/DRP has erred in not restricting the disallowance u/s 40(a)(ia) of the Act to the amount which remains payable at the end of the year which stands at \"NIL”. 5.5. On the fact and in the circumstances of the case and in law and without prejudice to the Grounds 5.1 to 5.4, the learned AO/DRP has erred in not adjudicating and holding that the insertion of second proviso to section 40(a)(ia) of the Act vide Finance Act, 2012 is curative in nature and its benefit should be extended to the past years and accordingly the leaned AO be directed to allow benefit of the same after verification of supporting documents to be submitted by the Appellant and accordingly, the learned AO be directed. 6 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 5.5.1. to allow deduction in respect of the proposed disallowance of Rs 1,30,33,61,238 made under section 40(a)(ia) of the Act for the subject AY in the subsequent year's, basis the conditions prescribed in the second proviso to section 40(a)(ia) of the Act. 5.5.2 to allow deduction in the subject AY (i.e. AY 2009-10) for the similar disallowance made in prior year's basis the conditions prescribed in the second proviso to section 40(a)(ia) of the Act. 6 On Disallowance of Penalty paid to DoT 6.1. On the facts and circumstances of the case and in law, the learned AO/DRP has erred in disallowing penalty paid to the DoT amounting to Rs 63,83,000/- 7. On Disallowance of Deduction u/s 80 IA on other income 7.1. On the facts and in the circumstances of the case and in law, the learned DRP AO have erred in excluding the following incomes while computing deduction u/s 801A of the Act:  Miscellaneous income amounting to Rs 4,09,40,763/-  Interest income amounting to Rs 3,70,24,980/-  Cellsite sharing revenue amounting to Rs 42,85,79,640/-  Indefeasible Right to Use ('IRU') revenue amounting to Rs 27,21,58,951/- 7.2. On the facts and in the circumstances of the case and in law, the learned DRP/ AO have erred in holding that deduction u/s 801A of the Act can be allowed only on direct income derived from the specified activity, thereby ignoring the non obstante sub-section 2A of section 801A which provides that to be eligible for deduction u's 801A of the Act, income arising should be business income of the eligible undertaking, ie. telecom undertaking of the Appellant in the present case. 7.3. On the facts and in the circumstances of the case and in law and without prejudice to Grounds 7.1 and 7.2, the learned DRP/ AO have erred in not holding 7 ITA No.1169 /Mum/2014 Vodafone Digilink Limited that if the above mentioned incomes are not to be treated as eligible for deduction u/s 801A, the expenses to that effect on account of earning the said incomes must also be excluded and only net income should be excluded while computing the profits eligible for deduction u/s 801A of the Act. 8. Disallowance of unsecured loans/security deposits 8.1. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in disallowing unsecured loans/security deposit amounting to Rs 2,00,75,850 obtained by Appellant during the subject year under Section 68 of the Act. 9. Transfer Pricing adjustment - Disallowance of brand royalty 9.1. On the facts and the circumstances of the case and in law, the Hon'ble DRP has grossly erred in confirming the adjustments aggregating to Rs 11,47,16,908 made by the learned AO and the Additional Director of Income-tax, Transfer Pricing Officer-II(4), New Delhi ('learned TPO) under section 92CA of the Act on account of the royalty payments made to associated enterprises ('AES\") 9.2.On the facts and the circumstances of the case and in law, the learned TPO/AO/DRP has erred in rejecting the economic analysis undertaken by the Appellant to determine the arm's length price ('ALP\") of the royalty payments made to AFs. 9.3. On the facts and the circumstances of the case and in law, the learned TPO/AO/DRP has grossly erred in holding without any basis that the Appellant has not derived any economic or commercial benefits from the royalty payments to AEs and in determining the ALP of said transaction as \"Nil' without application of any transfer pricing method mentioned prescribed under Section 92C of the Act. 10. Transfer Pricing Adjustment-Reimbursement of advertisement & marketing spend 10.1. On the facts and the circumstances of the case and in law, the Hon'ble DRP has grossly erred in confirming the adjustments aggregating to Rs. 2,84,68,27,994 made by the learned AO and the learned TPO under section 92CA 8 ITA No.1169 /Mum/2014 Vodafone Digilink Limited of the Act pertaining to the alleged excessive advertising, marketing and promotion (AMP\") expenses incurred by the Appellant. 10.2. On the facts and the circumstances of the case and in law, the learned TPO/AO/DRP erred in holding AMP expenditure as a separate international transaction between the Appellant and AEs under Section 92B of the Act, without appreciating the functional profile of the Appellant according to which such expenses were incurred as part of the Appellant's roles and responsibilities as a telecom service provider. 10.3. On the facts and the circumstances of the case and in law, the learned TPO/AO/DRP erred in not appreciating the fact that the AMP expenses were incurred by the Appellant on its account and the same didn't require any compensation/reimbursement from the AEs. 10.4. On the facts and in the circumstances of the case and in law, the learned TPO/AO/DRP erred in arbitrarily re-characterising the Appellant as a distributor and requiring the Appellant to earn its remuneration in accordance with such re- characterised business model without appreciating the fact that the Appellant is an entrepreneurial telecom service provider engaged in provision of telecommunication services in licensed telecom circles. 10.5. On the facts and in the circumstances of the case and in law, the learned TPO/AO/DRP erred in applying the 'bright line method to determine the excessive/non-routine AMP expenses given the fallacies and deficiencies in applying such quantitative parameters without having regard to the nature of business carried by the Appellant and the industry in which it operates and by using inappropriate set of comparable. 10.6. Without prejudice to the contention that AMP expenses were incurred for the purpose of enhancing sales in India, on the facts and in the circumstances of the case and in law, the learned TPO/AO/DRP made a gross error in considering expenses in the nature of selling & distribution expenses & sales promotion expenses while applying bright line. Further, while doing so, the learned TPO/AO/DRP erred in not following the findings of various benches of the jurisdictional ITAT on this issue. 9 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 10.7. On the facts and in the circumstances of the case and in law, the learned TPO/AO/DRP erred in facts and in law, in holding that the Appellant has rendered a service to its AE by incurring excessive AMP expenses and hence should have charged an additional mark-up of 15.46% on the alleged excessive AMP expenses from the AEs. Further, while doing so, the learned TPO/AO/DRP erred in appreciating that if at all a mark-up of 15.46% has to be applied, then the same should have been applied only on the value-added expenses (excluding third party costs) incurred by the Appellant for providing the alleged service in the nature of brand promotion as contended by the learned TPO/AO and confirmed by the Hon'ble DRP. 11. Non-grant of full credit in respect of Tax Deducted at Source (TDS') On the facts and in the circumstances of the case and in law, the learned AO has erred in granting credit for TDS of Rs 61,00,63,817 instead of Rs 65,58,50,566 claimed by the Appellant in its revised return of income for the subject AY. 12. Non-grant of Minimum Alternate Tax ('MAT') credit On the facts and in the circumstances of the case and in law, the learned AO be directed to allow MAT credit brought forward from past AYs against the tax liability under normal provisions for the subject AY. 13. Levy of interest under section 234B, 234D and withdrawal of 244A of the Act On the facts and in circumstances of the case and in law, the learned AO has erred in in levying interest under section 234B, 234D and withdrawal of section 244A of the Act. 14. Initiation of Penalty Proceedings u/s 271(1)(c) of the Act On the facts and in circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act against the Appellant. All the above grounds are without prejudice to each other. The Appellant craves for leave to add, amend, vary, withdraw, omit or substitute any of the aforesaid 10 ITA No.1169 /Mum/2014 Vodafone Digilink Limited grounds at any time before or at the time of hearing of the matter with the Income Tax Appellate Tribunal (\"ITAT\"). The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case.” 3. The brief facts of the case are that the assesseei s engaged in providing cellular telephone services in telecom circle pursuant to telecom licenses granted by the DoT. The appeal is generated from following course of actions which are as follows. Chronology of events in connection with the captioned appeal is tabulated hereunder: Date Event 29thJanuary 2013 Order passed by the Transfer Pricing Officer *‘TPO’+ u/s 92CA(3) of the Income-tax Act, 1961 *‘the Act’+. 28thMarch 2013 Draft Assessment Order passed by the Assessing Officer*‘the AO’+ u/s 143(3) r.w.s. 144C(1) of the Act. 30th April 2013 Objections filed by the Appellant before the Dispute Resolution Panel *‘DRP’+ 18thDecember 2013 Directions issued by the DRP u/s 144C(5) of the Act. 30thJanuary 2014 Final Assessment Order passed by the AO u/s 144C(5) of the Act. 03rdMarch 2014 Appeal filed by the Appellant before the Hon’ble Delhi Bench of the Income-tax Appellate Tribunal *‘Tribunal’+ challenging the Final Assessment Order, ITA No.1169/Del/2014. 02ndApril 2014 Appeal filed by the Revenue before the Hon’ble Tribunal challenging the Final Assessment Order bearingITA No.1950/Del/2014] 14th March2018 Order passed by the Hon’ble Delhi Bench of the Tribunal deciding the cross-appeals filed by the Appellant and the Revenue. 11 ITA No.1169 /Mum/2014 Vodafone Digilink Limited Appeal [bearing ITA No.660 of 2018] filed by the Appellant before the Hon’ble Delhi High Court challenging the Order dated 14 March 2018 passed by the Hon’ble Tribunal. 01st June 2018 Order passed by the Hon’ble Delhi High Court holding that the Tribunal was not justified in remanding the matter and inter-alia directing the Hon’ble Tribunal to decide the issues pertaining to transfer pricing adjustment on royalty payment an Advertising, Marketing and Promotion (‘AMP’) expenditure. 25thMarch 2019 Interim Order passed by the Hon’ble Delhi Bench of the Tribunal calling for a remand report from the TPO w.r.t. the issue of transfer pricing adjustment on royalty payment but marking some adverse observations in the matter. Writ Petition [bearing WP(C) No. 4467 of 2019] filed by the Appellant with the Hon’ble Delhi High Court challenging the interim Order dated 25 March 2019 passed by the Hon’ble Tribunal. 29thApril 2019 Order passed by the Delhi High Court directing the Hon’ble Tribunal to decide the aforesaid 2 issues. 15thMay 2019 Letter filed by the Appellant with the TPO furnishing a fresh comparability analysis and the search analysis for determining the ALP on the royalty payment. 29th August 2019 Remand Report issued by the TPO. 16thSeptember 2019 Rebuttals to the Remand Report filed by the Appellant. Following a request from the Income-tax Department, the Hon’ble President, via an Order dated 17thAugust 2020, transferred the captioned appeal (along with other related appeals of the assessee) from the Delhi Bench to the Mumbai Bench of the Hon’ble Tribunal. 12 ITA No.1169 /Mum/2014 Vodafone Digilink Limited Initially, the cross-appeals for the relevant year were decided by the Hon’ble ITAT Delhi Bench an Order dated 14/03/2018. In this Order, the Tribunal: a. Royalty Payments: Restored the issue of determining the ALP for royalty payments to the Assessing Officer/TPO b. AMP Expenditure: Set aside the transfer pricing adjustment on AMP expenditure for fresh examination by the Assessing Officer/TPO, specifically to determine whether an international transaction existed regarding AMP expenses. The assessee challenged the Order of ITAT Delhi bench dated 14/03/2018 before the Hon’ble Delhi High Court by filing an appeal (ITA No. 668 of 2018). By its Order dated 01/06/2018, the Hon’ble Delhi High Court directed the Tribunal to reconsider the transfer pricing adjustments related to royalty payments and AMP expenditure. The Hon’ble Court also allowed the Tribunal to conduct a limited remand inquiry with the TPO/DRP to determine: Whether the AMP expenditure constituted an international transaction, and If so, to what extent.(Refer to pages 2–3 of the Hon’ble High Court Order, included as Appendix B). Subsequently, on 25/03/2019, the Delhi Bench of the Tribunal issued an interim Order directing a limited remand to the TPO on the issue of transfer pricing adjustments for royalty payments while making certain observations. Dissatisfied with the interim Order dated 25/03/2019, the assessee filed a Writ Petition (WP No. 4467 of 2019) before the Hon’ble Delhi High Court. By its Order dated 29/04/2019, the Court directed the Tribunal to adjudicate both transfer pricing issues afresh, leaving all rights and contentions open for both parties. 13 ITA No.1169 /Mum/2014 Vodafone Digilink Limited The assessee subsequently submitted a letter dated 15/05/2019to the TPO, providing a fresh comparability and search analysis for determining the ALP of the royalty rate for the relevant year.The TPO submitted a Remand Report dated 29/08/2019 to the Tribunal. In response, the assessee filed rebuttals via a letter dated 16/09/2019. The Ld. AR prayed for that pursuant to the orders dated 01 June 2018 and 29/04/2019 by the Hon’ble Delhi High Court, the following two issues remain to be adjudicated by the Tribunal: a. Transfer pricing adjustment related to the ALP determination of royalty payments related Ground No. 9. b. Transfer pricing adjustment concerning the AMP expenditure to establish whether it constitutes an international transaction related Ground no-10. 4. Ground of appeal No. 9 related Transfer Pricing adjustment relating to payment of royalty: 4.1. During the alleged assessment year, the assessee paid royalty for use of trademark/ trade name to the following Associated Enterprises ['AES']: Name of the AE Amount of royalty paid (in Rs.) Rate of royalty Agreement Vodafone Ireland Marketing Limited *‘VIML’+ 7,64,77,939 0.30% of the net service revenues for the use of ‘Vodafone’ trademark / trade name Trademark Licence Agreement dated 19 December 2008 (effective date – 29 June 2007) (refer page Nos.178 to 195 of paper book Volume I dated 17 October 2014 Rising Group Limited *‘RGL’+ 3,82,38,969 0.15% of the net service revenues for the use of Trademark License Agreement dated 19 December 2008 (effective date – 29 June 2007) (refer page Nos. 196 to 208 of the paper book Volume I dated 14 ITA No.1169 /Mum/2014 Vodafone Digilink Limited ‘Essar’ trademark / trade name 17 October 2014) 4.2. The assessee inter-alia benchmarked the aforesaid transaction of payment of royalty using the Comparable Uncontrolled Price ['CUP'] as the most appropriate method wherein it selected the license agreement entered into between 'Motorola Inc., USA' ['Motorola'] and 'Forward Industries Inc., USA' for the use of 'Motorola' trade name and trademark as the CUP data. The summary of this comparable agreement is given hereunder: Licensor Licensee Period of existence of agreement Product description Rate of royalty Motorola Inc., USA Forward Industries Inc., USA January 2008 – March 2009 Trademark license for the use of the ‘Motorola’ signature and the M logo (insignia) 7% of the net sales 4.3. Since the royalty payment of 0.15% and 0.30% of net service revenues made by the assessee was lower than the royalty payment being made under comparable third-party agreement, royalty payments made by the assesseewere considered to be at an arm's length. 4.4. The TPO in terms of Order dated 29/01/2013 determined the arms length price ['ALP') of the royalty transactions at Nil on account of the following reasons: - 15 ITA No.1169 /Mum/2014 Vodafone Digilink Limited  the CUP analysis undertaken by the assessee is incorrect since Motorola is involved in the business of designing and selling wireless network infrastructure equipment such as transmission base stations and signal amplifiers whereas the assessee is engaged in providing telecommunications services. Thus, the royalty payments made by the assessee cannot be compared with the royalty payment made by Motorola.  the payment of royalty by the assessee to its foreign AEs has not resulted in the increase in the profitability of the assessee and, hence, the use of Vodafone and Essar trademark/ trade name have not brought any commercial benefit to the assessee.  the assessee did not produce any cost benefit analysis undertaken at the time of entering into the agreement with its AEs and hence, royalty rate paid by the assessee was not fed based on expected benefit accruing from the use of trademark trade name;  the assessee did not provide any details of the royalty rates in the industry; and  the increase in the sales of the assessee cannot be solely attributed to the big brands. A subscriber's choice of service provider is not exclusively dependent on a particular trademark/ trade name. Varied factors like overall service quality, free calls, free SMS's networks capability, reliability of services, network innovations, low rates charges, accessibility, promotion with discounts, refund and free 16 ITA No.1169 /Mum/2014 Vodafone Digilink Limited samples, geographic network coverage, customer care, family and friends influence the preference of a subscriber. Thus, it is the attributes related to the service provider which forms the basis or reason for a customer for preferring any particular service provider over another. 4.5. The DRP vide its Directions dated 18/12/2013 upheld the findings of the TPO and held that there are considerable differences between the royalty agreement for Motorola and between the AEs and the assessee and, hence, the Motorola. transaction cannot be treated as a CUP, Further, the DRP held the assessee has failed to provide any evidence to show how the royalty payment has benefitted its business and, hence, upheld the findings of the TPO of treating the ALP of the royalty transaction as Nil. 4.6. Considering the DRP Directions, the Ld. AO in terms of the final assessment order dated 30/01/2014 inter-alia made an addition of Rs. 11,47,16,908/- to the income of the assessee being the TP adjustment made by the TPO on the transaction of royalty payments. 4.7. Thereafter, pursuant to the order of the assessee’s case ITAT-Delhi Bench bearing ITA No. 1950/Del/2014 date of pronouncement 14/03/2018 and the Hon'ble Delhi High Court's Order dated 01/06/2018, the coordinate ITAT Bench passed an interim Order bearing ITA Nos. 1169,1073/Del/2014 dated 25/03/2019. In terms of the saidinterim Order, the coordinate Bench directed the TPO to furnish a remand report w.r.t issue of royalty payments to examine the comparability analysis for determination of its ALP. 17 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 4.8. Aggrieved by the aforesaid interim Order dated 25/03/2019 passed by the Coordinate Bench, the assessee filed a Writ Petition before the Hon'ble Delhi High Court. The Delhi High Court vide Order 29/04/2019 wherein the Hon'ble High Court once again directed the Hon'ble Tribunal to decide the two transfer pricing issues keeping all the rights and contentions of both the parties open. 4.9. Thereafter, the assessee vide its letter dated 15/05/2019 furnished a fresh comparability analysis and its search process/matrix for determining the ALP of the royalty rate for the year under consideration. In terms of the fresh analysis conducted by the assessee, it arrived at the royalty rate of 0.70%-1.70% as internal CUP basis an agreement between 'VIML and OG FJARSKIPTI EHF' and 5.20% as external CUP basis a set of five comparable. 4.10. The TPO vide its letter dated 29/08/2019 furnished his Remand Report to the Tribunal. In terms of the said Remand Report, the TPO submitted that the ALP of payment of royalty to both AEs, i.e., Rising Group Ltd (in short RGL) and Vodafone Ireland Marketing Ltd (in short VIML) should be considered as Nil. Without prejudice to the aforesaid, the TPO also submitted that the agreement between Virgin Enterprises Ltd.\" and \"Virgin Mobile USA LLC” may be taken as a comparable in respect of 'Vodafone' brand wherein royalty at the rate of 0.25% has been charged and on which detailed discussions have been made in the orders passed by the TPO for the AY 2013-14 to 2015-16 and also confirmed by the DBP for the AY 2013-14. 4.11. Further, in the said Remand Report, the TPO alleged that none of the comparable selected by the assessee by applying external CUP are comparable in 18 ITA No.1169 /Mum/2014 Vodafone Digilink Limited true sense and the search conducted by the Appellant has not yielded correct results. With respect to the comparable agreement used by the assessee as an internal CUP, the TPO rejected the same by stating that no details of this transaction were given during the course of proceedings earlier and observed that the assessee has not entered into any transaction with the other Group entity. He also stated that a copy of the said agreement used as internal CUP has not been furnished by the assessee. 4.12. In response thereto, the assessee vide letter dated 16/09/2019 filed its rebuttals to the Remand Report and pointed out flaws in the Remand Report issued by the TPO. The assessee also pointed out that because of the confidentiality clause in the Agreement the internal CUP agreement was not filed and even otherwise the TPO during the course of the Remand proceedings had never called for the same but, nonetheless, it filed a copy of the same with the Bench and the Ld. DR. The assessee prayed that the rate of royalty of 0.70% to 1.70% arrived at by applying internal CUP should be accepted as the ALP and, in the alternative, to accept the fresh comparables submitted by it with the mean of 5.20% arrived at by applying external CUP. 4.13. Shri Pardiwalla, the Ld. AR for assessee argued that the payment of royalty for the use of \"Vodafone' and 'Essar' trademark and trade name is purely a business decision of the assessee which cannot be questioned by the TPO. He statedthat the commercial expediency of the expenditure incurred by it cannot be questioned by the TPO as long as such transaction is at arm's length. In the instant case, the TPO ought not to have considered the commercial expediency of the royalty payment made by the assessee since the same was established to be at an 19 ITA No.1169 /Mum/2014 Vodafone Digilink Limited arm's length by the assessee. The assessee submits that the arm's length price of the royalty payment cannot be taken at Nil as the determination of such arm's length price is not arrived at by applying any of the methods provided for in section 92C which the TPO is mandated to do. 4.14. Reliance in this regard is placed on the judgment of the Hon'ble Delhi High Court in the case of CIT v/s. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi) relevant extract of the said judgment is reproduced hereunder: \".......21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred \"wholly and exclusively\" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above. 22. Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 108. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as perlaw but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out 20 ITA No.1169 /Mum/2014 Vodafone Digilink Limited for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised. 23. Apart from the legal position stated above, even on merits the disallowance of the entire brand fee/royalty payment was not warranted. The assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses. The comparative position over a period of 5 years from 1998 to 2003 with relevant figures have been given before the CIT (Appeals) and they are referred to in a tabular form in his order in paragraph 5.5.1. In fact there are four tabular statements furnished by the assessee before the CIT (Appeals) in support of the reasons for the continuous losses. There is no material brought by the revenue either before the CIT (Appeals) or before the Tribunal or even before us to show that these are incorrect figures or that even on merits the reasons for the losses are not genuine. 24. We are, therefore, unable to hold that the Tribunal committed any error in confirming the order of the CIT (Appeals) for both the years deleting the disallowance of the brand fee/royalty payment while determining the ALP. Accordingly, the substantial questions of law are answered in the affirmative and in favour of the assessee and against the Revenue....” 4.15. Reliance is also placed on the decision of the coordinate bench of ITAT- Visakhapatnam in the case of LG Polymers India Pvt. Ltd. v/s. ACIT (2011) 48 SOT 269 (Visakhapatnam) relevant extract of the said decision is reproduced hereunder: \"........6. We have heard the rival contentions on this issue. Both the counsel argued at length for and against the observations of the TPO/DRP discussed above. However, on a careful perusal of the observations of TPO, we find that the TPO has directed himself to examine the genuineness of the transaction, necessity of making 21 ITA No.1169 /Mum/2014 Vodafone Digilink Limited the impugned payment and also the viability of the same. There should not be any doubt that these aspects are normally considered by the management of the company while making business decisions.......\". \"...8. In the case of Dy. CIT v. Ekla Appliances [2011] 45 SOT 7 (Delhi) (URO), the TPO determined the ALP for the royalty payment to be Nil, primarily on the ground that the assessee has not been benefited from the technical Know how and the assessee was incurring losses continuously. The Hon'ble ITAT approved the observations made by the learned CIT(A) in that case in the following lines: \"14.2 In this regard, learned Commissioner of Income Tax (Appeals) further mentioned that it is an acknowledged fact that transfer pricing has more to do with economic principles and business conditions that prevail in an uncontrolled situation. He further referred to certain OECD guidelines issued in this regard. He observed that TPO has completely disregarded the business and commercial strategy/realities behind the transaction and acted in a completely mechanical manner without giving regard to the economic circumstances surrounding the transaction and the business decision taken by the assessee. Further learned Commissioner of Income Tax (Appeals) opined that TPO cannot question the judgment of the assessee as to when it is necessary and expedient to expand its business, when and from whom or from which sources the technology or technical know how is to be taken and at what cost etc., or what steps should be taken to meet the needs of the market forces and to face the competitors etc. Learned Commissioner of Income Tax (Appeals) held that royalty payment was incurred for genuine business purpose and the disallowance were uncalled for and unjustified\". 9. The above discussions show that there was a business necessity for the assessee to make the impugned royalty payment to its AE. Hence we do not find any merit in the decisions of TPO/DRP in holding that the impugned royalty payment transaction is a sham transaction………..” 4.16. The assessee further submits that \"Vodafone' is a global brand and was ranked 11 in the global brand categories by brandirectory.com in its report of 2007 having a brand value of USD 26,752 million. 22 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 4.17. 'Vodafone' brand has been associated with many global sports including Formula One, Football & Cricket, via their sponsorships which also had significant followers in India. Prior to 2007, 'Vodafone' was a sponsor of theFerrari Team in Formula One Race and also sponsored its race driver Michael Schumacher, one of the all-time greats in this sport. In 2007, \"Vodafone' ended their sponsorship deal with Ferrari Team and, thereafter, sponsored the Mercedes McLaren Team in Formula One Race. Thus, the assessee submits that the 'Vodafone' brand has resulted in its financial growth including increasing its footprint in the market. 5. Mr. Pardiwalla, the ld. AR, argued that the single comparable was chosen by the TPO in his Remand Report viz. agreement between 'Virgin Enterprises Ltd.' and 'Virgin Mobile USA LLC. The Rule 10B(a) of the Income-tax Rules, 1962 (in short Rule) which prescribes the comparable uncontrolled method mandates for making a comparison of an international transaction with an 'uncontrolled transaction'. In terms of Rule 10A(a) of the Rule, the term 'uncontrolled transaction' means a transaction between enterprises other than associated enterprises, whether resident or non-resident.In the instant case, the assessee submits that the transaction between 'Virgin Enterprises Ltd.' and 'Virgin Mobile USA LLC' considered by the TPO in his Remand Report is a 'controlled transaction' i.e. between two AEs and, hence, cannot be taken as a comparable to benchmark the international transaction. Attention in this regard is invited to the following:  page No. 118 (running page No. 123 of the said document) of Form S-1 being the Registration Statement under the Securities Act of 1933 filed by 'Virgin Mobile USA' with the Securities and Exchange Commission' 23 ITA No.1169 /Mum/2014 Vodafone Digilink Limited of the United States of America wherein the reference to the 'Virgin Trademark License Agreement' is given; and  page No. F-28 being the Notes to Consolidated Financial Statements of Virgin Mobile USA' wherein a reference to the amendment to the Trademark License Agreement is given and it is stated that the said agreement has been entered into with an affiliate of the Virgin Group. The aforesaid documents form a part of Annexure-C to the letter dated 16 September 2019 being the rebuttals filed by the assessee to the remand report issued by the TPO. 5.1. Reliance in this regard is placed on the decision of the coordinate bench of ITAT-Ahmedabadin the case 'Vodafone West Limited' for the A.Y. 2009-10 bearing ITA No. 909/Ahd/2014 dated 17/11/2016. In this case too, the Tribunal while affirming the DRP Directions held that the transfer pricing adjustment w.r.t. payment of royalty proceeded on the basis of a related party transactions/ agreement is not inasmuch as is not permissible in law and, therefore, dismissed the revenue's appeal. The Hon'ble DRP vide Directions dated 20 December 2013 held that the agreement of 'Virgin Enterprises Ltd.' relied on by the TPO is not applicable since it had entered into an agreement for payment of royalty with its related party i.e. \"Virgin Mobile USA LLC”. 5.2. The Ld. ARrespectfully relies on the Third Member decision of the ITAT Mumbai in the case of Technimont ICB Pvt. Ltd. v/s. ACIT (2012) 148 TTJ 547 (Mumbai) (TM) wherein too it has been held that the ALP of an international transaction can be determined only by making a comparison with a comparable uncontrolled transaction and not a controlled transaction. 24 ITA No.1169 /Mum/2014 Vodafone Digilink Limited This principle of comparing only a 'comparable uncontrolled transaction' and not a “comparable controlled transaction” while benchmarking aninternational transaction has been upheld by the jurisdictional High Court the case of PCIT v/s. Audco India Ltd. (2024) 461 ITR 152 (Bombay). It is further submitted that the Special Leave Petition ('SLP') filed by the Revenue challenging the aforesaid judgment of the Bombay High Court has been dismissed by the Supreme Court in the case of PCIT v/s. L & T Valves Ltd. reported in (2024) 461 ITR 117 (SC). 5.3. The Ld. AR argued that considering the foregoing facts and the judicial precedents on the subject, the assessee submits that the action of the TPO in considering the controlled transaction entered into between 'Virgin Enterprises Ltd. and \"Virgin Mobile USA LLC' while benchmarking the transaction of payment of royalty is not in accordance with law and ought to be rejected. 6. Mr. Pardiwalla argued that with respect to the alternative search and benchmarking analysis conducted by the assessee post the directions of the Tribunal, the Ld. AR stated that the assessee vide its letter dated 15/05/2019 furnished a fresh comparability analysis and the search analysis for determining the ALP of the royalty rate for the year under consideration. In terms of the fresh analysis conducted by the assessee, it determined royalty rate of 0.70% -1.70% by way of an internal CUP and a rate a rate of 5.20% by using certain external CUP. In reference to Internal CUP: 6.1. The assessee considered the agreement entered into between VIML and OG FJARSKIPTI EHF ['OGF'] as a valid internal uncontrolled comparable transaction for payment of royalty. This agreement has been entered into between VIML (AE) and OGF an independent third party (telecommunication service provider). VIML 25 ITA No.1169 /Mum/2014 Vodafone Digilink Limited entered into a brandingagreement with OGF for grant of right to use of Vodafone trademark and trade name and the royalty rate was fixed between 0.70% -1.70% of total annual revenues of OGF. 6.2. The Ld. AR further submits that OGF is not a part of the Vodafone Group and, thus, the branding agreement entered into between VIML and OGF represents a comparable uncontrolled transaction for determining the ALP of payment of royalty. 6.3. The Ld. AR has pointed in the letter 16/11/2019, submits that no opportunity was granted by the TPO to produce a copy of the agreement. Be that as it may, the Appellant submits that it had furnished a copy of the agreement entered into between VIML and OGF to the TPO vide the said letter dated 16 September 2019. However, thereafter, the TPO did not provide any comments on the selection of the internal CUP by the assessee. Further, for an agreement to be considered as an \"internal CUP\" it is not necessary that the assesseehas to enter into the same with an unrelated 3 party. Even an agreement entered into by the AE of an assessee with a 3rd party can be considered as an \"internal CUP\". This aspect of the matter has been ignored by the TPO while rejecting the said comparable. 6.4. Thus, it is submitted that basis the said royalty agreement, since the payment of royalty made by it at 0.30% to VIML and 0.15% to RGL of net service revenues for grant of right to use 'Vodafone' and 'Essar trademark and trade name respectively is lower that the royalty rate of 0.70% to 1.70% agreed between VIML and OGF, the international transaction of payment of royalty by the assessee to VIML and RGL should be considered to be at an arm's length.Thus, in view of the foregoing, the assessee submited that the royalty rate of 0.70% to 1.70% arrived at by applying internal CUP should be treated asALP and thus, the 26 ITA No.1169 /Mum/2014 Vodafone Digilink Limited royalty paid by the Appellant at the rate of 0.30% and 0.15% would also be at arm's length. In reference to External CUP: 6.5. The assesseehas also conducted a fresh search and comparability analysis applying external CUP using external searches undertaken on the Power K database and the RoyaltyStat database. Basis the above external searches, the following 5 agreements are considered as comparable by the Appellant with a mean arm's length royalty rate of 5.20%: Sr.No. Licensor Licensee Royalty rate Search in PowerKdatabase 1. Motorola Inc.USA Forward Industries Inc.,USA 7% Search in RoyaltyStat database 2. AT&T Corp. Kiri Inc. 2.50% 3. Kongzhong Information Technologies (Beijing) Co. Ltd Beijing Airinbox Information Technologies Co. Ltd. 5% 4. Avaya Inc ., (successor to Lucent Technologies Inc., AT & T Corp, American Telephone and Telegraph Co.) Farmstead Telephone Group Inc. 10% 5. Koss Corp. Sonigem Products Inc. 2.50% Mean Arm’s length Royalty Rate 5.20% Basis the above, it is submitted that the payment of royalty by the assesseeat 0.30% and 0.15% of net service revenues is at an arm's length since the rate at which the assessee has paid royalty is less than the mean arm's length rate of 27 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 5.20% of the external comparable agreements.The TPO in his Remand Report has observed that none of the comparable selected by the assessee applying external CUP are comparable in the true sense and the search conducted by the assessee has not yielded correct results. 6.6. The Ld. AR has pointed out in its letter dated 16/09/2019, submits that the TPO has merely rejected the comparable selected by the assessee on flimsy grounds without giving any cogent reasons and without even himself producing or even attempting to provide an alternative set of comparable. It is submitted that while conducting a fresh search the assessee has diligently followed the directions of the Tribunal in terms of using industry codes specified and, then, selected the 4 comparable. This fact is evidenced from the search criteria adopted which is contained in the fresh search analysis submitted. It is also submitted that fresh analysis has been conducted by analysingin excess of 280 transactions/ agreements and the accept-reject matrix evidence that these companies could not meet the strict comparability criteria. The assessee's position is justified owing to the failure of the TPO to himself offer any comparable(s). Thus, in view of the foregoing and in the alternative, the Ld. AR submits that the arm's length royalty rate of 5.20% arrived at by applying external CUP should be treated as ALP and, thus, the royalty paid by the assessee at the rate of 0.30% and 0.15% would also be at arm's length. 7. The Ld. AR argued that determination of ALP at Nil without applying any one of the prescribed methods is not permissible. The Ld. AR submits that the TPO has 28 ITA No.1169 /Mum/2014 Vodafone Digilink Limited considered the ALP of transaction of payment of royalty at Nil without applying any one of the methodsprovided for in section 92C read with rule 108 of theRule. 7.1. Reliance in this regard is placed on the following illustrative list of decisions wherein it has been held that determination of ALP at Nil is not sustainable if the TPO has not followed any one of the prescribed methods: CIT v/s. Lever India Exports Ltd. (2007) 292 CTR 393 (Bombay) CIT v/s. Johnson & Johnson Ltd. reported in [2017] 297 CTR 480 (Bombay) CIT v/s. Kodak India Pvt. Ltd. (2016) 288 CTR 46 (Bombay) CIT v/s. SI Group India Ltd. (2019) 265 Taxman 204 (Bombay) CIT v/s. Cushman and Wakefield India Pvt. Ltd. (2014) 367 ITR 730 (Delhi) 7.2. Thus, in view of the foregoing judicial precedents, the Ld. AR submits that since the TPO did not resort to any one of the methods provided for in section 92C while arriving at the ALP of the payment of royalty at Nil, the transfer pricing adjustment made by the TPO in respect thereof ought to be deleted. 8. The Ld. CIT-DR vehemently argued and stated that the Royalty increasing year after year. Payment of Royalty for the use of 'Vodafone' and 'Essar' Trademark and Trade name The Ld. Counsel for the appellant has submitted that the determination of arm's length price (ALP) of the Royalty transaction at NIL is erroneous in the light of the following judicial precedence- a) CIT v/s EKL. Appliances Ltd. (2012) 345 ITR 241 (Delhi). b) LG Polymers India Pvt Ltd. V/s ACIT (2011) 48 SOT 269 (Vishakhapatnam). 29 ITA No.1169 /Mum/2014 Vodafone Digilink Limited The Ld. Counsel has further submitted that the use of Vodafone' Brand has resulted in the financial growth including increase in footprint in the market and thus, the ALP at zero by the TPO is erroneous. The Ld. Counsel has further submitted that the use of Vodafone' Brand has resulted in the financial growth including increase in footprint in the market and thus, the ALP at zero by the TPO is erroneous. In this regard, I rely on the order of the Ld. DRP and TPO wherein it has been clearly established that regardless of the use of Vodafone' Brand, the assessee has not provided any evidence to show how the royalty payment has benefitted its business and so the ALP of the transaction has been determined at NIL 2. Use of Single Comparable chosen by the TPO as per the Remand Report- The TPO in the Remand Report dated 29.08.2019 has discussed the comparables selected by the appellant using Powerk database for computing the ALP of royalty transactions under the Comparable Uncontrolled Price method (CUP) and has rejected all of the comparables due to differences in the functions performed by the tested party, ie., the appellant and the comparables. As the CUP method requires strong similarity in the function, asset and risk analysis, the comparable selected by the appellant were very divergent from the functions of the appellant. The TPO thereafter, made an independent analysis and has stated in the Remand Report that the royalty agreement between Virgin Enterprises Ltd. and Virgin Mobile USA LLC as a valid comparable having close similarity in the functions performed, where the royalty was paid at the rate of 0.25% for the use of the Virgin' brand name. The Ld. Counsel has taken the objection that this comparable proposed by the TPO in the Remand Report is a related party transaction between two Associated Enterprises (AE) and therefore relying on certain judicial precedence, thus, not a valid comparable. The decisions relied upon by the Ld. Counsel are distinguishable on facts. In this regard, I place reliance on the decision of the Hon'ble ITAT Mumbai in M/s. Bayer Material Science Pvt. Ltd. ITA no.7977/MUM/2010 dated 16.12.2011 wherein it 30 ITA No.1169 /Mum/2014 Vodafone Digilink Limited was held that 'when the very purpose of these provisions is to determine the Arm's Length Price and there is admittedly no record of any uncontrolled transaction, in our considered opinion, it is perfectly in order to consider a controlled transaction genuinely entered in an uncontrolled manner between some other associated enterprises, for the purposes of benchmarking of such a transaction.\" (copy enclosed) 3. Adoption of Internal CUP - The Ld. Counsel has contended that an internal CUP is available for the said transaction whereby the appellant has considered the transaction between Vodafone India Mobile Ltd.' and 'OGF\" (unrelated party) as an internal CUP and has not been examined by the TPO. The TPO, at para 5 in the Remand Report has stated that the Ld. Counsel has raised the contention of internal CUP for the first time during the course of preparation of Remand Report and never before the TPO or Ld. DRP. Moreover, the contract between VIML and OGF for royalty payment have not been provided to the TPO to examine the details of the royalty payment between the tested party and unrelated third party entity. In the light of the above, it is kindly prayed that the matter of adoption of internal CUP as the most appropriate method under the circumstances should be sent back to the TPO for further examination to establish the Arm's Length Price of the royalty transaction. Alternatively, the mean arm’s length royalty rate of 5.20%, derived from external CUP agreements through a fresh search, is also treated as an appropriate ALP. Respectfully reliance is placed on the judgment in EKL Appliances Ltd. (supra), which establishes that Rule 10B(1)(a) of the Rules does not permit the disallowance of any expenditure on the grounds of necessity or prudence. Additionally, we respectfully rely on the Third Member decision in Technimont ICB Pvt. Ltd. (supra), wherein it was held that the ALP of an international transaction must be determined exclusively by comparing it with comparable 31 ITA No.1169 /Mum/2014 Vodafone Digilink Limited uncontrolled transactions and not with a controlled transaction.The determination of ALP at ‘Nil’ without applying any of the prescribed methods is unjustified. Accordingly, the adjustments aggregating to Rs.11,47,16,908/- made by the Ld. AO are deleted. In light of the above, the order of the DRP is set aside, and the assessee's ground of appeal is allowed. 10. In the result, the appeal of the assesseeGround no-9is allowed. 11. Ground of appeal No. 10 (Transfer Pricing adjustment relating to AMP expenditure): 11.1.During the alleged previous year, the assessee had incurred the following expenses aggregating Rs. 282.24 crores under the expense heads of 'distribution expenses' and 'advertisement/ sales promotion expense'. These expenses were incurred in relation to the provision of the telecommunication services: Particulars Amount (in Rs.) A. Distribution expenses 1 1.Sales commission and incentives to distributors 142,32,99,755 2.Expeses o packaging kits, pre-paid recharge coupon, dealer training, etc. 48,64,69,617 Sub-total 190,97,69,372 B.Advertisement / Sales promotion expenses 1. Advertising 79,93,97,108 2. Market Research 1,57,36,493 3. Website expenses & Marketing overheads 33,41,051 4. Promotion expenses - Merchandise 2,42,64,609 5. Promotion - Others 6,99,68,511 Sub-total 91,27,07,772 Total 282,24,77,144 11.2. The TPO in terms of the Order dated 20/01/2013 alleged that the aforesaid expenses of Rs. 282.24 crores result in creating a marketing tangible for the 32 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 'Vodafone' and 'Essar' trademark/ trade name and, thus, the assessee ought to have been reimbursed by its foreign AEs for such expenses. While doing so, the TPO also held that distribution expenses like commission paid to distributors, payments for subscriber verification, payment collection, etc. are also in the nature of brand promotion.The TPO also alleged that the assessee has incurred excessive AMP expenditure which has benefitted the brand owned by the AEs of the assessee and hence the assessee should be reimbursed by its foreign AEs. The TPO applied the 'bright line limit' while holding that the AMP expenses incurred by the assessee are excessive. The TPO also applied a mark-up of 15.46% on the assessee's alleged excessive AMP expenses. 11.3. The DRP vide its directions dated 18/12/2013, relying on the decision of the Special Bench of the Tribunal in the case of LG Electronics India Pvt. Ltd. vs. ACIT (2013) 140 ITD 41 (Delhi) (SB), upheld the applicability of the bight line test while computing the ALP of the AMP expenditure. It further upheld the TPO's stand of adding a markup of 15.46% on the ALP of the AMP expenditure.Pursuant to the DRP Directions, the Ld. AO in terms of the Final Assessment Order dated 30/01/2014 inter-alia made an addition of Rs. 2,84,68,27,994/- to the income of the assessee being the transfer pricing adjustment made by the TPO on the transaction of AMP expenditure. 11.4.Mr.Pardiwallasubmits that the revenue has not discharged the onus cast on it by bringing any material on record to prove that there is an understanding / arrangement or an action in concert between the assessee and the AEs for promotion of trademark/ trade name owned by the AEs.The AMP expenses have been incurred as a function as part of the assessee's roles and responsibilities as a service provider and not under a separate arrangement/ agreement with the AEs 33 ITA No.1169 /Mum/2014 Vodafone Digilink Limited to promote brands owned by such AEs. The assessee has the license to provide telecommunication services in India and the AEs cannot provide such services in India since it does not have such license and, hence, the AMP expenses have been incurred as a function by the assessee. 11.5.Theassessee further submits that no cost/ income can be attributed only to 'brand promotion'. The entire advertisement expenditure incurred by the assessee was intended to reach out to the subscriber base in order to inform them about the different services rendered by it. The advertisement agencies do not charge different rates for advertisements for unbranded services vis-à-vis advertisements for branded services. Thus, it is evident that there is no expenditure incurred towards trademark/trade name.It is further submitted that basis the functions performed, and risks assumed, it has been characterised as a full-fledged telecom service provider engaged in the provision of telecommunication services. However, while determining the appropriateness of AMP expenses, the TPO has characterised the assesseeas a distributor without providing any reasons for the same, thereby, leading to an inaccurate transfer pricing analysis. It is submitted that it a long-settled jurisprudence that the business model chosen by the assessee has to be respected and it is not open to the revenue to dictate any other model to the assessee. The application of bright line method does not take into consideration the impact of various factors on deciding the appropriateness of the level of AMP expenses incurred by an assessee. The TPO has not established functional similarities between the assessee and the comparable chosen by him for application of bright line method and, thus, bright line method cannot be applied. 34 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 11.6. In this connection, the Ld. AR submits that this issue is covered in its favour by the decision of the coordinate Bench ITAT-Mumbai in the case of 'Vodafone India Ltd.' bearing ITA No. 884/Mum/2016 dated 17/05/2024 wherein the Hon'ble Bench relying on the judgement of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. v/s. CIT (2016) 381 ITR 117 (Delhi) deleted the transfer pricing adjustment made by the TPO in respect of AMP expenditure. The facts of the aforesaid case before the Bench are detailed in para Nos. 12.4 to 12.5 on page Nos. 40 to 42 of its Order, the said findings are extracted hereunder for ready reference: “………..12.4. We have considered the rival submission and perused the material on record including the chart of issues filed by the Assessee. 12.5. We note that in the present case the TPO has arrived at a conclusion that there existed international transaction solely on the basis of the fact that the Assessee has incurred high AMP Expenditure at the rate of 6.2% of sales. While AMP Expenses may constitute an international transaction, the existence of an arrangement and consequently, an international transaction cannot be presumed on the basis of bright line test only. In the case of Maruti Suzuki India Limited Vs Commissioner of Income Tax: [2016] 381 ITR 117 (Delhi) it has been held by the Hon'ble Delhi High Court that the existence of AMP Expenditure, being an international transaction, will have to be established de hors the bright line test. In absence of any written agreement, whether any arrangement existed or the Assessee along with its AE acted in concert would depend upon the facts and circumstances of each case. Where an assessee denies existence of international transaction in case of AMP Expenditure, as is the case in the present appeal, the onus would be on the Assessing Officer to bring out facts, circumstances, policy or conduct to support existence of an international transaction. In the present case, there is nothing on record to show or infer the existence of international transaction. We also note that in the subsequent assessment years (ie. Assessment Year 2012-13, 2013-14 & 2014-15) no adverse inference was drawn and no transfer pricing adjustment has been made in relation to advertisement, marketing and promotion expenses incurred during the relevant previous years. In the aforesaid facts and circumstances the transfer pricing addition made by the Assessing Officer in respect AMP Expenditure of INR 22,01,14,350/- cannot be sustained and is, therefore, 35 ITA No.1169 /Mum/2014 Vodafone Digilink Limited deleted. Ground No. 7.3 raised by the Assessee is allowed and Ground No. 7.4 to 7.8 are dismissed as being infructuous…………..” 11.7. Attention is also invited to the judgement of the Hon'ble Delhi High Court in the case of CIT v/s. Whirlpool of India Ltd. (2016) 381 ITR 154 (Delhi) wherein too the Hon'ble High Court held that the TPO cannot proceed to determine the ALP of AMP expenditure by inferring the existence of an international transaction based on bright line test if he has not been able to demonstrate with tangible material if there is an international transaction involving AMP expenditure between the assessee and its AE. It is further submitted that the SLP filed by the Revenue challenging the aforesaid decision of the Hon’ble High Court stands dismissed by the Supreme Court vide in recent order dated 20/11/2024 reported in (2024)169 taxmann.com 95 (SC). 11.8. The Ld. Dr argued and stated that with respect to the adjustment relating to AMP argued that the incurrence of the said expenses by the assessee has resulted in an indirect benefit to the AE and hence the assessee ought to be compensated for the same. “4. TP adjustment of AMP transaction - The Ld. Counsel has submitted that the TPO has not brought any material on record to prove that there is an understanding/arrangement or an action in concert between the appellant and the AEs for promotion of trademark/tradename owned by the AEs and therefore any existence of any international transaction of AMP is not established. 36 ITA No.1169 /Mum/2014 Vodafone Digilink Limited The Ld. Counsel further submits that adoption of bright line test for holding the excessive AMP expenses compared to the third party comparables is erroneous as the TPO has not established functional similarities between the appellant and the comparables chosen by him for the application of bright line method. Further, the Ld. Counsel submits that the AMP issue is already covered in its favor by the decision of the Hon'ble Mumbai ITAT in the case of Vodafone India Ltd. in ITA No.884/Mum/2016 dated 17.05.2024. In this regard, I rely on the order of the Transfer Pricing Officer and of the Ld. DRP wherein the TPO has discussed elaborately the details of the AMP transaction and the reasons for holding it as an international transaction and benchmarking it by adopting the most appropriate method.” 11.9.This issue too, as was argued during the course of the hearing, has been addressed by the Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited (supra) - relevant portion of the same is extracted hereunder for ready reference: \"73. .....The argument of the Revenue, however, is that while such AMP expense may be wholly and exclusively for the benefit of the Indian entity, it also enures to building the brand of the foreign AE for which the foreign AE is obliged to compensate the Indian entity. The burden of the Revenue's song is this: an Indian entity, whose AMP expense is extraordinary (or 'non- routine') ought to be compensated by the foreign AE to whose benefit also such expense ensures. The 'non-routine' AMP spend is taken to have 'subsumed' the portion constituting the 'compensation' owed to the Indian entity by the foreign AE. In such a scenario what will be required to be benchmarked is not the AMP expense itself but to what extent the Indian entity must be compensated. That is not within the realm of the provisions of Chapter X. 37 ITA No.1169 /Mum/2014 Vodafone Digilink Limited 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction...... 75. 76. As explained by the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 and PNB Finance Ltd. v. CIT [2008] 307 ITR 75/175 Taxman 242 (SC) in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise......” 11.10. We heard the rival submission and considered the documents available record. The revenue has not demonstrated, through any material or tangible evidence, that there exists an understanding, arrangement, or concerted action between the assessee and its AEs for promoting trademarks or trade names owned by the AEs. This failure to establish an international transaction de hors the bright line test invalidates the adjustment. We respectfully consider the decisions of higher judicial authorities, including the Hon’ble Delhi High Court in Maruti Suzuki India Ltd (supra). and Whirlpool of India Ltd (supra)., have categorically held that the bright line test cannot be used to presume the existence of an international transaction in the absence of evidence. The Hon’ble Supreme Court's dismissal of the revenue's SLP further reinforces this position. The AMP expenses incurred by the assessee were essential to its business functions as a telecom service provider and were aimed at expanding its subscriber base, not at promoting the brand of its AEs. These expenses were inextricably linked to the assessee's business operations and cannot be arbitrarily segregated as brand promotion for the AEs.The TPO’s characterization of the 38 ITA No.1169 /Mum/2014 Vodafone Digilink Limited assessee as a mere distributor, without any substantive reasoning, contradicts the assessee's established role as a full-fledged telecom service provider. The business model chosen by the assessee is to be respected, as per settled jurisprudence, and cannot be re-characterized arbitrarily by the revenue. The application of the bright line test without ensuring functional comparability of the selected comparable and without considering business-specific factors renders the adjustment methodologically flawed.In subsequent assessment years, no adverse inference has been drawn, and no transfer pricing adjustments have been made concerning AMP expenses. This consistency further weakens the revenue's case for the disputed year. In light of these observations, it is respectfully submitted that the transfer pricing adjustment of Rs. 2,84,68,27,994/- made in respect of AMP expenditure is devoid of merit and should be deleted. Therefore, the adjustment is set aside, and the assessee's appeal is allowed. 12. During the hearing before the ITAT, only grounds 9 and 10 were argued, and no other grounds were pursued. 13. In the result, appeal of the assessee Ground Nos 9 & 10 is allowed. Order pronounced in the open court on 12th day of February 2025. Sd/- sd/- (PRABHASH SHANKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 12/02/2025 Pavanan 39 ITA No.1169 /Mum/2014 Vodafone Digilink Limited Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "