VODAFONE IDEA LIMITED (SUCCESSOR OF VODAFONE MOBILE SERVICES LIMITED),MUMBAI V. ACIT, CIRCLE-26(2), NEW DELHI

ITA 8362/DEL/2019

AI Insights

The case involves Vodafone Idea Limited appealing against the order passed under sections 143(3) read with section 144C of the Income Tax Act, 1961, for the assessment year 2013-14. The primary issues revolved around transfer pricing adjustments related to royalty payments and specified domestic transactions, as well as disallowances related to depreciation and penalties. The Tribunal examined the adjustments made by the Transfer Pricing Officer (TPO) and the subsequent orders by the Assessing Officer, which included significant financial adjustments and disallowances. The Tribunal's decision to favor the appellant was based on the application of the arm's length principle and the examination of comparable uncontrolled price methods, alongside a review of judicial precedents.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 843979 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 22-10-2019
• Other Referred Cases: Vodafone West Ltd. vs. DCIT, ACIT vs. Bilag Industries Pvt. Ltd., Technimont ICB Pvt. Ltd. vs. ACIT, Pino Bisazza Glass Pvt. Ltd. vs. ACIT, Mahindra & Mahindra Ltd. vs. CIT, Rajshree Roadways vs. UOI, CIT vs. Bharti Hexacom Ltd., CIT vs. Glaxo Smithkline Asia (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Assessee Lawyers: SALIL KAPOOR
• Keywords: Business income; Capital asset; Revenue expenditure; Transfer pricing; International transaction; Depreciation; Bonafide belief; Capital expenditure; TDS; Avoidance of tax; Initiation of penalty proceedings; Non-deduction of tax; Royalty expenses; Related party transaction
• Section: 143(3); 271(1)(c); 32; 37; 115JB; 244A; 37(1); 40(a)(ia); 10B; 92C; 92A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.8362/Del/2019 (ASSESSMENT YEAR 2013-14) Vodafone Idea Limited (Successor of Vodafone Mobile Services Limited), 10th Floor, Birla Centurion, Century Mills Compound, Pandurang Budhkar Marg, Worli, Mumbai, Maharashtra-400030. PAN-AAACB2100P Vs. The Asst. CIT, Circel-26(2), New Delhi. (Appellant) (Respondent) Assessee by Sh. Salil Kapoor, Adv. and Ms. Soumya Singh, Adv. Department by Shri S.K. Jadhav, CIT-DR Date of Hearing 07/01/2026 Date of Pronouncement 18/03/2026 O R D E R PER MANISH AGARWAL, AM: The present appeal is filed by the Assessee against the order passed u/s 143(3) r.w.s 144C of the Income Tax Act, 1961 dated 30.08.2019 for Assessment Year 2013-14. 2. Brief facts of the case are that assessee company is a telecom service provider. The return of income was filed on 29.11.2013 declaring total loss of Rs.189,55,09,843/- and book profit u/s 115JB of the Act was declared at Rs. Printed from counselvise.com 2 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 225,57,18,422/-.Thereafter, as a consequence to amalgamation/merger, the assessee filed return electronically on 26.08.2017 declaring total loss of Rs. 6337,04,80,564/- under normal provisions of Income Tax and book profit of Rs.510,16,64,251/- u/s 115JB of the Act. The case of the assessee was selected under CASS and notice u/s 143(2) was issued on 03.09.2014. Since, the assessee has carried out international transactions and specified domestic transactions with its Associate Enterprises (AEs), therefore, a reference was made u/s 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price (ALP) of international and specified domestic transactions carried by the assessee. The TPO vide its order dated 26.10.2016 u/s 92CA(3) of the Act has made onward adjustments which are (i) payment of royalty of Rs.221,27,39,573/- and (ii) Passive Infrastructure charges-rent Rs.29,57,02,005/- Thereafter, the AO passed the draft assessment order u/s 144C(3) dated 20.09.2018 wherein, besides addition for the TP adjustment made by the TPO, certain other additions/disallowance were also made and the total assessed income was proposed to be assessed at a loss of Rs.30,79,32,76,535/-. Against the said order, assessee filed objections before the Ld. Dispute Resolution Panel (DRP) who vide order dated 27.06.2019 disposed of the objections either rejected the objections of the assessee or give certain directions to the AO/TPO. Consequently, AO passed the order u/s 143(3) r.w.s 144(13) of the Act dated 30.08.2019 wherein the TP adjustments were reduced to Rs. 237,40,85,723/- as against total adjustment of Rs. 250,84,41,578/- proposed in the draft assessment order and further additions/disallowance were made and, accordingly the total income was assessed at Rs. Nil after set-off of brought forward losses of Rs. 37,51,99,79,196/-. Printed from counselvise.com 3 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 3. Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking following grounds of appeal: “1 That on the facts and circumstances of the case and in law, the AO has erred in assessing the net income of the Appellant at INR Nil, in pursuance to DRP directions, as against returned loss of INR 1,11,63,50,926 Transfer Pricing Grounds: 2. Transfer pricing (\"TP\") adjustment amounting to INR 2,21,27,39,573 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 2,21,27,39,573 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 for Vodafone brand. 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 at segment level. 3. Transfer pricing adjustment amounting to INR 16,13,46,150 in respect of specified domestic transaction (SDT) of passive infrastructure charges-rent. 3.1 That on the facts and circumstances of the case and in law, the AO/DRP/ TPO have erred in making an upward TP adjustment of INR 16.13,46,150 in respect of SDT pertaining to payment of passive infrastructure charges-rent: 3.2 That on the facts and circumstances of the case and in low, the AO/DRP/ TPO have erred in not appreciating that provision of section 40A(2)(b) of the Act are not applicable in the absence of tax arbitrage from such payments. 3.3 That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in rejecting the benchmarking analysis adopted by the Appellant using CUP method and erroneously / arbitrarily benchmarking each sub-category of the transaction separately, which is not in accordance with the provisions of the Act read with Income-tax Rules, 1962. Printed from counselvise.com 4 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 3.4 Without prejudice, the AO/DRP/TPO have erred in disregarding corroborative TNMM benchmarking analysis adopted by the Appellant, wherein the SDT of payment of passive infrastructure charges was benchmarked on aggregated basis at segment level. Corporate Tax Grounds: 4. Disallowance amounting to INR 10,47,25,37,853 in respect of depreciation on right to use spectrum: 4.1 That on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing the claim of depreciation amounting to INR 10,47,25,37,853 in respect of expenditure incurred for acquisition of right to use 3G spectrum under section 32 of the Act, alleging that the same is amortizable under section 35ABB of the Act. 4.2 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 4.3 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 5. Disallowance of INR 18,96,32,587 being penalty imposed by Department of Telecommunication (\"DOT\") for subscriber verification: 5.1. That on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing INR 18,96,32,587, being amount paid to DOT on account of failure to comply with subscriber verification guidelines, alleging it to be penal in nature. 5.2. That on the facts and circumstances of the case and in law the AO/DRP erred in disallowing penalty imposed by DOT without appreciating that the same is paid for breach of contractual liability under the license agreement and not for infraction of any law and is therefore allowable as deduction under section 37(1) of the Act. 6. Disallowance of INR 19,19,130 being penalty imposed by DOT in respect of Universal Service Obligation Fund: 6.1. That on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing INR 19,19,130, being amount paid to DOT for violation of duty in respect of Universal Service Obligation Fund, alleging it to be penal in nature. Printed from counselvise.com 5 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 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 that the same is paid for breach of contractual liability and is therefore allowable as deduction under section 37(1) of the Act 7. Disallowance of depreciation amounting to INR 8,10,99,490 in respect of Asset Restoration Cost (\"ARC\"): 7.1 That on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing depreciation of INR 8,10,99,490 claimed on ARC capitalized by the Appellant. 7.2 That on the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that ARC, being directly attributable to the acquisition of capital asset, is includible in cost of telecom towers under section 43(1) of the Act. 7.3 Without prejudice to grounds of appeal nos. 5.1 and 6. 2, the AO/DRP erred in not allowing the deduction for provision in respect of ARC obligation on proportionate basis over the period of lease. 7.4 Without prejudice to grounds of appeal nos 6.1 to 6.3, the AO/DRP erred in not allowing the deduction under section 37(1) of the Act as revenue expenditure in respect of provision for ARC obligation. 7.5 Without prejudice to ground of appeal nos. 6.3 and 6.4, the AO/DRP erred in not allowing the deduction in respect of ARC expenditure amount actually incurred by the Appellant during the year. 8. Disallowance amounting to INR 68, 10,57,201 in respect of liabilities written back: 8.1 That on the facts and circumstances of the case and in law, the AO erred in making an addition of INR 68,10.57.201 invoking provisions of section 41(1) and/or section 28(iv) of the Act, in respect of capital account liabilities written back during the subject assessment year. The DRP further erred in not directing the AO to delete the addition 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 8,57,43,86,306 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 8,57,43,86,306 under section 40(a)(ia) of the Act on Printed from counselvise.com 6 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 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 pre-paid 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 AO/DRP ought not to have made the disallowance under section 40(a)(ia) of the Act as the Appellant was under bonafide belief that no tax was required to be deducted at source on the discount allowed to prepaid distributors 9.4 That on the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that even if such charges were liable to tax deduction at source, no disallowance was warranted under section 40(a)(ia) of the Act since tax on the same was paid by the recipient(s) of income 9.5 The DRP erred in not directing the AD to allow deduction of disaliowance made in the subject assessment year under section 40(a)(ia) of the Act, in subsequent year(s), under the first and/or second proviso to section 40(a)(ia) of the Act 9.6 The DRP erred in not directing, and AO erred in not allowing deduction under the first and/or second proviso to section 40(a)(ia) of the Act, in respect of similar disallowances made for prior assessment years (ie. AYs 2007-08 to 2012-13) 9.7 Notwithstanding and without prejudice to the above grounds, the disallowance relating to the discount should have been restricted to 30% of the sum payable in view of amendment to section 40(a)(ia) of the 10. Disallowance of license fees amounting to INR 8,99,73,07,416 under section 37(1) of the Act: 10.1 That on the facts and circumstances of the case and in law, the AO/DRP erred in holding that annual license fee payable to DOT, based on percentage of revenue earned, is in the nature of capital expenditure amortizable under section 35ABB of the Act. 10.2 That on the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that annual revenue share license fee payable to DOT is allowable as deduction under section 37(1) of the Act. Printed from counselvise.com 7 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 11. Disallowance amounting to INR 1,07,15,34,153 in respect of payments made to IBM: 11.1 That on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing support service charges amounting to INR 1,58, 12, 16,814 paid to IBM as capital expenditure and restricting the allowance to INR 50.96,82.661 by amortizing the same over the period of agreement. 11.2 That on the facts and circumstances of the case and in law, the AO/DRP failed to appreciate that the Appellant did not own the assets and had only received the benefit of the services / right to use the assets over the term of the agreement with IBM. 11.3 Without prejudice to above, that on the facts and circumstances of the case and in law, the AO/DRP ought to have allowed depreciation 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 6,19,21,83,223 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 10,23,51,48,000 incurred for use of spectrum and microwave frequency to WPC wing of DOT as capital expenditure and allowing depreciation of INR 4,04,29,64,777. 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. 13. That on the facts and circumstances of the case and in law, the AO erred in granting short credit of taxes deducted at source. 14 That on the facts and circumstances of the case and in law, the AO erred in granting incorrect interest on refunds under section 244A of the Act. 15. That on the facts and circumstances of the case and in law, the AO erred in initiating penalty proceedings under section 271(1)(c) of the Act.” 4. Before us, the AR of the assessee filed as detailed chart with reference to each issue raised in various grounds of appeal and contended that all the grounds of appeal are already covered by the judgment of Tribunal in assessee’s own case for earlier assessment years, which placed on records. Printed from counselvise.com 8 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 5. Ground of Appeal No.1 is general in nature and required no adjudication. 6. Ground of Appeal No.2 is with respect to the addition of Rs.2,21,27,39,573/- made towards payment of brand royalty made for obtaining the right to use of ‘Vodafone’ trademarks and trade names. 7. Heard both the parties at length and perused the materials available on record. 7.1. Brief facts invoked in this case are that the assessee has paid royalty of Rs.76,05,17,500/- to its AE Vodafone Ireland Marketing Limited in terms of agreement made with AE assessee has to paid royalty fee @ 0.70% of Net services revenues. The assessee benchmarked the transaction by using Comparable Uncontrolled Price method (“CUP”) as the most appropriate method (MAM). The TPO rejected the same and applied Transactional Net Margin Method (“TNMM”) and also rejected three comparable selected by the assessee and included two new comparables and proposed 0.25% as the royalty rate and made the adjustment of Rs.221,27,39,573/-. The assessee claimed that M/s Vergin Enterprises Ltd. and M/s Virgin Mobile USA LLC taken as new comparables to benchmarking transactions is erroneous as transaction between these two enterprises is control transactions and, thus, cannot be considered as valid comparable for benchmarking the royalty transaction in the case of the assessee. 7.2. It is submitted that that the identical issue as came up for consideration before the Co-ordinate Bench of ITAT, Delhi in assessee’s own case for Assessment Year 2012-13 wherein in ITA No.8561/Del/2019, the Co-ordinate Bench by placing reliance on the judgment of Hon’ble Co-ordinate Bench of ITAT, Ahmedabad in the case of M/s Vodafone West Ltd. vs. DCIT in ITA No.909 & 944/Ahd/2014 has Printed from counselvise.com 9 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT deleted the transfer pricing adjustments made. Therefore, it is humbly prayed that the adjustment made be deleted. 8. On the other hand, ld. CIT DR has placed reliance on the order of lower authorities and requested for the confirmation of the same. 9. Heard the parties and perused the material available on records. It is observed that this issue has already been decided by the coordinate bench of Tribunal in assessee’s own case for AY 2012-13 wherein in ITA No.8561/Del/2019, while deleting the adjustment, in para 4.7 of the order has made following observations: “4.7 Considered the rival submissions and material placed on record, we observed that ITAT Ahmedabad Bench had considered the similar issues and decided the similar issues under consideration as under: \"30. A perusal of the case record indicates that the assessee had paid brand royalty fee amounting to Rs.5,37,37,397/- and Rs.2,68,68,699/- to its overseas associate enterprises, namely, M/s. Vodafone Ireland Marketing Ltd. and M/s. Rising Groups Ltd.; respectively. It adopted the transaction net margin method (TNMM) to benchmark the same. We find from Transfer Pricing Officer's order dated 28.01.2013 that he rejected assessee's method after holding that the same was an indirect one liable to give way to the other direct methods in the Income Tax Rules. He relied on this tribunal's decision in M/s. Serdia Pharmaceuticals India Pvt. Ltd. case 44 SOT 391 (Mumbai) to adopt CUP method (comparable uncontrolled price) in facts of the instant case. He thereafter was of the view that arms' length price for royalty payment for \"Essar\" brand as Rs. Nil and corresponding payment had to be restricted to 0.25% on gross sales as against 0.275% declared by the assessee. He adopted similar course of action for the later payee regarding \"Vodafone\" brand. The resulted in the impugned upward adjustment of Rs.3,17,53,917/-. We notice from the above TPO's order that he went by assessee's related parties royalty agreement transactions in proposing the impugned adjustment. The Dispute Resolution Panel reverses the same leaving the Revenue aggrieved. 31. We have heard rival contentions. Suffice to say, since the transfer pricing officer in the instant case has proceeded to propose the impugned upward adjustment on the basis of related party transactions after adopting CUP method instead of TNMM hereinabove, we find that a co-ordinate bench of this tribunal in ACIT vs. Bilag Industries Pvt. Ltd. ITA No. 1441 & 1670/Ahd/2006 and 343/Ahd/2012 quotes a catena of case law to disagree with such an approach as follows: Printed from counselvise.com 10 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT \"28. We have heard both the sides. Learned representatives reiterate their respective pleadings in support of and against the impugned transfer pricing adjustment. There is hardly and dispute that the assessee agreed to supply Deltametrin and its intermediate chemical solutions to the above stated associate enterprise or its designee. This lis however is confined to arms length price determination of 18 tones supplied to the foreign entity. The assessee charges @ US $ 126.2 per kg by following cost + 55% markup. Its agreement quoted Deltametrin price to be @ 161.20 US $ per kg. The assessee also admitted the latter rate to be at arms length price as already indicated in page 292 of the paper book. This made the TPO to inter alia to rejectassessee's other contentions for making impugned upward transfer pricing adjustment of Rs. 2,96,10,000/-subject matter of the instant litigation. 29. We deem it appropriate at this stage to deal with chapter X of the act containing transfer pricing provisions relating to avoidance of tax introduced by the Finance Act, 2001 w.e.f. 01-04-2002. The impugned assessment year before us is the first full fledged year of business thereafter. Section 92(1) mandates any income arising from an international transaction to be computed having regard to arms length price. The same admittedly applies in case of international transactions; as it then was, between two associate enterprises illustrated in section 92A of the Act. We repeat that this assessee and its overseas associate enterprise admittedly fall in this category. There is further no quarrel about its Deltamethrin sale to be in the nature of international transactions u/s. 928 of the Act. We notice that section 92C(1) of the Act postulates arms length price computation by applying six methods namely; comparable un-controlled price method (CUP), re-sale price method (RPM), cost method (CPM), profit split method (PSM), transactional net margin method (TNMM) and the residuary one such other methods as may be prescribed by the Central Board of Direct Taxes. An Assessing Officer's jurisdictional flows thereafter u/s. 92CA of the Act to make reference to the TPO for ascertaining arm’s length price of the relevant international transactions. 30. We now come to the corresponding income tax rules. Rule 10A defines various expressions used in all contemporary provisions. Sub-rule (a); as it was in the Impugned assessment year defines an un-controlled transaction to mean a transaction other than that between two associate enterprises; whether resident or non-resident. We keep in mind the same and proceed further to Rule 108 prescribing arms length price for the purpose of section 92C(2) of the Act by using any of the six method as the most appropriate method as enumerated in clause (a) to (f); respectively in the given sequence in chapter 10 of the Act. The last clause (f) relevant for any other appropriate method hereinabove contains a specific rule 10AB. This is admittedly not germane conthe issue before us. We find that only clause (a) to (e) hereinabove pertaining to 'CUP' and 'TNMM' methods are relevant for the instant adjudication. We find it a fit case to repeat that the assessee had employed TNMM method for charging @ cost + 55% Printed from counselvise.com 11 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT markup i.e. an indirect method for declaring its ALP. The TPO adopted its direct sale price @ 161.2 US $ per kg for making the impugned upward adjustment. We do not find a single observation even in his order rejecting assessee's TNMM method before adopting the agreement price in question under the CUP method. 31. We stay back on Rule 10B(1)(a) at this stage. It is evident that this clause prescribes CUP methods application to determine controlled price of an international transaction by the price charged or paid for property transfer or services provided in a comparable uncontrolled transaction; or a number of transaction, as identified. The same forms a price charged or paid in relation to property or services as the basis of ALP transaction. We referred to the above stated rule 10A(a) to observe here that the expression 'comparable un- transaction between controlled transaction' signifies enterprises other than associate ones; whether resident or non-resident. It has already come on record that the TPO in the instant case relied upon assessee's agreed price rate of US $ 161.20 per kg for Deltamethrin supply in order to make the impugned transfer pricing adjustment. We reply on above stated statutory provision in the act as well as rule to observe that the same is rather in the nature of a comparable controlled transaction between two associate enterprises negating the basic fundamental condition of CUP methods application. 32. We proceed further to observe here that various co-ordinate benches of this tribunal have already adjudicated this issue as to whether an accepted net profit margin from a transaction with an associate enterprise can be taken as comparable or not being an internal comparable for determining arm’s length price. Two tribunals decisions reported as (2012) 24 taxmann.com 28 (Mum) (TM) Technimont ICB Pvt. Ltd. vs. ACIT as reiterated in ITA 2587/Ahd2012 Pino Bisazza Glass Pvt. Ltd vs. ACIT already decide this issue in assessee'sfavour toconclude that such a comparable is not to be adopted as comparable un-controlled transaction price in question. 33. We have already noticed that a comparable un-controlled transaction instead of a controlled forms sine qua non for determining ALP of an international transaction between two associate enterprises leaving behind no scope of application of estoppel principle or acceptance of agreed prices in absence of an comparable un-controlled transaction. The Revenue's vehement contentions advanced in the course of hearing seeking to invoke estoppel principle fails to convince us. 34. We further deem it appropriate to observe at this stage that the impugned assessment year 2002-03 is the first full-fledged business of year after introduction of chapter X transfer pricing provision Incorporated in the act. The TPO's order dated 10-03-2005 does not even issue a show cause notice disagreeing with assessee's TNMM method. He has rather proceeded to adopt CUP method(supra) again by ignoring the fundamental condition of applying the same. Same is the case with learned CIT(A) who has proceeded on revenue Printed from counselvise.com 12 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT neutral implication without even taking into section 92(1) r.w.s. 92C and 92C(4) proviso along with rules discussed hereinabove at length. There is hardly any dispute that this chapter and the rules notified thereunder prescribe that an arms length price is not the price an assessee is charging or paying for being a party in the international transaction in question but it is the price i.e. to be paid or charged in such a comparable controlled transaction in comparison to a comparable un-controlled transaction. We repeat that the TPO has not kept in mind this fine distinction. We accordingly reverse his action on this sole legal principle. Needless to say, the CIT(A) has already deleted the impugned adjustment. We find no reason to interfere in the lower appellate order albeit on a different score as enumerated hereinabove. This Revenue's ground is declined accordingly.\" We have given out thoughtful consideration to rival contentions Ld. Departmental Representative fails to pinpoint any exception in facts of the instant case vis-à-vis those extracted hereinabove with regard to the impugned upward transfer pricing adjustment based on related party agreements only. We thus find no reason to interfere with the DRP' direction under challenge on this count alone. This substantive ground is also rejected.\" Respectfully following the above decision and other decisions relied upon by the Id AR, in view of the facts and circumstances of the case, we are of the considered opinion that the issue involved in ground No. 2 of the assessee is squarely covered. In view of the above, we direct the Learned TPO / AO to delete the transfer pricing adjustment made in the sum of Rs.1,20,54,020/- in respect of international transaction towards payment of royalty.” Admittedly, the facts in the present appeal are identical, therefore, by respectfully following the decision of the Co-ordinate Bench in assessee’s own case for Assessment Year 2012-13, we delete the transfer pricing adjustment of Rs.221,27,39,573/- so made on Royalty payment. 10. Grounds of Appeal No.3 is with respect to the transfer pricing adjustment of Rs.16,13,46,150/- made with respect to specified domestic transaction (“SDT”) of passive infrastructure charges of rent. The brief facts leading to this issues are that assessee obtained passive infrastructure services from its related enterprises M/s Indus Towers, which is joint venture (‘JV’) between Indian Telecom Operators namely Bharti Infratel Limited, Vodafone India Limited and Idea Cellular Limited. The costs paid comprises of fixed rental charges paid per tower leased by the Printed from counselvise.com 13 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT company. Fixed rental charges vary depending upon the type of tower. The assessee for benchmarking transactions using CUP method where it compared the average rates paid to Indus Towers (Rs. 26,113/-) for availing of passive infrastructure services with average rates paid to third party. The TPO has bifurcated the transaction of use of towers into two categories, first is Anchor/Non-Anchor where the tenancy sites were provided only to Cellular Telecom Companies and non anchor tenant where sites were provided only for data services operator or for data services. The TPO has further broken down the said services to first tenant, second tenant and so on. Accordingly, TPO has benchmarked/sub category of transactions separately and made the adjustment of Rs. 29,57,02005/-. The Ld. DRP accepted the contentions of the assessee and directed the TPO to consider only the Anchor rates of ATC and Essar telecom for benchmarking the Anchor Services provided by M/s Indus Tower to the assessee and re-compute the adjustment. Thereafter, the AO passed the order, recomputing the amount of transfer pricing adjustment of specified domestic transactions with Indus Tower at Rs. 16,13,46,150/-. 11. Before us, the Ld. AR of the assessee submitted that the appellant had made payment to Indus Tower and since M/s Indus Tower is in profits and paid taxes on such income, whereas the assessee is incurring huge losses, therefore, there is no loss to the Revenue nor any benefit to the assessee by paying higher amount to its related party. In this regard, reliance is placed on the judgment of CIT vs. Glaxo Smithkline Asia (P.) Ltd. reported in [2010] 195 Taxman 35 (SC) dated 26.10.2010. It is further submitted by Ld. AR that vide Finance Act 2017, the adjustment with respect to specified domestic transactions has been omitted and thus, it should be taken as the said provisions was never existed in the statute. For this reliance is placed on the judgment of Hon’ble Karnataka High Court in the case of Pr. CIT v. Texport Overseas (P.) Ltd. reported in [2020] 114 taxmann.com 568 (Karnataka). Printed from counselvise.com 14 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT Ld. AR further submits that the assessee has entered into a single agreement with Indus Tower and third party passive Infrastructure Providers and thus the overall average rates should be considered for computing the transfer pricing adjustment. However, the TPO has aggregated the transactions for individual category which should not be done. Ld. AR therefore, requested for the deletion of the adjustment so made. 12. On the other hand, the Ld. CIT-DR supported the orders of the lower authorities and requested for confirmation of the same. 13. Heard both the parties and perused the materials available on record. The transfer pricing adjustment towards the specified domestic transactions has already been omitted from the statute by Finance Act, 2017. The Hon’ble Karnataka High Court in the case of CIT vs. Texport Overseas (supra) after further considering the facts has held that the reference made u/s 92CA is invalid and bad in law, since, the provisions with respect to determination of ALP of specified domestic transactions has been omitted from the statute. Relevant observations of the Hon’ble Court as contended in para 5 & 6 or order are reproduced as under: “5. Having heard learned Advocates appearing for parties and on perusal of records in general and order passed w.e.f. 01.04.2019 by Finance Act-2014. As to whether omission would save the acts is an issue which is no Caneswar Wirky Lady Union of India AIR 2000 SC 811 whereunder Apex Court has examined the effect of more res intigra in the light of authoritative pronouncement of Hon'ble Apex Court in the matter of Kolhapur repeal of a statute vir-a-vis deletion/addition of a provision in an enactment and its effect thereof. The import of section 6 of General Clauses Act has also been examined and it came to be held: 37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute- book as completely as if it had never been passed, and the statute must be considered as a law that never existed To this rule, an exception is engrafted by the provisions of section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been Printed from counselvise.com 15 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT granted before the or in special Acts may modify the position. Thus the operation of repeal or it cannot be granted afterwards. nature contato che future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision.\" 6. In fact, Co-ordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act we.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of section 10B. In the matter of General Finance Co. v. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of section 92BA(1) of the Act. Thus, when clause (1) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of section 92B1 and reference made to the order of Transfer Pricing Officer-TPO under section 92CA could be invalid and bad in law.” 14. It is further observed that M/s Indus Tower is declaring profits on regular basis and thus, the payments made by the assessee company are subject to payment of tax in the hands of Indus Tower whereas the assessee is in heavy losses. Therefore, there could be no incentive to assessee, if excess amount is paid to M/s Indus Tower. This view is supported by the judgment of Hon’ble Supreme Court in the case of Glaxo Siithkline Asia (P.) Ltd. wherein the Hon’ble Court has held that entire exercise is Revenue neutral exercise. Thus by respectfully following the aforesaid judgement of hon’ble Karnataka High court in the case of Texport Overseas (supra) and of hon’ble Apex court in the case of Glaxo Smithkline (supra) we delete the addition made on account of specified domestic transactions. 15. Next ground of appeal No.3 is with respect to the disallowance of depreciation of Rs.1047,25,37,853/- in respect of right to use 3G Spectrum. Printed from counselvise.com 16 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 16. Heard both the parties and perused the materials available on record. The assessee paid fee for acquisition of 3G spectrum and treated the same as capital expenditure and claimed deprecation u/s 32 of the Act as Spectrum was included in the ‘intangible asset’ in the financial statement of company. The assessee claimed depreciation as Spectrum fee was not covered u/s 35ABB of the Act which is applicable with respect to amortization of expenditure incurred for obtaining license for telecommunication services. The assessee further claimed that amortization u/s 35AB of the Act has been inserted only by Finance Act 2016 w.e.f. from 01.04.2017, and, therefore, the same is not applicable for the year under consideration. It is further observed that disallowance of identical nature was made in immediately preceding year where the Co-ordinate ‘H’ Bench ITAT, Delhi in ITA No. 836/Del/2019 has deleted the disallowance by following the judgment of Co- ordinate Bench of Mumbai ITAT in group company case of Vodafone India Ltd. for Asst. Years 2011-12 in ITA No.3327/Mum/2018. The relevant observations as contained in para 5.5 of the order are reproduced as under: “5.5 On careful perusal of the above decisions relied upon by the assessee, we find that similar issues was already considered by the ITAT Mumbai in the group case and decided the issues in favour of the assessee. Therefore, respectfully following the decisions and in view of the facts and circumstances of the instant case, we find that this issue is squarely covered in favour of the assesse. Hence, ground No.3 raised by the assessee is allowed.” Admittedly the facts are identical, thus, by respectfully following the aforesaid judgement of the coordinate bench in assessee’s own case, the disallowance made of Rs.10,47,25,37,853/- is deleted. Ground of Appeal No.3 is accordingly allowed. 17. Ground of appeal No. 4 is with respect to disallowance of penalty of Rs. 18,96,32,587/- imposed by the Department of Telecommunication. Printed from counselvise.com 17 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 18. Heard both the parties and considered the material available on record. It is observed that this issue is covered by the decision of the Co-ordinate Bench in assessee’s own case for Asst. Year 2012-13 in ITA No.836/Del/2019 wherein the Co-ordinate Bench had in para 6.1 to 6.5 after considering the factual aspect as deleted the disallowance by following decision of Co-ordinate Bench in group case. The relevant observations are as under: “6.1 Considered the rival submissions and material placer onrecord. Brief fact of the issue is, assessee incurred expenditure on account of penalty paid to DOT for non- compliance of terms of the license agreement entered between the Assessee and DOT, therefore, the assessee submitted before the AO that the said expenditure is on account of contractual liability and not a statutory liability. Hence, the same does not fall under explanation to Section 37(1) of the Act. 6.2 The Id. AO observed that penalty is on account of non-adherence to law and not on account of contractual violation. Accordingly, he disallowed the same in terms of Explanation to section 37(1) of the Act. 6.3 The Id DRP upheld the action of the Id AO. 6.4 At the time of hearing, ld. counsel for the assessee submitted that this issue is covered in favour of the assessee and relied on the following decisions which is decided in cases of assessee's group company:- a. Erstwhile Vodafone East Ltd. v/s. ACIT (2016) 156 ITD 337 (Kolkata Trib.) b. DCIT v/s. Erstwhile Vodafone Essar Digilink Ltd. (2018) 193 TTJ 150 (Delhi Trib.) c. Order dated 17 May 2024 passed by the Tribunal in the case of the erstwhile 'Vodafone India Ltd.' for the A.Y. 2011-12. d. Commissioner of Income tax vs. Enchante Jewellery Ltd. [2014] 220 Taxman 8 (Delhi) (Mag.) [20-11-2012] 6.5 On careful perusal of the above decisions relied upon by the assessee, we find that similar issues are involved in this ground of appeal. Therefore, respectfully following the decisions and in view of the facts and circumstances of the instant case, we find that this issue is squarely covered in favour of the assessee. Hence, ground No. 4 raised by the assessee is allowed.” 19. Since the facts are identical, therefore, by respectfully following the order of Co-ordinate Bench in assessee’s own case for AY 2012-13 disallowance made of Printed from counselvise.com 18 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT Rs.18,96,32,587/- regarding penalty imposed by DOT is deleted. Grounds of appeal No.5 is allowed. 20. Similar disallowance of Rs. 19,19,130/- is made on account of penalty imposed by DOT in respect of Universal Service Obligation Fund which has been challenged by the assessee in Ground of Appeal No.6. 21. Since, the this penalty was also levied on account of non adherence of law and not on account of contractual violation thus is identical in nature with the penalty imposed by DOT which has been deleted while deciding Ground of appeal No.5 of the assessee herein above. As the nature of penalty is identical, therefore, by following the same observations, the penalty levied of Rs. 19, 19130/- is hereby deleted. Ground of appeal No.5 of the assesse is allowed. 22. Ground of Appeal No.6 is with respect to disallowance of depreciation of Rs.8,10,99,490/- claimed on the addition to fixed asset on account of Asset Restoration Cost (“ARC”). 23. Heard both the parties and perused the materials available on record. It is observed that identical issue was came up for consideration before the Co-ordinate Bench in assessee’s own case for AY 2012-13. The Co-ordinate Bench after considering the submissions and the judgment of Hon’ble Delhi High Court dated 11.03.2025 in the case of Vodafone Mobile Services Ltd. vs. DCIT in ITA No.660/2018 for Assessment Year 2009-10 held the said expenses are allowable u/s 37 of the Act and, thus, allowed the deduction. The relevant observations of the Co- ordinate Bench as contained in para 7.2 to 7.6 are reproduced as under: “7.2 The Id. AO rejected the contention of the Assessee and held that there was no legal obligation on the Assessee to incur the ARC and hence, the same is neither Printed from counselvise.com 19 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT allowable u/s 37 of the Act nor it can be capitalized under the provisions of the Act. It also held that the liability to incur ARC is an unascertained liability and that ARC does not form part of 'actual cost' as stipulated u/s 43(1) of the Act. Further it was stated that since the asset is not owned by the Assessee, provisions of Section 32 of the Act do not apply. It also rejected Assessee's alternate plea to allow it under Section 37 of the Act by holding that since the leased premises have been taken on rent for a long time, it cannot be said to be revenue in nature and that since, Assessee has not so far incurred any expense on the account of ARC, it cannot be allowed u/s 37 of the Act. 7.3 The Id DRP upheld AO's action following the decision in DCIT v/s. Erstwhile Vodafone Essar Digilink Ltd. (2018) 193 TT) 150 (Delhi Trib.) 7.4 The Id counsel for the assessee submitted that decision of DCIT v/s. Erstwhile Vodafone Essar Digilink Ltd. (2018) 193 TTJ 150 (Delhi Trib.) was appealed by the Assessee in the Hon'ble Delhi High Court vide ITA No. 660/2018 titled Vodafone Mobile Services Ltd. v. DCIT /(Assessment Year 2009-10) and the Hon'ble High Court has, vide order dated 11.03.2025, held that the said expenses are allowable u/s 37 of the Act. Therefore, this issue stands covered in favour of the assessee by the decision of the Tribunal in the assessee'sgroup company's case i.e. erstwhile 'Vodafone India Limited' has set-aside the issue to the files of the Assessing Officer vide: a. Order dated 16 March 2023 for the A.Y. 2006-07 b. Order dated 08 May 2023 for the A.Y. 2008-09 C. Order dated 08 November 2023 for the A.Y. 2009-10 7.5 The Id DR vehemently relied upon the decision of the Id AO and prayed for confirmation of the addition. 7.6 On careful perusal of the above decisions relied upon by the assessee, we find that similar issues are involved in this ground of appeal of the assessee. Therefore, respectfully following the decisions and in view of the facts and circumstances of the instant case, we find that this issue is squarely covered in favour of the assessee. Hence, ground No. 5 raised by the assessee is allowed.” Since, the facts are identical, therefore, the assessee is eligible for deduction u/s 37(1) of the Act and, therefore, the AO is directed to allow the expenditure, against the deprecation claimed by the assessee. Accordingly, the deprecation claimed by the assessee is withdrawn and AO is directed to verify the expenditure and allowed the same as per section 37 of the Act. This ground of appeal is thus, allowed for statistical purposes. Printed from counselvise.com 20 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 24. Ground of appeal No.8 is with respect to disallowance of Rs. 68,10,57,201/- made by AO in respect of liabilities written back. 25. Heard both the parties and perused the materials available on record. Before us, ld. AR fairly admitted that the issue in hand with respect to the liabilities written back pertaining to reversal of amount payable to ‘Motorala Inc.’ towards supply of capital equipment during the years 2004-2008 has already been decided against assessee, in assessee’s own case for AY 2012-13 where the Co-ordinate Bench in ITA No.8361/Del/2009 after considering the facts has dismissed the claim of the assessee by making following observations in Para 8.1 to 8.6 of the order. “8.6 We observed from the submissions that the liability pertains to the supply of capital equipment during the years 2004 and 2008. It was agreed between the parties that the liability shall no longer be payable, therefore, the assessee written back the same. In our considered view, the assessee had purchased the capital equipment and capitalized the same, also utilized the same for the purpose of business during the period 2004 to 2008. Once the assessee recognizes the assets in their books, it becomes business assets. Therefore, as per the provisions of section 28(iv) of the Act, this liability is arising from business. Therefore, the submission of the Ld. AR is not acceptable. With regard to reliance in the case law Mahindra & Mahindra Ltd. (supra), the facts are, the loan was waived for acquiring the capital assets. The facts are distinguishable to the facts of the present case, in the given case, the assets were purchased and capitalized, this will not take the character of loan transactions rather it is business liability. Therefore, the ground raised by the assessee is dismissed.” Since, the facts are identical as admitted by both the parties, therefore by respectfully following the decision of the Co-ordinate Bench in preceding assessment year, this issue is decided against the assessee. Ground of appeal No.7, is thus, dismissed. 26. Ground of Appeal No. 8 is with respect to the disallowance of Rs. 857,43,86,306/- made towards the discount extended to pre-paid distributors by applying the provisions of section 40(a)(ia) of the Act. Printed from counselvise.com 21 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 27. Heard both the parties and perused the materials available on record. This issue is squarely covered in favour of the assessee by the judgement of Hon’ble Supreme Court in the case of Bharti Cellular Ltd. reported in [2024] 461 ITR 247 (SC). Further following the order of Bharti Celluar, the Co-ordinate Bench in assessee’s own case for AY 2012-13 in ITA No.8361/Del/ 2019 has deleted the disallowance. Since, the Hon’ble Supreme Court has held that discount given to pre- paid distributors is not commission, therefore, provisions of section 194H are not applicable. Thus by respectfully following the judgment of hon’ble Supreme Court in the case of Bharti Cellular Ltd. and further in assesse’s own case for AY 2012- 13, we decided this issue in favour of the assessee and deleted the disallowance made. Ground of appeal No.8 of assessee is allowed. 28. Ground of Appeal No.9 is with respect to disallowance of Rs.899,73,07,477/- made on account of capitalization of license fee claimed u/s 37(1) of the Act as expenditure. 29. Heard the parties and perused the materials available on record. Claim of the assessee is that license fee paid is Revenue expenditure as it was not paid for obtaining the license but to maintain the license obtained. However, the issue has been settled by the Hon’ble Supreme Court in the case of the CIT vs. Bharti Hexacom Ltd. reported in [2023] 458 ITR 593 wherein the Hon’ble Supreme Court has held the same as capital in nature and allowed amortization in accordance with section 35ABB of the Act. Further, the Co-ordinate Bench of the Tribunal in the case of ACIT vs. Vodafone Ltd. in ITA No.7658 and 8709/Del/2018has followed the decisions of Hon’ble Supreme Court in the case of Bharti Hexacom Ltd. (supra). Thus by respectfully following the same, we direct the AO to verify the working of Printed from counselvise.com 22 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT the assessee and allow the amortization in accordance with provisions of section 35ABB of the Act. Thus, this ground of appeal of the assesse is allowed for statistical purposes. 30. Ground of Appeal No.10 is with respect the disallowance of Rs.107,15,34,153/- paid to IBM and claimed as expenditure. 31. Heard the parties at length and perused the material available on record. The issue is identical to immediately preceding assessment year wherein the Co-ordinate Bench by following judgment of coordinate bench of Delhi ITAT in the case of Minda Corporation Ltd. vs. DCIT reported in [2016] 69 taxmann.com 317 dated 31.07.2015 (Del. Trib.) hold that finance lease fee paid by the assessee on the asset acquired from IBM as Revenue expenditure. The relevant observations of the Co- ordinate Bench as contained in para 12.1 to 12.6 of the order are reproduced as under: “12.1 Considered the rival submissions and material placed on record. Brief fact of the issue is, assessee had inter-alia claimed a deduction of Rs.96,71,96,490/- with respect to the service charges for provision of services and hardware paid to IBM by way of the following description:  Amount of Rs. 46,97,35,758/- was described as 'Amount paid on IBM Leased Assets which is capitalized in books for accounting purposes, however for income tax purposes, it is not capitalized in block of asset; recurring charges towards use of hardware; (28%) and  Amount of Rs. 49,74,60,732/- was described as 'Service charges paid to IBM (72%) considered as finance lease in IGAAP' towards IT support services.” 12.2 The Id AO proposed disallowance only of Rs. 49,74,60,732/-and held that the same should be amortized over the period of contract of 5 years and thereby allowed a deduction of Rs. 9,94,92,146/- (1/5 of Rs. 49,74,60,732/-), he continued to allow deduction Rs. 46,97,23,758/- as revenue expenditure. Before the DRP, AO submitted that expenditure with regard to 28% of the payment to IBM, amounting to Rs. 46,97,35,758/-, should also be disallowed and capitalized. AO categorized payments to IBM as one related to IT services and one related to hardware- both of which were to be capitalized. In the final assessment order, it disallowed a total of Rs. 96,71,96,490/- and made addition of Rs.77,37.57,132/-, after allowing deduction of amortized amount of Rs. 19,34,39.298/-. Printed from counselvise.com 23 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 12.3 The Id DRP allowed the claim of the assessee. However, it still directed AO to treat it as capital expenditure-holding that AO has not examined the audited financials properly, which is contrary to its own finding that this amount should be allowed. The Id. DRP directed AO to treat it as capital expenditure-holding that AO has not examined the audited financials properly. 12.4 However, the DRP held that the entire amount of Rs. 96,71,96,490/- should be considered as capital in nature and should be amortized over a period of 5 years. Pursuant thereto, the Assessing Officer in terms of the impugned final Assessment Order, allowed a deduction of Rs. 19,34,39,298/- (1/5* of Rs. 96,71,96,490/-) and disallowed a sum of Rs. 77,37,57,192/-). 12.5 The Id counsel for the assessee submitted that the assessee submits that the difference in the description of the two items merely represents different description adopted by the erstwhile merging entities. There is no difference in the nature of the aforementioned expenditure. This expenditure represents payments made towards the use of hardware supplied by IBM which were capitalized in the Assessee's books of accounts in accordance with Accounting Standard 19 on leases. It is imperative to note that IBM continued to be the owner of the hardware provided for use to the Assessee and the ownership of such assets was not transferred to the Assessee. For all practical purposes, IBM was exercising all ownership rights on the assets. For the purpose of computing income as per the provisions of the Act, since these charges were towards the use of hardware owned by IBM and used by the assessee for its business operations, the assessee claimed a deduction of the aforesaid expenditure. It is submitted that while this expenditure has been classified as 'finance lease' from an accounting perspective, since the hardware supplied by IBM during the tenure of the contract continued to be owned by IBM and the amount capitalized essentially represents charges incurred by the assessee for usage of the hardware for the year under consideration and hence ought to be allowed as a deduction while computing its business income. Mere classification of a payment as 'finance lease' from an accounting perspective is not determinative of the tax treatment of such payment. Reliance in this regard is placed on the unreported decision of the Delhi High Court in the case of CIT Vs. Bharti Hexacom Ltd. (ITA No. 799 of 2016 dated 22 November 2016) wherein on identical facts the High Court affirmed the decision of the Tribunal with respect to the deduction claimed by the assessee for payment made to IBM and held that the treatment of a particular transaction in the books of accounts is inconclusive as of its true nature which has to be adjudged on an independent consideration by the Assessing Officer. In this case too, the High Court affirmed the findings given by the Tribunal that the substance of the transaction clearly suggest that the beneficial ownership remained with IBM and not the assessee and hence it has rightly claimed the entire lease rent paid to IBM as a revenue expenditure. Reliance in this regard is also placed on the decision of the Delhi Bench of the Tribunal in the case of Minda Corporation Ltd. vs. DCIT, Circle 6(1), New Delhi (2016) 69 taxmann.com 317 (Delhi Tribunal) wherein too it has been held that lease rentals paid by the assessee in case of a finance lease is allowable as revenue expenditure. Similar view has been taken by the Rajasthan High Court in the case of Rajshree Roadways v/s. UOI (2003) 129 Taxman 663 (Rajasthan). Para 16- Page no 483-487 of CLC1. 12.6 The Id DR vehemently relied upon the orders of the lower authorities. Printed from counselvise.com 24 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 12.7 After considering the submissions and factual matrix on record, we observed that the assessee no doubt pays lease rent as finance lease and accordingly capitalized the same by following the AS 19, we observed that the various precedents of this issue indicate that as far as Income Tax is concerned, the lease payments are considered as revenue expenditure whether they are operating or finance lease, they are allowed as revenue expenditure. We observe from the decision of coordinate bench in the case of Minda Corporation (supra), the bench had analyzed the issue under consideration in the right perspective and decided the issue as under: \"5.1 After having heard rival submissions, we are of the view that AS-19 on accounting for \"Leases\" issued by the ICAI is only applicable for accounting the lease transaction in the books of accounts. It is a settled law that treatment in the books of account is not determinative of liability towards income-tax for the purpose of the Act. The liability under the Act is governed by provisions of the Act and is not dependent on the treatment followed for the same in the books of accounts. For above proposition, I reference is made to Sutlej Cotton Mills Ltd. vs. CIT: 116 ITR 1 (SC) and Kedarnath Jute Mfg. Co. Ltd. vs. CIT: 82 ITR 363 (SC). AS-9 on accounting for leases classifies lease transactions for accounting purposes as under: (1) Finance Lease (ii) Operating Lease 5.2 Finance Lease, in AS-19, is described as a lease that transfers substantially all the risks and rewards in respect of ownership of an asset, title may or may not be transferred under such lease. An operating lease, on the other hand, is described as a lease other than a finance lease. The aforesaid Accounting Standard provides that under the finance lease, the lessee should recognize the asset in its books and should charge depreciation on the same. In the case of operating lease, the Accounting Standard provides that the lessee should recognize the lease payments as an expense in the profit and loss account and the lessor should recognize the asset given on lease and charge depreciation in respect of the same. The aforesaid distinction between finance lease and operating lease is not recognized under the Act. Under the provisions of the Act, depreciation is admissible under section 32 of the Act only to the 'owner' of the asset. Lease charges paid for the use of the asset, without acquiring any ownership rights in the same, are allowable as revenue expenditure under section 37 of the Act. 5.3 The Circular No.2 of 2001 dated 09.02.2001 (247 ITR (SL) 53) issued by the Central Board of Direct Taxes (CBDT) has opined that the aforesaid accounting standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The relevant excerpt of the said Circular are reproduced herein below: \"Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee. Printed from counselvise.com 25 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the Act.\" 5.4 Thus, the CBDT's view on the treatment of finance lease is not aligned to the accountant's perspective of a finance lease. For accounting purposes, although the lessee shows the asset in his balance sheet, charges depreciation in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is allowed to the legal owner of the asset. Furthermore, not only the interest/finance/ other charges component in the lease payments, but the entire lease payments are treated as a deductible expense and no deduction is allowed for the impairment provision. In the hands of the lessor, the entire 'lease rentals' and not merely the finance charges component thereof is taxed as income. The lessor, who is the legal owner of the asset, is entitled to claim depreciation under the provisions of the Act. 5.5. The aforesaid legal position finds support from the decision of the Hon'ble Supreme Court in the case of ICDS Ltd. vs. CIT350 ITR 527, wherein the Hon'ble Court held that the lessor is the owner of the leased property in case of finance lease, entitled to depreciation of the same. The pertinent observation of the Hon'ble Court is reproduced hereunder: The revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding one per cent of the original cost of the vehicle, making the assessee in effect a financier. However the revenue's contention cannot be accepted. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eye of law. A scrutiny of the sale agreement cannot be the basis raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement itself, which clearly point in favour of the assessee\" 5.6 The Hon'ble Rajasthan High Court in the case of Rajshree Roadways vs. Union of India [2003] 129 Taxman 663 upheld the assessee's claim of allow ability of lease rentals paid as lessee of the Trucks as a revenue expenditure under section 37(1) of the Act, even though the lease was categorized as finance lease. 5.7 The other relevant judgments are as follows:- (i) The decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Banswara Synthetic Ltd. 216 Taxman 113, wherein the High Court while following its earlier decision in the case of Rajshree Roadways (supra) observed that lease rentals paid by an assessee in case of a finance lease isallowable as an revenue expenditure under section 37(1) of the Act. Printed from counselvise.com 26 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT (ii) The decision of the Karnataka High Court in the case of Banashankari Medical & Oncology Research Centre Ltd [2009] 316 ITR 407 is also to the same effect. In that case, the assessee had taken certain equipments on lease for which it had paid a certain sum as deposit which was to be adjusted against the lease rentals and besides that, the assessee was also paying finance/interest charges to the owner of equipment. The entire amount of lease rentals paid during the year, was claimed by the assessee as revenue expenditure under section 37(1) of the Act, which was upheld by the High I Court. (iii) The decision of the Jharkhand High Court in the case of CIT vs. Tata Robins Fraser Ltd 253 CTR 227, wherein it was held that a lease agreement providing lessee a right to purchase an asset is not Hire Purchase Agreement until such right is exercised by the lessee. 5.8 In view of the aforesaid reasoning and the judicial precedents, we hold that disallowance of Rs.9,29,592/- is not justified on facts and circumstances of the case. It is ordered accordingly.\" Respectfully, following the same, we direct the AO to allow the finance lease paid by the assessee on the assets acquired from IBM as revenue expenditure. In the result, ground raised by the assessee is allowed.” Admittedly, the facts are identical, thus by respectfully following the decision of the Co-ordinate Bench in assessee’s own case in preceding year (supra), we allowed this ground of appeal of the assesse. 32. Next ground of appeal No.11 is with respect to the disallowance of Rs. 619,21,83,223/- on account of capitalization of royalty. 33. Heard the parties and perused the materials available on record. It is observed that identical issue was raised in immediately preceding year where disallowance of similar nature was made towards the WPC royalty expenses. The Co-ordinate Bench in ITA No.8361/Del/2019 by following the judgment of Hon’ble Delhi High Court in the case of Vodafone West Limited reported in [2009] 221 CTR 305 (Delhi), has deleted the same. The relevant observations of the Co-ordinate as contained in para 13.1. to 13.6 are as under: Printed from counselvise.com 27 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT “13.1 Brief facts of the Issue is, the assessee in its P & L A/c had claimed Royalty-WPC expenses amounting to Rs. 791,56,14,811/-, The assessee was asked to furnish the details on the basis of these royalty expenses and also to justify such claim. In response the assessee vide its reply dated 24.01.2014 stated that Royalty-WPC expenses booked in the profit and loss account pertain to spectrum charges paid to DOT on quarterly basis, as a percentage of revenue. Every telecom operator in India, in addition to the initial operator license fee, is required to pay GSM spectrum royalty for the usage of spectrum and microwave royalty for given microwave frequency usage on a regular basis, year on year. It was submitted by the assessee before the AO that this fee, incurred by the assessee, is in the nature of a regulatory payment which is necessarily to be incurred on a regular basis for the conduct of its business. Such expenses have been claimed as revenue expenditure by the assessee in the subject assessment year. 13.2 The Id AO observed that as per the submissions made by the assessee, an amount of Rs. WPC-royalty fee of Rs. 791,56,14,811/-has been paid during the subject year. After allowing depreciation @ 25% amounting to Rs. 197,89,03,703/- the remaining amount of Rs.5,93,67,11,109/- (i.e. 791,56,14,811/-less 197,89,03,703) is hereby disallowed and added to the income of the assessee. In addition to this amount, a deduction in respect of amounts similarly treated as capital expenditure in earlier years should be allowed in this year. However, given that the CIT(A)/ DRP have given relief in past years on this issue, no deduction is required to be allowed in this order for WPC- Royalty expense capitalized in the past years. Directions of DRP \"Considering the above facts and the arguments of the AO, and the fact that, in this case, as per status of appellate proceedings in assessee's case in different assessment years submitted before the DRP, Department's SLP/appeal against the order of the Hon'ble Delhi High Court is pending before the Hon'ble Supreme Court. Hence, the action of AO is upheld. This ground is accordingly rejected\" 13.3 Since the DRP-II has not made any variation in the addition as proposed in the draft assessment order, Rs.5,93,67,11,109/- is made to the total income on account of an addition of disallowance of WPC-Royalty expenses. I am satisfied that the assessee has furnish inaccurate particulars thereby concealing the particulars of its income anc rendering itself liable for initiation of penalty proceedings u/s 271(1)(c) read with section 274 of the IT Act, 1961. The same is being initiated separately. 13.4 The Id DRP did not make any variation in the addition in the draft assessment order, however, an addition 5,93,67,11,109/- was made to the total income on account of disallowance of WPC Royalty Expenses. 13.5 The Id counsel for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of Vodafone West Limited' (earlier known as Fascel Limited') by the Hon'ble Delhi High Court reported in (2009) 221 CTR 305 Printed from counselvise.com 28 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT (Delhi). This issue has also been decided in favour in the assessee own case by the Hon'ble Delhi High Court vide an Order dated 07 November 2016 for the A.Y. 2008- 09. 13.6 Considering the above submission and the decisions relied upon by the Id counsel for the assessee, we respectfully following the decision of the Hon'ble Jurisdictional High Court and also the decision of the coordinate bench, we are inclined to allow ground No. 11 of the assessee.” Admittedly, facts are identical, thus by respectfully following the judgment of the Co-ordinate Bench in assessee’ own case for preceding assessment years, we allow this ground of appeal of the assessee. 34. The ground No.13 in grating the short credit of taxes deducted at source. 35. Heard the parties and perused the material available on record. Claim of the assessee is that AO has allowed short credit of the TDS. On the other hand, revenue claimed that TDS as per 26AS statement was allowed to assessee. After considering the facts, we direct the AO to verify the claim of the assessee viz. a. viz income offered and the allowed the credit in accordance with law. With these directions this ground of appeal of the assessee is allowed for statistical purposes. 36. Ground of appeal No.14 is with respect to the payment of interest on refund u/s 244A of the Act. 37. Heard the parties at length. The AO is directed to verify the amount of interest payable on the refund in accordance with law and grant the interest as per law. With this direction, this ground of appeal is allowed for statistical purposes. 38. Ground of appeal No.15 is regarding initiation of penalty proceeding u/s 271(1)(c) of the Act which is premature in nature and thus, dismissed. Printed from counselvise.com 29 ITA No.8362 /Del/2019 Vodafone Idea Limited vs. ACIT 39. In the result, the appeal of the Revenue thus partly allowed. Order is pronounced in the Open Court on 18.03.2026. Sd/- Sd/- S (YOGESH KUMAR U.S.) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18.03.2026 *PK, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "