VODAFONE DIGILINK LIMITED,NEW DELHI vs. DEPUTY COMMISSIONER OF INCOME-TAX, NEW DELHI

order \n\nShri Ketan Ved & Shri Ninad Patade\nShri Pankaj Kumar\n16.07.2025\n14.10.2025\n\nO R D E R\n\nPer Rahul Chaudhary, Judicial Member:\n1. These are Cross-Appeals pertaining to Assessment Year 2010-2011\narising from the Final Assessment Order, dated 27/01/2015, passed\nby the Assessing Officer under Section 144C(1) read with Section\n143(3) of the Income Tax Act, 1961 [hereinafter referred to as 'the\nAct'], as per the directions issued by Dispute Resolution Panel –II,\nNew Delhi [for short 'DRP'], on 18/12/2014 under Section 144C(5) of\nthe Act.\n\n1.

1. During the assessment proceedings, the Assessing Officer noted that\nthe Assessee had claimed deduction of INR.12,93,91,683/- as\ncommission expenses paid to distributors. On being called upon to\nfurnish details of commission paid to top 25 distributors, the Assessee\nsubmitted such details. In support of the deduction, it was submitted\nthat it was providing telecommunication services through two models\nviz., pre-paid model and post-paid model. The Assessee claimed to\nhave paid commission to its agents only under the post-paid model\nfor maintaining network of distributors over huge geographical area.\nThe Assessee furnished Form No.16A in support of payment of\ncommission to top 25 parties. However, the Assessing Officer,\nfollowing the view taken in the preceding years, proposed\ndisallowance of INR.12,93,91,683/- being 10% of the commission\nexpense on ad-hoc basis.\n\n\n Assessment Year 2010-2011\n3\n3.

2. The Assessee filed objection before the DRP against the aforesaid\nproposed disallowance. The DRP deleted the disallowance by relying\nupon the order passed by the Tribunal in the case of the Assessee for\nthe Assessment Year 2009-2010 [ITA Nos.1169&1950/Del/2014,\ndated 14/03/2018, titled Deputy Commissioner of Income\nTax, Circle-17(1), New Delhi vs Vodafone Essar Digilink Ltd.\nreported in [2018] 92 taxmann.com 234 (Delhi)] and therefore,\nthe Assessing Officer passed the Final Assessment Order without\nmaking any addition/disallowance in respect of the aforesaid\ncommission expenses.\n\n3.

3. Being aggrieved, the Revenue is now in appeal before this Tribunal on\nthis issue.\n\n3.

4. We have considered the rival submissions and have perused the\nmaterial on record.\n\n3.

5. We find that the DRP had followed the decision of the Tribunal in the\ncase of the Assessee for the immediate preceding Assessment Year\n2009-2010 [ITA No.1950/Del/2014, dated 14/03/2018] (Supra). We\nhave perused the aforesaid decision of the Tribunal and we find that\nin identical facts and circumstances, the ad-hoc disallowance of 10%\nof commission paid to agents proposed by the Assessing Officer for\nthe Assessment Year 2009-2010 was not accepted by the DRP and\nthe DRP had allowed the objection raised by the Assessee by following\nthe decision of Tribunal in the case of Vodafone Mobile Services Ltd.\n(a sister concern of the Assessee) for the Assessment Years 2000-\n2001 to 2008-2009 whereby similar disallowances were deleted by\nthe Tribunal. The relevant extract of the decision of the Co-ordinate\nTribunal passed in the case of the Assessee for the Assessment Year\n2009-2010 [ITA No.1950/Del/2014, dated 14/03/2018] (Supra) reads\nas under:\n\n\n Assessment Year 2010-2011\n4\n“3. First ground of the Revenue's appeal is against the deletion of\naddition of Rs.14,23,29,976/- on account of commission.\n\n4. Briefly stated, the facts of the case are that the assessee is\nengaged in the business of providing cellular mobile telephony\nservices in the telecom circles of Rajasthan, Haryana and Uttar\nPradesh (East). It claimed expenditure of Rs.1,42,32,99,755/-\nas commission in its Profit & Loss Account. On being called upon\nto furnish details of commission paid to top 25 distributors, the\nassessee submitted such details. In support of the deduction, it\nwas submitted that it was providing telecommunication services\nthrough two models viz., pre-paid model and post-paid model.\nThe assessee claimed to have paid commission to its agents only\nunder the post-paid model. The assessee furnished Form\nNo.16As in support of payment of commission to top 25 parties.\nFollowing the view taken in the preceding years, the AO\ndisallowed 10% of the commission expense on ad hoc basis,\nwhich resulted into disallowance amounting to Rs.\n14,23,29,976/-. The assessee approached the Dispute\nResolution Panel (DRP) against the addition in the draft order.\nThe DRP got convinced with the assessee's contention and,\nrelying on the order passed for the A.Ys.2000-01 to 2008-09\ndeleting similar disallowance in the case of Vodafone Mobile\nServices Ltd., a sister concern of the assessee, deleted the\naddition. The Revenue is aggrieved against the deletion.\n\n5. We have heard both the sides and perused the relevant material\non record. It is observed that the assessee paid commission of\nRs.142.32 crore to the agents in the post-paid segment of its\nbusiness. The assessee furnished necessary details and also\nForm no.16As in respect of major payments. Despite this, the\nAO chose to make an ad hoc disallowance of 10% of the total\ncommission payment. It is observed that the ld. DRP deleted the\naddition by relying on the order passed for the A.Ys.2000-01 to\n2008-09 in the case of sister concern of the assessee. The\nRevenue assailed the said order passed by the first appellate\nauthority before the Tribunal. In Dy. CIT v. Vodafone Mobile\nServices Ltd. [2017] 83 taxmann.com 7 (Delhi - Trib.), the\nTribunal has upheld the deletion of addition. Relevant discussion\nhas been made and the conclusion drawn by the Tribunal in para\n9 of its order, in which deletion of such ad hoc disallowance has\nbeen upheld. No distinguishing factual feature of the assessee\nvis-a-vis its sister concern, namely, Vodafone Mobile Services\nLtd. was placed on record by the ld. DR. Respectfully following\nthe precedent, we uphold the impugned order in deleting the\ndisallowance of commission amounting to Rs.14.23 crore.”\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n5\n3.

6. The Revenue has failed to bring any material on record to distinguish\nthe above decision of the Tribunal either on facts or in law. Therefore,\nrespectfully following the above decision of the Tribunal, we decline to\ninterfere with the directions issued by the DRP and the Final\nAssessment Order passed by the Assessing Officer on this issue.\nAccordingly, Ground No.I raised by the Revenue is dismissed.\n\nGround No. II\n4. The Ground No. II raised by the Revenue reads as under:\n\n“II. On the facts and in the circumstances of the case, the DRP-II\nerred in directing to delete the addition of Rs.1,40,33,05,390/-\non account of capitalization of Royalty – WPC expenses payable\nto DOT.”\n\n4.

1. By way of Ground No. II the Revenue has challenged the action of\nDRP to treat Royalty–WPC expenses of INR.1,40,33,05,390/- payable\nby the Assessee to Department of Telecom (DOT) as revenue expense\nand direction given by the DRP to the Assessing Officer to allow\ndeduction for the same.\n\n4.

2. During the assessment proceedings the Assessing Officer noted that\nthe Assessee had debited to the Profit & Loss Account Royalty-WPC\nExpenses amounting to INR.140,33,05,390/-. The Assessee was\nasked to furnish the relevant details and to justify claim for deduction\nof the aforesaid expenses. In response the Assessee, vide Reply dated\n14/02/2014, stated that Royalty-WPC expenses booked in the Profit &\nLoss Account pertained to spectrum charges paid to DOT on quarterly\nbasis as a percentage of revenue. Every telecom operator in India, in\naddition to the initial operator license fee, is required to pay GSM\nspectrum royalty for the usage of spectrum and microwave royalty for\ngiven microwave frequency usage on a regular basis. This fee,\nincurred by the Assessee, is in the nature of a regulatory payment\nwhich is necessarily to be incurred on a regular basis for the conduct\nof its business. Such expenses were claimed as revenue expenditure\nby the Assessee for the Assessment Year 2010-2011. The Assessee\nfurther submitted that the charges cannot be said to be in the nature\nof a capital expenditure since no enduring benefit can be said to be\naccruing to the Assessee on this account. The said payments were in\nthe form of a recurring charge being incurred by the Assessee on a\nquarterly basis. The government has levied this charge for the\npurpose of carrying on the telecom operations and not for acquisition\nof any right. The same accordingly acquired the character of revenue\nexpenditure. The Assessee also contended that it is a well settled\nprinciple of law that periodic payments particularly those which are\nbased on turnover of profit and which are not related to any\npredetermined lump sum amount are deductible as revenue\nexpenditure, even if they are made for the initiation of a business or\nrepresent consideration for acquiring a capital asset or an advantage\nof enduring benefit to the business. The Assessee contended that this\nissue was squarely supported by the decision of the Hon’ble Delhi\nHigh Court in the case of Commissioner of Income Tax Vs. Fascal\nLimited [017 DTR 306] 2009 whereby a decision of Delhi Bench of the\nTribunal allowing deduction for royalty-WPC expenses as revenue\nexpenditure was confirmed by the Hon’ble High Court. However, the\nAssessing Officer was not convinced with the submissions made by the\nAssessee and proceeded to make the disallowance holding as\nunder:\n\n“Thus, this royalty is being paid in order get the right to use the\nspectrum and is therefore clearly an expenditure of a capital\nnature. This right is in the nature of an intangible asset which\nwould bring enduring benefit to the assessee and is therefore\ncapitalized. After allowing depreciation @ 25% amounting to\nRs.35,08,26,348/- the remaining amount of Rs.105,24,79,043/-\n(i.e. Rs.140,33,05,390/- - Rs.35,08,26,348/-) is hereby\ndisallowed and added to the income of the assessee. In addition\nto this amount, a deduction amounting to Rs.19,68,66,057/- is\nallowed in respect of amounts similarly treated as capital\n\n\n Assessment Year 2010-2011\n6\nexpenditure in earlier years. Though Hon’ble Delhi High Court has\ndecided the issue in the favour of the assessee, the department\nis contesting this issue further. Accordingly, net addition of\nRs.85,56,12,985/- is proposed to be disallowed.”\n(Emphasis Supplied)\n\nThus, the Assessing Officer proposed net disallowance of\nINR.85,56,12,985/- in respect of royalty-WPC expenses in the Draft\nAssessment Order.\n\n4.

3. Being aggrieved, the Assessee filed objections before the DRP which\nwere allowed by the DRP. Deciding the issue in favour of the\nAssessee, the DRP concluded as under:\n\n“8.1 The assessee has further submitted in this ground of objection\n(objection no. 5) that the AO has erred in proposing to capitalize\n'Royalty -WPC expense of Rs.140,33,05,390/- payable to DOT\nand in treating the same as a consideration for acquisition of\nintangible assets. The assessee has submitted that the license\nagreement entered into by the assessee with the DOT requires\nthe assessee to pay Royalty-WPC charges for the usage of\nspectrum and microwave frequency on a quarterly basis, as a\npercentage adjusted gross revenue & the said fee is in the\nnature of a regulatory payment which is necessarily required\nto be incurred on a regular basis for the conduct of business.\nFurther, this issue has been settled by the jurisdiction of Delhi\nHigh Court in the case of CIT Tax V Fascel Ltd. (Delhi) (14 DTR\n306), where in the Hon'ble Court has held that such royalty WPC\ncharges are to be allowed as revenue expenditure. The DRP in\nthe immediately preceding year i.e. A.Y. 2009-10, has directed\nthe AO to delete such disallowance.\n\n8.2 Considering the submission of the assessee, the AD is directed to\ndelete the said addition, on account of capitalization of Royalty -\nWPC expense, payable to the DOT.” (Emphasis Supplied)\n\n4.

4. Accordingly, the Assessing Officer passed the Final Assessment Order\nwithout making any disallowance in respect of royalty – WPC\nexpenses of INR.1,40,33,05,390/- payable by the Assessee to DOT.\n\n4.

5. Being aggrieved, the Revenue has preferred the present appeal before\n\n\n Assessment Year 2010-2011\n7\nthe Tribunal challenging the Final Assessment Order passed by the\nAssessing Officer as per the directions of DRP whereby objections filed\nby the Assessee against the proposed disallowance of\nINR.85,56,12,985/- were allowed.\n\n4.

6. The Learned Departmental Representative submitted that the Royalty\n– WPC Expenses were capital in nature. Reliance was placed in this\nregard upon the judgment of the Hon’ble Supreme Court in the case\nof Commissioner of Income Tax Vs. Bharti Hexacom Ltd. [2023] 155\ntaxmann.com 322 (SC), dated 16/10/2023.\n\n4.

7. Per Contra it was contended on behalf of the Assessee that in the case\nof Bharti Hexacom Ltd. (Supra), it was held by the Hon’ble Supreme\nCourt that the entry fee as well as variable license fee payable to\nDepartment of Telecom were capital in nature. Whereas fee under\nconsideration is payable to the Wireless Planning and Co-ordination\n(‘WPC’) Wing of the Ministry of Communications. The said fee was in\nthe nature of a regulatory payment which is necessarily to be incurred\non a regular basis for the conduct of its business and it is booked as\nexpenses towards have been claimed as revenue expenditure by the\nAssessee in the year under consideration. This issue under\nconsideration i.e. whether it is capital or revenue in nature, has been\ndecided in favour of the Assessee in its erstwhile group entity case i.e.\nCIT Vs. Fascel Ltd. (‘Vodafone West Limited’) (2009) 221 CTR 305\n(Delhi). It was vehemently contended that the issue under\nconsideration was different from the one decided by the Hon’ble\nSupreme Court in the case of Bharti Hexacom Ltd. (supra). It was\nsubmitted that the Hon’ble Supreme Court vide its Order dated\n30/09/2024 (Diary No.35868 of 2024 in CA No.153 of 2021) has de-\ntagged the Civil appeal involving identical issue from the rest of the\nappeals disposed off on 16/10/2023 in the case of Bharti Hexacom Ltd\n(Supra) and the matter was restored to the file of the Supreme Court\n\n\n Assessment Year 2010-2011\n8\nfor the purpose of considering the issue of nature of royalty-WPC\nexpenses. Reliance was also placed upon the decision of the Tribunal\nin the case of Assessee for the immediately preceding Assessment\nYear 2009-2010 to support claim for deduction of Royalty-WPC\nExpenses as revenue expenses.\n\n4.

8. Having perused the material on record, we find merit in the above\nsubmissions advanced on behalf of the Assessee. We find that vide\nOrder, dated 30/09/2024, passed by the Hon’ble Supreme Court in\nMiscellaneous Application (Diary No.35868 of 2024 in Civil Appeal\nNo.153 of 2021) in the case of Principal Commissioner of Income Tax\nVs. Vodafone Idea Ltd. (earlier known as Vodafone Mobile Services\nLtd.), the Hon’ble Supreme Court has observed as under:\n\n“2. An application has been filed for recalling the judgment and\nrestoring by de-linking the Civil Appeal No.153/2021 from the\nbatch of Civil Appeal No.11128/2016 and connected cases (CIT,\nDelhi Vs. Bharti Hexacom Ltd.) disposed of by this Court on\n16.10.2023 on the question of allowability of the varied license\nfee as a capital on revenue expenditure wherein the revenue\nappeals were allowed.\n\n3. Learned senior counsel Shri Percy Pardiwala submitted that in so\nfar as the aforesaid issue is concerned, the matter has attained\nfinality in view of the judgment passed by this court on\n16.10.2023. However, as far as this assessee is concerned, the\nissue with regard to whether payment of royalty to the Wireless\nPlanning Commission (WPC) was deductible as revenue\nexpenditure or not is a question which was not considered nor\nanswered in the aforesaid common judgment dated 16.10.2023.\nDue to inadvertence, the said issue was not at all argued by the\nassessee herein or revenue.\n\n4. In the circumstances, for the purpose of considering the\naforesaid issue regarding nature of royalty payment, this appeal\nmay be segregated from the rest of the civil appeals which were\ndisposed of on 16.10.2023.\n\n5. Learned Additional Solicitor General submitted that insofar as\nthe issue regarding varied license fee is concerned, insofar as\n\n\n Assessment Year 2010-2011\n9\nthis assessee also, the matter has attained finality. However,\nonly for the purpose of considering the royalty expense for\nspectrum usage to be treated as revenue or capital expenditure,\nthe mater may be de-tagged.\n\n6. Considering the aforesaid submission we observe insofar as\nthe allowability of a varied license fee as capital expenditure is\nconcerned, the said issue is covered insofar as this assessee is\nconcerned by the judgment dated 16.10.2023 referred to above.\nHowever, this appeal is detagged from the rest of the appeals\ndisposed of on 16.10.2023 and restored on the file of this Court\nfor the purpose of considering the issue regarding the nature of\nroyalty payment made by the appellant herein.\n\nIn the circumstances, the office is directed to de-tag this appeal\n(C.A. No.153/2021) from the rest of the civil appeals disposed of\non 16.10.2023 as the same is restored on the file of this court\nfor the purpose of the considering the same on the aforesaid\nissue only.\n\n7. The miscellaneous application is consequently allowed and\ndisposed of in the aforesaid terms.” (Emphasis Supplied)\n\n4.

9. On the perusal of above order, it becomes clear that both the sides\nhad agreed that in so far as the issue of allowability of a varied license\nfee as capital expenditure is concerned, the said issue stood decided\nby the judgment of the Hon’ble Supreme Court in the case of Bharti\nHexacom Ltd.(Supra). Whereas the issue of issue of royalty expense\nfor spectrum usage to be treated as revenue or capital expenditure\nwas not argued and therefore, the appeals involving the same were\nwas de-tagged and restored for consideration. Given the aforesaid, we\naccept the contention of the Assessee that (a) the issue before us\npertaining to nature of Royalty- WPC Expenses is different from the\none decided by the Hon’ble Supreme Court in the case of Bharti\nHexacom Ltd. (supra) and (b) that the decision of the Delhi Bench of\nthe Tribunal in the case of the Assessee for the immediately preceding\n Assessment Year 2009-2010 [ITA Nos.1169&1950/Del/2014,\ndated 14/03/2018, titled Deputy\n\n\n Assessment Year 2010-2011\n10\nCommissioner of Income Tax, Circle-17(1), New Delhi vs\nVodafone Essar Digilink Ltd. reported in [2018] 92\ntaxmann.com 234 (Delhi)]. Dismissing identical ground raised

by\nthe Revenue, the Co-ordinate Bench of the Tribunal held as under:\n\n

6. Ground no. 2 raised by the Revenue is against the deletion of\naddition of Rs.17,47,28,068/- on account of Royalty WPC\nexpenses.\n\n7. The facts of the ground are that the assessee claimed Royalty\nWPC expenses amounting to Rs.117.47 crore. On being called upon\nto justify such deduction, the assessee stated that this\namount represent Spectrum charges paid by it to the\nDepartment of Telecommunications on quarterly basis as a\npercentage of revenue. It was submitted that every telecom\noperator in India, in addition to the initial operator licence fee, is\nrequired to pay spectrum royalty for the use of spectrum and\nmicrowave royalty for given microwave frequency usage on\nregular basis. It was further submitted that Royalty WPC was\npaid on revenue share basis at 2% of Adjusted gross revenue\nand the same was eligible for deduction. The AO treated such\namount as a capital expenditure incurred to get the right to use\nspectrum and hence covered it under section 35ABB of the Act.\nAfter allowing depreciation @ 25%, he made an addition of Rs.\n61,85,57,975/-. The DRP ordered to delete the addition, against\nwhich the Revenue has come up in appeal before the Tribunal.\n\n8. We have heard both the sides and perused the relevant material\non record. It is observed that the AO invoked the provisions of\nsection 35ABB for making the addition. This section, in turn,\nprovides that expenditure for obtaining licence to operate\ntelecommunication services, in so far as it is of the nature of\ncapital expenditure, shall be allowed as deduction for each of the\nrelevant previous years on proportionate basis. It transpires that\nin order to be covered within the ambit of this provision, it is\nsine qua non that the expenditure for obtaining licence must be\nof capital nature at the first instance. If payment is in the\nrevenue field, it goes out of purview of this provision. When we\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n11\nadvert to the nature of royalty paid by the assessee, it clearly\nemerges that the same is in the nature of spectrum charges paid\nto Government of India as a percentage of revenue on regular\nbasis. This payment is not meant for obtaining a licence to use\nspectrum, but for the actual use of it on regular basis. It is in the\nnature of a revenue expenditure eligible for deduction. Thus, it\ncannot be construed as a capital expenditure and thus goes out\nof the ken of section 35ABB. It is further noticed that similar\nissue was argued before the Tribunal in the aforesaid case of the\nassessee's sister concern, namely, Vodafone Mobile Services Ltd.\nAfter considering the relevant details, the Tribunal in para 14 of\nits order directed to delete the addition by relying on judgment\nof the Hon'ble jurisdictional High Court in the case of CIT v.\nFASCEL Ltd. [2009] 221 CTR 305 (Delhi). Since the facts and\ncircumstances of the instant ground are mutatis mutandis similar\nto those considered and decided by the Tribunal in the case of\nVodafone Mobile Services Ltd. (supra), respectfully following the\nprecedent, we uphold the impugned order in deleting the\ndisallowance. This ground fails.” (Emphasis Supplied)\n\n4.

10. The Revenue has failed to bring any material on record to distinguish\nthe above decision of the Tribunal either on facts or in law. Therefore,\nrespectfully following the above decision of the Tribunal, we decline to\ninterfere with the directions issued by the DRP and the Final\nAssessment Order passed by the Assessing Officer on this issue.\nAccordingly, Ground No.II raised by the Revenue is dismissed.\n\nGround No.III\n5. Ground No.III raised by the Revenue reads as under:\n\n“III. On the facts and in the circumstances of the case, the DRP-II\nerred in directing to delete the additions of Rs.9,71,60,276/- and\n11,11,53,034/- on account of amortization of advertisement\nexpenses and Granty signs and hoardings.”\n\n5.

1. The relevant facts in brief are that during the Assessment\nproceedings the Assessing Officer noted that the Assessee had\nincurred advertisement expenditure amounting to INR.9,71,60,276/-\non granty signs and INR.11,11,53,034/- on hoardings. According to\n\n\n Assessment Year 2010-2011\n12\nthe Assessing Officer, the aforesaid expenditure gave enduring\nbenefit to the Assessee. Therefore, vide notice, dated 12/07/2013,\nthe Assessee was asked to explain as to why the same should not be\ncapitalized. In response the Assessee vide Reply, dated 24/02/2014,\nsubmitted that this aforesaid expenditure represented the boards\ndisplayed at various locations including at the dealer shops. The\ngranty signs have a very short shelf-life as the same are required to\nbe changed with the change in the product line of the Assessee and\ndid not bring into existence any tangible assets or enduring benefit.\nThe Assessee, thus, argued that the aforesaid expenditure was in the\nnature of normal advertisement expenditure and should be allowed as\nrevenue expenditure. The Assessee also relied on the judicial\nprecedents in support of the aforesaid contentions. However, the\nAssessing Officer was not convinced. According to the Assessing\nOfficer the aforesaid advertisement expenditure brought into\nexistence an advantage of enduring nature. The Assessing Officer was\nof the view that the dealer sign boards were in the nature of assets\nwhich would bring enduring benefits to the Assessee by giving wide\npublicity to the Assessee's brand name and increased the visibility of\nthe Assessee's products. The aforesaid advantage was not limited to\none year alone and the same spread over life of product spanning\nover 3 to 4 years. Therefore, the Assessing Officer amortized the\nadvertisement expenditure over period of 4 years. Accordingly, the\nAssessing Officer concluded as under:\n\n“The evidence in the case …….. Accordingly, only deduction of\nRs.15,62,34,983/- is allowed and remaining is disallowed. However, a\ndeduction amounting to Rs.9,32,07,760/- is allowed in respect of\namounts similarly treated as capital expenditure in earlier years.\nAccordingly an amount of Rs.6,30,27,223 is proposed to be\ndisallowed.” (Emphasis Supplied)\n\nThus, the Assessing Officer proposed net disallowance of\nINR.6,30,27,223/- in respect of advertisement expenditure incurred\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n13\non granty signs and hoarding in the Draft Assessment Order.\n\n5.

2. Being aggrieved, the Assessee filed objections before the DRP which\nwere allowed by the DRP. Deciding the issue in favour of the\nAssessee, the DRP concluded as under:\n\n"9.1 The assessee has assailed in this ground of objection (objection\nno. 6) the disallowance of advertisement expenses i.e. the AO's\nproposing to amortize over four year, the advertisement\nexpenditure incurred by the assessee in respect of 'Granty signs\n(dealer signboard) and hoardings amounting to Rs.\n9,71,60,276/ and Rs.11,11,53,034/. The assessee has\nsubmitted before the panel that it is operating in the telecom\nindustry where there is significant competition and the company\nhas to come up with innovative schemes from time to time to\nmarket its services. Therefore, it is imperative to advertise its\nproducts/services through varied advertisement medium. It has\nalso informed that the DRP in the immediately preceding year\nLe. A.Y. 2009-10, by following catena of judgments on this\nissue had directed to AO to delete such disallowance.\n\n9.2 Considering the submission of the assessee, the AO is hereby\ndirected by the panel to delete the said disallowance, on\naccount of Amortization of advertisement expenses on Granty\nsigns and hoardings and treating the same as Revenue\nexpenditure.” (Emphasis Supplied)\n\n5.

3. Being aggrieved, the Revenue has preferred the present appeal\nbefore the Tribunal challenging the Final Assessment Order passed by\nthe Assessing Officer as per the directions of DRP whereby objections\nfiled by the Assessee were allowed and the proposed disallowance of\nINR.6,30,27,223/- in respect of advertisement expenditure incurred\non granty signs and hoarding was rejected.\n\n5.

by\nthe Revenue, the Co-ordinate Bench of the Tribunal held as under:\n\n

9. Ground No. 3 of the Revenue's appeal is against the deletion of\naddition of Rs.2,52,28,036/- on account of 'Advertisement\nexpenses.' The assessee claimed deduction for advertisement\nexpenses amounting to Rs.97.63 lac on product launches and\nRs.14.81 crore on granty signs. The AO opined that since the\nbenefit of this expenditure would be reaped in subsequent years\nas well, he treated the said amount of advertisement expenses\nas capital. After allowing deduction @ 25%, he made an\naddition of Rs.2,52,28,03,617/-. The DRP got convinced with\nthe assessee's submissions and ordered to delete the addition.\n\n10. Having considered the arguments from both the sides and\nperused the relevant material on record, we find that this issue\nis no more res integra in view of the judgment of the Hon'ble\nDelhi High Court in CIT v. Citi Financial Consumer Finance Ltd.\n[2011] 335 ITR 29/[2012] 20 taxmann.com 452 in which\nadvertisement expenditure has been treated as revenue. In\nview of the judgment of the Hon'ble jurisdictional High Court,\nwhich has been relied by the DRP, we are of the considered\nopinion that no interference is warranted in the impugned order\non this score. This ground is dismissed.” (Emphasis Supplied)\n\n5.

5. The Revenue has failed to bring any material on record to distinguish\nthe above decision of the Tribunal either on facts or in law. Therefore,\nrespectfully following the above decision of the Tribunal, we decline to\ninterfere with the directions issued by the DRP in relation to the\nadvertisement expenditure incurred on granty signs and hoardings;\nand the Final Assessment Order passed by the Assessing Officer\nallowing deduction for the same. Accordingly Ground No.III raised by\nthe Revenue is dismissed.\n\nGround No. IV\n6. Ground No.IV raised by the Revenue reads as under:\n\n\n Assessment Year 2010-2011\n15\n“IV. On the facts and in the circumstances of the case, the DRP-II\nerred in directing to delete the addition of Rs.22,47,77,528/- on\naccount of interest incurred cost on capital work in progress.”\n\n6.

1. The relevant facts in brief are that during the assessment\nproceedings, the Assessing Officer noted that the Assessee had made\ninvestment in addition to fixed assets. As on 31/03/2010, The\nAssessee had Capital Work-in-Progress (CWIP) of INR.1531.4\nmillion. Due to the huge amount involved, the Assessee was asked to\ngive month wise balances of CWIP and show cause as to why interest\ncost incurred on such CWIP should not be disallowed. The Assessee\nfiled relevant details of CWIP along with submissions dated\n24/03/2014. It was contended by the Assessee that during the\nsubject assessment year, the Assessee had made certain additions to\nits fixed assets. The acquisition of such fixed assets was for the\npurpose of assisting the Assessee in carrying on its existing\noperations and not for the purpose of extension of its business. The\nextension of business has not been specifically defined in the context\nof Proviso to Section 36(1)(iii) of the Act. It was contended that\nbased on general/commercial parlance, with respect to the\ntelecommunications business, 'extension' of business may be\nconstrued to mean an extension of the geographical area wherein\ntelecommunications services are rendered. The Assessee also\nsubmitted that the Assessee had incurred expenditure on CWIP for\nfacilitating its existing operations and not in connection with\nextension of its existing operations. No disallowance on interest cost\nwas liable to be made since interest on borrowed capital for acquiring\nassets for the normal running of business (not leading to extension\nper se) was not covered by the said proviso and was clearly\ndeductable under the provisions of Section 36(1)(iii) of the Act.\nHowever, the Assessing Officer was not convinced. The Assessing\nOfficer noted that the Assessee had raised both secured and\n\n\n Assessment Year 2010-2011\n16\nunsecured loans during the year under consideration and was also\npaid huge interest on the said loans. The details filed during the\ncourse of assessment proceedings clearly showed that as on\n31/03/2009, there was CWIP amounting to INR.1531.4 million. The\nfigures of CWIP submitted by the Assessee alongwith the figures of\nloan funds of the balance sheet clearly revealed that the Assessee\nhad, during the relevant previous year, utilized the various loan funds\nfor the creation of the CWIP. Further, the utilization of the secured\nloans was not furnished by the Assessee during the course of the\nassessment proceedings. It was settled legal position that it was the\nonus of the Assessee, who claims deduction for any expenditure, to\nprove that the said expenditure (including the expenditure claimed\nu/s 36(1)(iii) of the Act), was for business purposes. Therefore, the\nAssessee was required to prove by demonstrative evidences that on\nthe date on which the expenditure was incurred for CWIP the\nAssessee had interest free fund and there was no diversion of interest\nbearing funds for such CWIP. According to the Assessing Officer, the\nAssessee had failed to do so and therefore, a disallowance of 7.7% of\nthe monthly outstanding balances of CWIP (aggregating to\nINR.22,47,77,528/-) was proposed by the Assessing Officer in the\nDraft Assessment Order. However, the aforesaid proposed\ndisallowance was not confirmed by DRP as the DRP allowed the\nobjections raised by the Assessee in this regard by placing reliance\nupon the decision of DRP for the Assessment Year 2009-2010.\nTherefore, no disallowance in this regard was made in the Final\nAssessment Order.\n\n6.

2. Being aggrieved, the Revenue has carried the issue in appeal before\nthis Tribunal.\n\n6.

3. During the course of hearing both sides agreed that identical issue\nhas been decided has been decided by the Tribunal in the case of the\n\n\n Assessment Year 2010-2011\n17\nAssessee for the immediately preceding Assessment Year i.e. 2009-\n2010. We note that vide Order, dated 14/03/2018, passed in ITA\nNo.115/Del/2015 (Supra), the Tribunal had remanded the issue\nback to the file of Assessing Officer with the following directions:\n\n“19. Ground no. 3 of the assessee's appeal is against the\ndisallowance of interest on capital work-in-progress.\n\n20. The facts of this ground are that the assessee declared capital\nwork-in-progress amounting to Rs.2789.6 million in its balance\nsheet. The AO observed that addition to fixed assets amounting\nto Rs.12828 million was made during the year, which was\nrecorded in the Schedule of fixed assets as an item distinct from\ncapital work-in-progress shown separately in the balance sheet.\nOn being called upon to explain as to why interest cost incurred\non such capital work-in-progress should not be disallowed in\nterms of proviso to section 36(1)(iii), the assessee submitted\nthat there was no 'extension of existing business' as a result of\nsuch capital work-in-progress and, hence, disallowance of\ninterest was not called for. The AO did not concur with the\nassessee's arguments. Relying on certain decisions, he held that\nthe amount of interest incurred in respect of such capital work in-\nprogress should be disallowed @ 7.7% of monthly outstanding\nbalances as per the Table given on page 43 of the assessment\norder. The assessee failed to convince the DRP on its line of\nreasoning as well. This resulted into an addition of Rs.\n26,45,28,627/-. The assessee is aggrieved against this addition.\n\n21. After considering the rival submissions and perusing the relevant\nmaterial on record, it is first necessary to understand the nature\nof the capital work-in-progress capitalised in the balance sheet\nat Rs.2789 million. On a pertinent query, the ld. AR submitted\nthat this amount represents the cost of installing new cell site\ntowers to be used for providing better network to its customers.\nIt was stated that roughly a period of three months is spent in\nthe setting up of a tower. During the currency of such period of\nthree months, i.e., when a tower is being set up, the costs\nincurred on such installation of towers are booked under the\nhead 'Capital work-in-progress'. When installation gets\ncompleted, the amount so capitalised is transferred from the\n'capital work-in-progress' account to the 'fixed assets' in regular\ncourse. From the above narration of factual background, it is\nclear that a sum of Rs.2789.6 million represents the amounts\nincurred by the assessee up to the end of the year on installation\nof towers, whose process of installation was still on at the end of\nthe year. In other words, this figure represents the value of\nassets, which have still not been used by the assessee during\nthe year for its business purpose.\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n18\nThe AO Invoked first proviso to section 36(1)(iii) which, at the\nmaterial time, read as under:—\n\n'Provided that any amount of the interest paid, in respect\nof capital borrowed for acquisition of an asset for\nextension of existing business or profession (whether\ncapitalised in the books of account or not); for any period\nbeginning from the date on which the capital was\nborrowed for acquisition of the asset till the date on which\nsuch asset was first put to use, shall not be allowed as\ndeduction.'\n\n22. At this stage, it is relevant to mention that the words 'for\nextension of existing business or profession' have been omitted\nby the Finance Act, 2015 w.e.f. 01.04.2016. As we are dealing\nwith the A.Y. 2009-10, such words are relevant for our purpose.\nA careful perusal of the section 36(1)(iii) in juxtaposition to the\nfirst proviso indicates that the amount of interest paid in respect\nof capital borrowed for the purposes of business or profession is\ndeductible, but, any amount of interest paid in respect of capital\nborrowed for 'acquisition of an asset for extension of the existing\nbusiness' for any period till the date on which such asset is first\nput to use, shall not be allowed.\n\n23. The ld. AR vehemently contended that the words 'for extension\nof the existing business or profession' bring within its ambit the\nacquisition of an asset which is meant for extension of the\nexisting business and not otherwise. He submitted that the\ntelecommunication business can be considered as 'extended' only when some new Circles are added to the existing Circles in which the business is carried on. This was opposed by the ld. DR who submitted that extension can be within the existing circles de hors new circles.\n\n24. We are not convinced with the contention advanced by the ld.\nAR. The words 'for extension of the existing business' presuppose that there is already a business in existence and capital is borrowed for acquisition of asset for extension of such existing business. 'Extension' can be vertical as well as horizontal. Existing telecommunication business can be extended in different forms. One of such forms can be the one described by the ld. AR in which a Cellular mobile service provider (CMSP) expands its area of business to a different Circle which was not hitherto in its reach. In the same breath, there can be an extension of existing business when a CMSP increases its reach within the allotted Circle itself by means of setting up new towers. To put it simply, if a CMSP has a licence to operate in a particular State, it may initially set up cell towers catering to urban areas for meeting the requirements of population residing therein. With the passage of time, it may try to reach to rural areas and still more rural areas within the same State by establishing towers for providing connectivity in such areas as\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n19\nwell. With new towers in areas, which were hitherto not having connectivity because of lack of the coverage of adequate existing towers, the service provider will, naturally, be going in 'for extension of existing business.' With such a setting up of new towers, the service provider will increase its customer base within the existing Circle, which is nothing but an extension of existing business.\n\n25. When we advert to the facts of the instant case, it emerges that the assessee was successful in increasing its customer base by setting up new towers, cost of which has been classified as capital work-in-progress. It is evident from the assessee's Director's Report for the year under consideration which records that: \"the company has also witnessed a good level of increase in the subscriber base in all the three Circles (UPE, Rajasthan and Haryana) in which it operates. The company has further expanded its network to increase its coverage across all its Circles. During the year, the company added 5096 cell sites to enhance its network coverage closing with 14411 cell sites as at 31st March, 2009.\" It is evident from the assessee's Director's Report that the setting up of new cell sites has enhanced its network coverage within all the three existing Circles and the resultant customer base, which is nothing, but, an extension of existing business. We, therefore, hold that the argument advanced by the ld. AR that the setting up of new cell sites, the cost of which was capitalised in the balance sheet as Capital work in progress (CWIP), does not lead to extension of existing business, is sans merit and, hence, dismissed.\n\n26. The ld. AR then argued that investment in CWIP was made out of own interest free funds and hence no interest can be attributed to any capital borrowed for the purpose of making such an investment. This was opposed by the ld. DR, who submitted that the assessee failed to file any such details before the AO and hence such a contention cannot be accepted at this stage.\n\n27. Before dealing with this contention, it is worthwhile to mention that the assessee made investment of Rs.2789.6 Million in its CWIP, which is the centre of dispute. On having a glimpse at the balance sheet of the assessee, it becomes evident that it has paid up Share capital to the tune of Rs.1011.0 Million and Reserves and Surplus for a sum of Rs.4571.8 Million. Thus, it is palpable that as against the investment of Rs.2789.6 Million in CWIP, the assessee has its own shareholders fund for a sum of Rs.5582.9 Million, which is roughly double the amount of Capital work in progress.\n\n28. Section 36(1)(iii) provides for deduction of interest of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The essence of this provision is that the interest should be allowed so long as the capital\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n20\nborrowed, on which such interest is paid, is used for the purpose\nof business or profession. If, however, an assessee is having its\nown interest free surplus funds and such funds are utilised as\ninterest free advances even for a non-business purpose, there\ncannot be any disallowance of interest paid on interest bearing\nloans. The Hon'ble Bombay High Court in CIT v. Reliance Utilities\n& Power Ltd. [2009] 313 ITR 340/178 Taxman 135, has held\nthat where an assessee possessed sufficient interest free funds\nof its own which were generated in the course of relevant\nfinancial year, apart from substantial shareholders' funds,\npresumption stands established that the investments in sister\nconcerns were made by the assessee out of interest free funds\nand, therefore, no part of interest on borrowings can be\ndisallowed on the basis that the investments were made out of\ninterest bearing funds. In that case, the AO recorded a finding\nthat a sum of Rs.213 crore was invested by the assessee out of\nits own funds and Rs.1.74 crore out of borrowed funds.\nAccordingly, disallowance of interest was made to the tune of Rs.\n2.40 crore. The assessee argued that no part of interest bearing\nfunds had gone into investment in those two companies in\nrespect of which the AO made disallowance of interest. It was\nalso argued that income from operations of the company was Rs.\n418.04 crore and the assessee had also raised capital of Rs.7.90\ncrore, apart from receiving interest free deposit of Rs.10.03\ncrore. The assessee submitted before the first appellate\nauthority that the balance-sheet of the assessee adequately\ndepicted that there were enough interest free funds at its\ndisposal for making investment. The ld. CIT (A) got convinced\nwith the assessee's submissions and deleted the addition. Before\nthe Tribunal, it was contended on behalf of the Revenue that the\nshareholders' fund was utilized for the purchase of its assets and\nhence the assessee was left with no reserve or own funds for\nmaking investment in the sister concern. Thus, it was argued\nthat the borrowed funds had been utilized for the purpose of\nmaking investment in the sister concern and the disallowance of\ninterest was rightly called for. The Tribunal, on appreciation of\nfacts, recorded a finding that the assessee had sufficient funds of\nits own for making investment without using the interest bearing\nfunds. Accordingly, the order of CIT (A) was upheld. When the\nmatter came up before the Hon'ble High Court, it was contended\nby the Department that the shareholders' funds stood utilized in\nthe purchase of fixed assets and hence could not be construed\nas available for investment in sister concern. Repelling this\ncontention, the Hon'ble High Court observed that : \"In our\nopinion, the very basis on which the Revenue had sought to\ncontend or argue their case that the shareholders' fund to the\ntune of over Rs.172 crore was utilized for the purpose of fixed\nassets in terms of the balance-sheet as on March 31, 1999, is\nfallacious.\" In upholding the order of the Tribunal, the Hon'ble\nHigh Court held that: \"If there be interest free funds available to\nan assessee sufficient to meet its investment and at the same\ntime the assessee had raised a loan, it can be presumed that the\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n21\ninvestments were from the interest free funds available”.\nThereafter, the judgment of the Hon'ble Supreme Court in the\ncase of East India Pharmaceuticals Works Ltd. v. CIT [1997] 224\nITR 627/91 Taxman 185 (SC) and also the judgment of the\nHon'ble Calcutta High Court in Woolcombers of India Ltd. v. CIT\n[1981] 134 ITR 219/[1981] 7 Taxman 188 were considered. It\nwas finally concluded that: \"The principle, therefore, would be\nthat if there are funds available both interest free and overdraft\nand/or loans taken, then a presumption would arise that the\ninvestments would be out of interest free funds generated or\navailable with the company, if the interest free funds were\nsufficient to meet the investment”. Consequently the interest\nwas held to be deductible in ful\n\n29. From the above judgment, it is manifest that there can be no\npresumption that the shareholders' fund of a company was\nutilized for purchase of fixed assets. If an assessee has interest\nfree funds as well as interest bearing funds at its disposal, then\nthe presumption would be that investments were made from\ninterest free funds at its disposal. Similar view has been taken\nby the Hon'ble Delhi High Court in CIT v. Tin Box Co. [2003] 260\nITR 637/35 Taxman 145 (Delhi), holding that when the capital\nand interest free unsecured loan with the assessee far exceeded\nthe interest free loan advanced to the sister concern,\ndisallowance of part of interest out of total interest paid by the\nassessee to the bank was not justified.\n\n30. The legal position set out in the preceding para is applicable if an\nassessee has a common pool of funds and some part is\ninvestment in the disputed amount. This proposition does not\nhold water, if a specific borrowing is made for making such an\ninvestment. When we turn to the facts of the instant case, we\nfind that even though the shareholders' fund is more than the\ninvestment in CWIP, but no detail of secured loan is available. In\nthe absence of such specific information, it is difficult to decide\nthe issue at our end. The impugned order is set aside to this\nextent and the AO is directed to decide this issue afresh in\nconsonance with our foregoing observations. It is made clear\nthat if there is some direct borrowing for investing in CWIP, then\ninterest paid on such borrowing has to be disallowed. If, on the\nother hand, there is no specific borrowing, the financing of CWIP\nhas to be treated as out of interest-free shareholders' fund. In\nsuch a scenario, no disallowance of interest can be made as the\ninterest-free shareholders' fund would be higher than the\namount of investment in CWIP.” (Emphasis Supplied)\n\n\n6.

4. Since, there is no change in the facts and circumstances of the case\nin the appeal before us, we also remand the issue back to the file of\nthe Assessing Officer with the directions to decide this issue afresh in\nconsonance with the directions given by the Tribunal while setting\n\n\n Assessment Year 2010-2011\n22\naside the issue to the file of Assessing Officer for the Assessment\nYear 2009-2010 (reproduced in Paragraph 10.3 above). It is made\nclear that as per the aforesaid direction if there is some direct\nborrowing for investing in CWIP, then interest paid on such borrowing\nshall be disallowed. If, on the other hand, there is no specific\nborrowing, the financing of CWIP has to be treated as out of interest free\nshareholders' fund, and in such a scenario, no disallowance of\ninterest shall be made since the interest-free shareholders' fund\nwould be higher than the amount of investment in CWIP. In terms of\naforesaid Ground No. IV raised by the Revenue is allowed for\nstatistical purposes.\n\nGround No. V\n7. Ground No.V raised by the Revenue reads as under:\n\n“V. On the facts and in the circumstances of the case, the DRP-II\nerred in directing to delete the addition of Rs.33,00,00,000/- on\naccount of subscriber based fraud.”\n\n7.

1. The relevant facts in brief are that the Assessing Officer had proposed\ndisallowance of deduction of INR.33,00,000/- claimed by the\nAssessee in respect of subscriber fraud under Section 37(1) of the\nAct. Before the DRP, the Assessee submitted that the Assessing\nOfficer has made a factually incorrect observation that the fraud was\ntowards ‘embezzlement of money’ by the employees of the Assessee\ncompany. Whereas, the deduction of INR.33,00,000/- claimed by the\nAssessee was in the nature of deduction for bad debts. It was\ncontended that for the Assessment Year 2009-2010, the DRP had\nallowed identical claim made by the Assessee holding that\nexpense/loss incurred by the Assessee with respect to the subscriber\nbased fraud is allowable expense. The DRP accepted the aforesaid\ncontentions of the Assessee and directed the Assessing Officer to\nallow the deduction of INR.33,00,000/- as claimed by the Assessee.\n\n\n Assessment Year 2010-2011\n23\nThus, no disallowance was made in this regard in the Final\nAssessment Order. Being aggrieved, the Revenue has carried the\nissue in appeal before this Tribunal.\n\n7.

3. Respectfully following the above decision of the Tribunal, we decline\nto interfere with the Final Assessment Order passed by the Assessing\nOfficer as per directions issued by the DRP on this issue whereby\nidentical loss of INR.33,00,000/- was allowed as deduction under\n\n\n Assessment Year 2010-2011\n24\nSection 37(1) of the Act. Accordingly, Ground No.V raised by the\nRevenue is dismissed.\n\nGround No.VI\n8. Ground No.VI raised by the Revenue reads as under:\n\n“VI. On the facts and in the circumstances of the case, the DRP-II\nerred in directing to delete the addition of Rs.88,64,94,300/- on\naccount of disallowing depreciation on Passive Infrastructure\nAssets (PI).”\n\n8.

1. The relevant facts in brief are that in terms of the Scheme of\nDemerger the Assessee transferred certain PI Assets to Vodafone\nInfrastructure Ltd. without any consideration. This Scheme of\nDemerger was approved by the Hon'ble Delhi High Court vide Order\ndated 29/03/2011. No loss, either capital or otherwise was claimed by\nthe Assessee in relation to the above transfer of PI Assets. The loss on\ntransfer of PI Assets of INR.986 Crores debited to the Profit & Loss\nAccount was added back while computing total income for the\nrelevant previous year. It was contended by the Assessee that in\nabsence of any consideration, the Assessee was not required to adjust\nany amounts from the tax WDV of the block of assets where the PI\nAssets were capitalized. Nonetheless, the Assessee (in line with its\nmotive of not claiming any tax advantage from this transaction)\nvoluntarily reduced the tax WDV of the PI Assets transferred to\nVodafone Infrastructure Ltd. from the said block of assets. The\nAssessing Officer treated the aforesaid transfer of PI Assets to\nVodafone Infrastructure Ltd. as a sham transaction and concluded\nthat the transfer though without consideration did not qualify as gift\nand therefore, was not exempt under Section 47(iii) of the Act. The\nAssessing Officer deemed the market value of the PI Assets\ntransferred (i.e. INR.1577.02 Crores) to be the sale consideration.\nSince PI Assets were depreciable assets, the Assessing Officer\nreduced the WDV of Plant & Machinery Block by the aforesaid deemed\n\n\n Assessment Year 2010-2011\n25\nconsideration of INR.1577.02 Crores. Taking note of the fact that the\nAssessee had suo-moto reduced an amount of INR.986.02 Crores\nfrom the said WDV, an additional amount of INR.591 Crores (i.e.\nINR.1577.02 Crores less INR.986.02 Crores) was reduced from the\nWDV of the Plant & Machinery Block which resulted in proposed\ndisallowance of depreciation of INR.88.65 Crores (i.e. 15% of 591\nCrores) in the Draft Assessment Order.\n\n8.

2. Being aggrieved, the Assessee filed objections before the DRP. It was\ncontended on behalf of the Assessee that the Scheme of Demerger in\nterms of which the PI Assets were transferred to Vodafone\nInfrastructure Ltd. without any consideration was approved by the\nHon'ble Delhi High Court. Therefore, the transaction could not be\ntreated as a sham transaction. The aspect of the aforesaid transaction\nas ‘gift’ was also confirmed by the Gujarat High Court in the case of\nAssessee’s group Company (i.e. erstwhile Vodafone West Ltd.)\nwherein a similar scheme was approved by the Hon'ble Gujarat High\nCourt. It was submitted that in the absence of any consideration, the\nAssessing Officer could not impute sales consideration and reduce the\nsame from the WDV of Plant & Machinery Block. No deduction of the\nloss arising from the transfer of PI Assets to Vodafone Infrastructure\nLtd. was claimed by the Assessee. Thought in the absence of any sale\nconsideration, the Assessee was not required to adjust WDV of the\nPlant & Machinery Block, the Assessee had, suo-moto, reduced the\n‘tax WDV’ of PI Assets transferred from the Plant and Machinery\nBlock. The aforesaid submissions found favour with the DRP as the\nDRP concluded that it cannot be said that the Respondent had\ntransferred the PI Assets to Vodafone Infrastructure Ltd. with a view\nto evade taxes. DRP held that the transaction under consideration was\ndriven by commercial expediency and had been duly approved by the\nHon'ble High Courts. Thus, the DRP allowed the objections filed by the\nAssessee and directed the Assessing Officer to allow deprecation as\n\n\n Assessment Year 2010-2011\n26\nclaimed by the Assessee. The Assessing Officer passed by the Final\nAssessment Order without making proposed disallowance of\ndepreciation of INR.88.65 Crores.\n\n8.

3. Being aggrieved, the Revenue has carried the issue in appeal before\nthe Tribunal.\n\n8.

4. We have heard both the sides and have perused the material on\nrecord.\n\n8.

5. On perusal of the order passed by the DRP, we find that the DRP has\nmade following observations while deciding the issue in favour of the\nAssessee:\n\n“18.3 The panel has carefully considered the submission of the\nassessee in this regard. The assessee has tried to justify the\naforesaid transaction to be a purely business decision based on\ncommercial consideration. On the other hand, the AO is of the\nview that VDL is camouflaging the demerger scheme and getting\nit legalized by obtaining sanction from the Hon'ble High Court,\nwhich too by misrepresenting facts. In fact the assessee has\ntransferred its Pl assets just to evade taxes in a manner to\nbenefit Its ultimate holding company, for which it has claimed a\nloss. However, section 47(iii) of the Act provides that any\ntransfer of a capital asset under a will or an irrevocable trust or\nas gift will not be regarded as a transfer. In the instant case,\nthe transaction under reference is by way of gift duly approved\nby the High Court & hence a legitimate transaction and the Act\nitself recognizes such Gift by corporate. Further, clause 40 of the\nMemorandum of Association specifically permits the assessee to\ngrant gift to any person. This is in consonance with the decision\nof Hon'ble Supreme Court in the case of Laksmanswami Mudaliar\nV. L.I.C. (33 Com Cases 420), where it was observed that a\ncompany can make a gift provided that the Memorandum of\nAssociation/Charter documents of the company permit such a\ntransaction. Further, the fact that the transaction in the present\ncase is in the nature of gift has been affirmed by the Hon'ble\nDelhi High Court while approving such scheme, where the\nHon'ble Court has observed as below.\n\n\"45. For all of the above reasons, and since the objector\n\n\n Assessment Year 2010-2011\n27\nhas not been able to place any direct authority,\nprecedent or Rule before this Court to support his\ncontention, and in view of the authorities relied on by the\npetitioners, counsel for the Income Tax has failed to\npersuade this Court that a transfer by way of gift was not\npermissible under Section 391 of the Companies Act,\n1956, or that the Scheme in question was confiscatory,\nthis objection does not survive this objection does not\nsurvive”.\n\nFurther, the aspect that the aforesaid transaction is a "gift" was\nalso confirmed by the Hon'ble Gujarat High Court in the case of\nVWL (ie. a group company of the assessee), where in a similar\nscheme was filed. The Hon'ble High Court specifically observed\nas under.\n\n\"The objection raised by the Income Tax Department that\nthe Appellant should not be permitted to argue that for\nthe purpose of Income Tax Act, the transfer is by way of a\ngift and that for the purpose of the Companies Act, the\nsame is with consideration is completely misplaced\"\n\nIt has been further contended by the assessee that it has merely\ntransferred its PI assets to Vinfl, without any consideration. The\nloss to VDL (assessee) on such transfer was duly added back by\nVDL in its return of income. Further, even though in absence of\nany sale consideration, the assessee was not required to adjust\nits tax block, the assessee Suo-moto reduced the tax WDV of\nsuch PI assets from its P&M block. Therefore, it cannot be stated\nthat the assessee transferred Pl assets to VinfL in order to evade\ntaxes but the aforesaid transfer of Pl assets was driven solely by\nbusiness expediency. On careful consideration of the facts of the\ncase, it is amply clear that the business purpose and commercial\nexpediency were the only factors that led to the transfer of the\nPl assets, as duly approved by the Hon'ble High Court of Delhi.\nEven otherwise a company is an artificial juridical person with a\nseparate legal entity of its own, unless the Corporate Veil is lifted\nby court orders. The case of the assessee is that of a real gift\nand not deemed gift as in the case of CIT V. Tibruz Mustafa\nBilgen (1986) 157 ITR 723 (Mad), the Hon'ble Medras High Court\nhas held that section 47(iii) applies only to real gift and not\ndeemed gift. Therefore, the action of the AO in disallowing\ndepreciation on passive Infrastructure Assets (PI) is held by the\npanel to be not tenable and the AO is therefore directed to\ndelete the said addition.” (Emphasis Supplied)\n\n8.

6. We are in agreement with the view taken by the DRP. The Scheme of\n\n\n Assessment Year 2010-2011\n28\nDemerger which clearly provided that the Assessee shall gift PI Assets\nto Vodafone Infrastructure Ltd.. Before the Hon’ble Delhi High Court\nthe Revenue had filed objection to the Scheme of Demerger\ncontending, inter alia, that a transfer by way of gift was not\npermissible under Section 391 of the Companies Act, 1956. However,\nthe aforesaid objection was rejected by the Hon'ble Delhi High Court\nobserving that the Revenue had failed to place any direct authority,\nprecedent or Rule before the Hon'ble Court in support its contention.\nThe aforesaid was taken note of by the DRP while allowing the\nobjections raised by the Assessee. Therefore, we concur with the view\ntaken by the DRP that the transaction of transfer of PI Assets by the\nAssessee to Vodafone Infrastructure Ltd as gift cannot be regarded as\nsham transaction having been accepted and approved by the Hon'ble\nDelhi High Court as part of the Scheme of Demerger after due\nconsideration of the objections raised by the Revenue. DRP has\ncorrectly concluded that transaction of transfer of PI Assets by the\nAssessee to Vodafone Infrastructure Ltd qualified as ‘gift’ and the\nsame could not be regarded as transfer for the purpose of Section\n2(47) of the Act in terms of Section 47(iii) of the Act. It was not\ndisputed by the Revenue that the Assessee had not claimed deduction\nfor loss arising from the transfer of PI Assets to Vodafone\nInfrastructure Ltd. In view of the aforesaid we are not persuaded to\ninterfere with the Final Assessment Order and the directions issued by\nthe DRP on this issue and therefore, Ground No. VI raised by the\nRevenue is dismissed.\n\n9. In result appeal preferred by the Revenue is partly allowed.\n\nITA NO.1073/DEL/2015 (ASSESSEE’S APPEAL)\n10. Next we would take up the grounds raised

by the Assessee in its\nappeal. The Assessee has raised eleven grounds of appeal in ITA No.\n1073/Del/2015 which are taken up hereinafter in seriatim.\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n29\nGround No.1\n11. The Ground No.1 raised by the Assessee reads as under:\n\n

1. Ground No. 1- Deduction u/s 80IA on other income\n\n1.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in excluding the following incomes\nwhile computing deduction u/s 80IA of the Act:\n\n• Cellsite sharing revenue amounting to INR 0.81 crores;\n• Miscellaneous income amounting to INR 5.81 crores;\n• Interest Income amounting to INR 0.86 crores, which\nhas already been excluded by the Appellant while\ncomputing business income;\n\n• Provisions no longer required written back amounting to\nINR 51.58 crores, out of which the Appellant has\nalready excluded INR 49.9 crores while computing\nbusiness income;\n\n• Profit on sale of fixed assets (net) amounting to INR\n6.48 crores, which has already been excluded by the\nAppellant while computing business income;\n\n• Foreign exchange gain (net) amounting to INR 6.47\ncrores, out of which the Appellant has already excluded\ngains of INR 10.473 crores while computing business\nincome being capital in nature and the balance amount\nof loss of INR 5.005 crores is revenue loss.\n\n1.

2. On the facts and in the circumstances of the case and in law,\nboth the learned DRP and the learned AO have erred in\nimporting the phrase derived from and its implication while\ncomputing deduction under non-obstante section 80IA(2A) of\nthe Act when the said section does not postulate the concept of\n'derived from, instead it provides that to be eligible for deduction\nu/s 80IA of the Act, income arising should be 'business income\nof the 'eligible undertaking', i.e. telecom undertaking of the\nAppellant in the present case.\n\n1.

3. On the facts and in the circumstances of the case and in law and\nwithout prejudice to Grounds 1.1 and 1.2, the learned DRP/ AO\nhave erred in not holding that if the above mentioned incomes\nare not eligible for deduction u/s 80IA, the expenses incurred in\n\n\n Assessment Year 2010-2011\n30\nearning the said incomes must also be excluded and only net\nincome should be excluded while computing the profits eligible\nfor deduction u/s 80IA of the Act.”\n\n11.

1. Ground No.1 raised by the Assessee pertains to computation of\ndeduction under Section 80IA of the Act. It is admitted position that\nthe Assessee had claimed and was allowed deduction under Section\n80IA of the Act for the first time in Assessment Year 2008-09. As per\nthe provisions of Section 80IA of the Act the eligible telecom\nundertaking is allowed a deduction for the period of 10 consecutive\n Assessment Years once the deduction has been claimed. For the\n Assessment Year 2010-2011, the Assessee did not claim deduction\nunder Section 80IA of the Act on account of losses. However, while\nmaking the assessment, the assessed income of the Assessee had\nturned positive. Therefore, the Assessing Officer allowed deduction of\nINR.7,10,55,30,405/- under Section 80IA of the Act on the basis of\nAssessment Orders passed for preceding Assessment Years. However,\nsince the detailed break-up of other income amounting to\nINR.72,01,00,000/- was not available, the Assessing Officer excluded\nother income while computing deduction under Section 80IA of the\nAct in the Draft Assessment Order.\n\n11.

2. The Assessee filed objections before DRP challenging the above\napproach adopted by the Assessing Officer. The Assessee opposed the\nproposed exclusion of following incomes for the purpose of\ncomputation of deduction under Section 80IA of the Act [while stating\nthat the Assessee had not claimed deduction in respect of provisions\nno longer required written back amounting to INR.515.80 Million]:\n\nS.No Particulars Amount\n(INR Million)\n1. Interest Income 8.6\n2. Cellsite Sharing revenue 8.1\n3. Foreign Exchange Gain (net) on revenue account 64.7\n4. Profit on sale of fixed assets 64.8\n5. Misc Income 58.1\n\n\n Assessment Year 2010-2011\n31\n11.

3. However, the DRP declined to grant any relief. Accordingly, the\nAssessing Officer passed Final Assessment Order, dated 27/01/2015,\nconcluding as under:\n\n“10. Deduction u/s.80IA of the Act\n\nThe assessee had claimed and was allowed deduction u/s 80IA\nof the Act for the first time in AY 2008-09. As per the provisions\nof section 80IA the eligible telecom. undertaking is allowed a\ndeduction for the period of 10 consecutive AY's once the\ndeduction has been claimed. In the subject year, the assessee\non account of losses has not claimed any deduction in the return\nof the income. However, while making the assessment for the\nsubject year, the assessed income has turned positive\nAccordingly the deduction u/s.80IA of the Act amounting to Rs.\n7,105,530,405 was allowed on the basis of assessment orders of\nthe precedings years, in the draft assessment order. However,\nas the detailed breakup of other income is not available, the\nentire other income amounting to Rs.720,100,000/- was\nexcluded while computing the deduction u/s 80IA of the Act.”\n\nDirections of the DRP:\n\nVide order dated 18-12-2014, the DRP-II considered the\nobjection on this issue and rejected the same giving detailed\nreasons for the same. The DRP-II concluded as follows:\n\n\"The panel has carefully considered the submission of the\nassessee. It has been observed by the courts that the\nwords 'derived from' are narrower in scope than the words\n'attributable to as held in Cambay Electric Supply\nIndustrial Co. Ltd. (1978) 113 ITR 84 (SC). Further, in CIT\nv. Sterling Foods (1999) 237 ITR 579 (SC), the Apex\nCourt has held that unless the source of income is from an\nindustrial undertaking. such income cannot be regarded as\nderived from an industrial undertaking. Where the nexus\nbetween the profits and gains and the industrial\nundertaking is not direct but incidental, such income\ncannot be regarded as having been derived from industrial\nundertaking. In view of the above judicial precedents, the\nstand taken by the AO in the relation to 'derived income'\nis hereby ratified by the panel and the assessee gets no\nrelief on this ground of objection. The DRP for A.Y. 2009-\n\n\n Assessment Year 2010-2011\n32\n10 disallowed deduction under section 80IA on 'other\nincome'.\"\n\nSince the DRP-II has not made any variation in the addition as\nproposed in the draft assessment order, deduction u/s 80IA is\nallowed as per DRP order.\n\nWith respect to the above the income of the assessee is\nrecomputed as under:\n\nIncome from business/profession as per the assessment order\nxx xx xx xx\nBusiness Income (C) 5,61,93,60,152\nCalculation of 80IA deduction\nIncome from Business and profession as per\nassessment order\n5,61,93,60,152\nLess: Income from other sources (excluding\nARO provision written back which assessee has\nitself reduced while calculating taxable income)\n72,01,00,000\nEligible profit u/s.80IA 4,89,92,60,152\nDeduction u/s.80IA @100% eligible profits (B) 4,89,92,60,152\nIncome from other sources (D)\nxx xx xx xx\n………………” (Emphasis Supplied)\n\n11.

4. Being aggrieved the Assessee has carried the issue in appeal before\nthe Tribunal.\n\n11.

5. We have heard both the sides and have perused the material on\nrecord.\n\n11.

6. We find that Assessee had furnished details of Other Income credited\nto the Profit and Loss Account during the relevant previous year. Vide\nletter dated 19/12/2013 the Assessee had furnished details of other\nincome credited to the Profit & Loss Account. The relevant extract of\nthe aforesaid letter reads as under:\n\n“18. Details of other income credited to profit and loss account. (Point 34 of the\nnotice dated 12th July 2013)\n\n\n Assessment Year 2010-2011\n33\nDetails of ‘Other income’ of INR.720.1 million credited to the profit and loss\naccount of VDL for the subject year is as follows:\n\nParticulars Amount (INR million)\nLiabilities/provisions no longer required written back 515.8\nInterest income 8.6\nForeign exchange gain (net) 64.7\nProfit on sale of fixed assets (net) 64.8\nCellsite Sharing revenue 8.1\nIndefeasible right to use (‘IRU’) revenue -\nMiscellaneous Income 58.1\nTotal 720.1\n\nFrom the above it is clear that the basis on which the Assessing\nOfficer has proposed exclusion of other income from the computation\nof deduction under Section 80IA of the Act was factually incorrect.\nFurther, on perusal of record we find that while declining to the\ngrant/relief the DRP had also relied upon the findings returned by the\nAssessing Officer in the Draft Assessment Order which are contrary to\nthe material on record.\n\nInterest Income & Profit On Sale Of Fixed Assets\n\n11.

7. On perusal of the ‘statement showing computation of taxable income\nunder normal provisions of the Act’ we find that (a) interest income of\nINR.0.86 Crores and (b) profit on sale of fixed assets of INR.6.48\ncrores have already been excluded by the Assessee while computing\nits business income and thus, these amounts are not considered for\nthe purpose of computing deduction under Section 80-IA of the Act.\nTherefore, the Assessing Officer is directed not to exclude (a) interest\nincome of INR.0.86 Crores and (b) profit on sale of fixed assets of\nINR.6.48 crores while computing deduction under Section 80IA of the\nAct.\n\nProvisions No Longer Required And Written Back\n\n11.

8. Further, the provisions no longer required and written back\naggregating to INR.51.58 Crores credited to the Profit & Loss A/c.,\n\n\n Assessment Year 2010-2011\n34\nconsisted of INR.49.90 Crores that was excluded by the Assessee\nwhile computing business income and therefore, the said amount was\nalso not considered for the purpose of computing deduction under\nSection 80-IA of the Act. Therefore, the Assessing Officer is directed\nnot to exclude provisions no longer required and written back\naggregating to INR.49.90 Crores while computing deduction under\nSection 80IA of the Act.\n\nForeign Exchange Gain\n\n11.

9. As regards foreign exchange gain (net) of INR.6.47 Crores credited to\nthe Profit & Loss A/c is concerned, the same was computed as under:\n\nParticulars Amount (INR.)\nRealised foreign exchange fluctuation gain on capital account. 7.66 crores\nUnrealised foreign exchange fluctuation gain on capital\naccount\n3.81 crores\nTotal 11.47 crores\n\nLess: Loss on revenue account as a result of exchange rate\nfluctuations on re-instatement of foreign exchange liabilities\non balance sheet date and settlement date\n(5.00 crores)\n\nForeign exchange fluctuation gain (Net) credited to the Profit\n& Loss A/c.\n6.47 crores\n\nOn perusal of ‘statement showing computation of taxable income\nunder normal provisions of the Act’ we find that the Assessee has\nexcluded ‘Realized Foreign exchange fluctuation gain on capital\naccount’ of INR.7,66,32,862/- and ‘Unralized Foraging exchange\nfluctuation gain on capital account’ of INR.3,81,00,013/-. Thus,\nforeign fluctuations gains (realised and unrealized) on capital account\naggregating to INR.11.47 crores were disallowed by the Assessee\nwhile computing its business income and therefore, the said amount\nwas also not considered for the purpose of computing deduction under\nSection 80-IA of the Act. Therefore, the Assessing Officer is directed\nnot to exclude foreign exchange fluctuation (net) of INR.6.47 Crores\nwhile computing deduction under Section 80IA of the Act.\n\n\n Assessment Year 2010-2011\n35\nCellsite Sharing Revenue\n\n11.

10. As regards cellsite sharing revenue is concerned, the Learned\nAuthorized Representative for the Assessee had placed reliance upon\nthe order passed by Co-ordinate Bench of the Tribunal in Assessee’s\nown case for the Assessment Year 2009-2010 [ITA Nos.\n1169&1950/Del/2014, dated 14/03/2018, titled Deputy\nCommissioner of Income Tax, Circle-17(1), New Delhi vs\nVodafone Essar Digilink Ltd. reported in [2018] 92\ntaxmann.com 234 (Delhi)]. In that case it was held that the\nAssessee was entitled to claim deduction under Section 80IA of the\nAct in respect of the cellsite sharing revenue. The relevant extract of\nthe aforesaid decision reads as under:\n\n“52. Third item is 'Cell site sharing' revenue of Rs.42,85,79,640/-.\nThis income was earned by the assessee on sharing the available\nspare space/capacity on its telecommunication cell sites with\nother telecom operators for setting up their respective antennas\nand placing microwave and BTS equipments. We find that there\nis a direct link of such income with the eligible business of\nproviding telecommunication services. The ld. DR likened such\nhire charges to the earning of rental income from letting out\nproperty and contended that the same cannot be considered as\nprofits and gains of business of telecommunications. In our view,\nthis analogy drawn by the ld. DR is not correct. We are\nconcerned with a situation in which income has resulted from\nsharing of surplus space on cell sites with other telecom\noperators. The cell sites are the tools of the assessee's business,\nwithout which its business cannot run. If there remains some\nsurplus space on such business tools, which is let out by the\nassessee, the resultant income will be income from the business\nof telecommunications. Example of simplicitor hiring of building\ncited by the ld. DR is not germane to the issue. Such a rental\nincome would obviously fall under the head 'Income from house\nproperty' and would not be eligible for deduction. Since the\nunderlying assets in the situation under consideration are cell\ntowers, which are in the nature of tools of the assessee's\nbusiness, income from their commercial exploitation, in our\nopinion becomes 'business income' qualifying for deduction in\ncontradistinction to income from simple hiring of property\n\n\n Assessment Year 2010-2011\n36\nretaining the character of 'Income from house property'. It is, therefore, directed to be considered as eligible for deduction u/s.\n80IA of the Act.”\n\nIn view of the above decision of the Co-ordinate Bench of the\nTribunal, exclusion of cellsite sharing revenue of INR.0.81 Crores from\nthe business income while computing deduction under Section 80IA of\nthe Act cannot be sustained. Therefore, the Assessing Officer is\ndirected to grant benefit of Section 80IA of the Act in respect of\nCellsite Sharing Revenue of INR.0.81 Crores.\n\n\nMiscellaneous Income\n\n11.

11. As regards Miscellaneous Income of INR.5.81 Crores are concerned,\nreliance was placed on behalf of the Assessee upon the decision of\nMumbai Bench of the Tribunal in group company's case of the\nAssessee (erstwhile 'Vodafone India Ltd.'). In that case, vide Order\ndated 28/11/2022 passed in (AY\n2005-06), the Co-ordinate Bench of the Tribunal had concluded that\nAssessee was entitled for deduction under Section 80IA of the Act in\nrespect of miscellaneous income since in terms of non-obstante\nclause used in Section 80IA(2A), deduction for telecommunication\nservices is available in respect of “profits of eligible business” and is\nnot restricted to “profits derived from eligible business” as mentioned\nin Section 80IA(1) of the Act. The relevant extract of the aforesaid\ndecision of the Tribunal reads as under:\n\n“23. The assessee has filed appeal assailing the findings of CIT(A) in respect\nof disallowance of deduction u/s.80IA of the Act on other incomes. The\nassessee in appeal has raised three grounds. The ld. Counsel for the\nassessee stated at Bar that he is not pressing ground No.1 of the appeal.\nThe ground no.1 of appeal is accordingly dismissed as not pressed.\n\n24. Ground No.2 of the appeal reads as under:\n\n“2. Disallowance of deduction under section 80IA of the Act on\n'Other Income' 2.1 On the facts and in the circumstances of\nthe case and in law, the learned CIT(A) has erred in upholding that\ndeduction u/s 80IA of the Act can be allowed only on direct\nincome derived from the specified activity, thereby ignoring the\n\n\n ITA No.1158/Del/2015\n Assessment Year 2010-2011\n37\nnon obstante sub-section 2A of section 80IA which provides that\nto be eligible for deduction u/s 80IA of the Act, income arising\nshould be business income of the eligible undertaking, i.e.\ntelecom undertaking of the Appellant in the present case\n\n2.

2. On the facts and in the circumstances of the case and in law, the\nlearned CIT(A) erred in upholding the order of the learned AO in\nexcluding the following incomes while computing deduction u/s\n80IAoftheAct: (a) Interest income amounting to INR.\n6,09,99,174; and (b) Miscellaneous income amounting to INR\n4,98,14,610;”\n\n25. The ld. Counsel for the assessee submits that the assessee had\nearned interest income of Rs.6.09 crores and miscellaneous\nincome of Rs.4.98 cores. The assessee claimed deduction u/s.\n80IA of the Act in respect of the aforesaid income. The same\nwas disallowed by the Assessing Officer and the CIT(A). The ld.\nCounsel for the assessee submitted that Delhi Bench of the\nTribunal in the case of Bharat Sanchar Nigam Ltd.(BSNL)\nreported as 156 ITD 847 (Del-Trib) has held that deduction for\ntelecommunication services is allowable in respect of “profits of\neligible business and not restricted to profits derived from\neligible business as mentioned in section 80IA of the Act.”\n\nThus, the provisions of sub-section(2A) of Section 80IA of the\nAct are much wider in scope as compared to the provisions of\nsection 80IA(1) of the Act. The deduction in computing total\nincome of an undertaking providing telecommunication services\nshall be in accordance with the provisions of subsection (2A) of\nsection 80IA of the Act. The ld. Counsel for the assessee further\nsubmits that the decision rendered by Tribunal in the case of\nBSNL (supra) was upheld by the Hon'ble Delhi High Court in the\ncase of PCIT vs. BSNL reported as 388 ITR 371. The ld. Counsel\nfor the assessee further referred to the observations of the DRP\nfor assessment year 2013-14. He referred to the findings of DRP\nat para 12, wherein the DRP had recorded,“ the Hon’ble Delhi\nHigh Court has held the deduction u/s.80IA(2A) of the Act is\nalso allowable in respect of other incomes, which are part of\nprofits and gains of eligible business. The decision of Hon'ble\nDelhi High Court has been accepted by the Revenue as no SLP\nhas been filed by the Revenue against aforesaid decision.”\n\n26. Per contra, the ld. Departmental Representative vehemently\ndefended the findings of CIT(A) on this issue.\n\n27. Both sides heard. The short issue for adjudication in the appeal\nby assessee is: Whether interest income and miscellaneous\nincome earned by the assessee would be eligible for deduction\nu/s.80IA of the Act? We find that similar issue had come up\nbefore the Tribunal in the case of BSNL vs. DCIT (Supra). The\n\n\n Assessment Year 2010-2011\n38\nTribunal after examining and comparing the provisions of section\n80IA(1) and 80IA(2A) held as under:\n\n“13.

2. On a reading of sub-section (1) of section 80-IA, we find\nthat the legislature specifically uses the words meaning\nand import of which is plain and unambiguous in the\ncontext it is to be construed. Deduction under section 80-\nIA in terms of subsection (1) is available to “gross total\nincome” of an assessee where “gross total income” is\nrestricted to “profits and gains derived by........ from any\nbusiness referred to in sub-section (4)”. The deduction is\navailable of an amount equal to hundred percent of the\nprofits and gains derived from such business for ten\nconsecutive assessment years” subject to the provisions of\nthe section. The meaning and intention of the legislature\nhas been legally settled and well understood to mean that\nonly those profits come under the ambit which can be said\nto be “derived from” such business. The intention of the\nlegislature on a plain reading of the said sub-section is\nloud and clear. Reference to the decisions which establish\na nexus of the first degree at this stage is refrained from\nas the position is well-settled legally and at this stage is\nnot an issue for consideration in the present proceedings\nas both the parties agree that sub-section (1) of section\n80-IA envisages only first degree nexus for the purposes of\nclaiming deduction. The fact that deduction is available to\nhundred percent of the profits for a period of ten\nconsecutive years is also not an issue under debate and\neven otherwise we find that the above provision in the said\nextent is clear and unambiguous.\n\n13.

3. What we may take note of is that on reading of only this\nsub-section in isolation what emanates clearly is that the\ndeduction is applicable to any undertaking or an enterprise\nfrom any business referred to in sub-section (4) of section\n80-IA which the legislature describes as “eligible business”.\nThe said sub-section sets out in unequivocal terms that the\ndeduction is available to the gross total income of such\nundertaking/enterprise which “includes” “profits and gains\nderived from” such business. The meaning and limits of\nfirst degree nexus of the said phrase is well understood by\nthe tax payer, the tax collector and the Legislature. The\nsaid subsection also sets out the period and extent of\ndeduction available as hundred percent for ten years.”\n\nThe Co-ordinate Bench further held that:\n\n“13.

10. Thus the dispute of bringing sub-section (1) into play for\na tax payer falling in sub-section (2A) of section 80-IA to\nour minds cannot arise. According to the assessee sub-\n\n\n Assessment Year 2010-2011\n39\nsection (2A) does not put the restriction contemplated in\nsub-section (1) of section 80-IA in the face of the non obstante clause coupled with the specific omission to use\nthe well understood term “derived from”. This argument is\nnotwithstanding the argument that considering the\nassessee’s nature of business the direct nexus presumed\nby sub-section (1) of section 80-IA is also fulfilled. On a\ncareful reading of the above provisions, we find that the\nlegislature has left no ambiguity in the wording of the sub\nsection (2A). Having started with the non-obstante clause\nin sub-section (2A) which over-rides the mandate of sub\nsection (1) and (2), the legislature is well aware that the\nphrase “derived from” has been used only in subsection\n(1). The meaning of the said terms is judicially well\naccepted and understood and it is not the case of that\nRevenue that the legislature was not conscious of the said\nterm. It is seen that the import of this term continues to\nexist for an assessee covered under subsection (2) of\nsection 80-IA. The legislature has consciously retained it\nfor enterprise/undertaking falling in sub-section (2) and\nthe proviso thereto only keeping in mind the nature of the\nenterprises/undertakings contemplated under sub-section\n(2) the option of claiming deduction in any ten consecutive\nyears is given to be claimed from the first fifteen years of\nbeginning operation is given.\n\n13.

11. Thus, we find that the legislature being alive to providing\ntax deductions to business enterprises and undertakings,\nwherever it wanted to curtail the time line during which\ndeduction can be claimed and also addressing the extent\nupto which it can be claimed has consciously carved out an\nexception to specified undertakings/enterprises whose\nneeds and priorities differ has taken care to expand the\ntime line for claiming deductions. It has consciously\nenabled those undertakings/enterprise who fall under sub\nsection (2A) to claim 100% deduction of profits and gains\nof eligible business for the first five years and upto 30%\nfor the remaining five years in the ten consecutive\n assessment years out of the fifteen years starting from the\ntime the enterprise started its operation. The legislature\nhaving ousted applicability of sub-section (1) and (2) in\nthe opening sentence brought in for the purposes of time\nline sub-section (2) into play but made no efforts\nwhatsoever to put the assessee under sub-section (2A) to\nmeet the stringent requirements that the profits so\ncontemplated were to be “derived from”. The requirements\nof the first degree nexus of the profits from the eligible\nbusiness has not been brought into play”\n\nThe Tribunal finally concluded that in terms of non- obstinate\n\n\n Assessment Year 2010-2011\n40\nclause used in section 80IA(2A), deduction for\ntelecommunication services is available in respect of “profits of\neligible business” and is not restricted to “profits derived from\neligible business” as mentioned in section 80IA(1) of the Act.\nThe aforesaid findings of the Tribunal were affirmed by the\nHon'ble Delhi High Court. We further observe that the DRP in\ndirections dated 21/09/2017 for assessment year 2013-14 has\nobserved that no SLP has been filed against the decision of\nHon'ble Delhi High Court by the Revenue and allowed assessee’s\nclaim of deduction u/s.80IA of the Act in respect of other\nincomes. Respectfully following the decision of Hon'ble Delhi\nHigh Court in the case of BSNL(supra), we direct the Assessing\nOfficer to allow the benefit of deduction u/s.80IA of the Act +in\nrespect of interest 37 ITA NO.5598/MUM/2017(A.Y.2005-06) ITA\nNO.5078/MUM/2017(A.Y.2005-06) Income as well as\nmiscellaneous income. Ground No.2 of the assessee’s appeal is\nthus allowed.”\n\nIn view of the above decision of the Co-ordinate Bench of the\nTribunal, exclusion of miscellaneous income of INR.5.81 Crores from\nthe business income while computing deduction under Section 80IA of\nthe Act cannot be sustained. Therefore, the Assessing Officer is\ndirected to grant benefit of Section 80IA of the Act in respect of\nmiscellaneous income of INR.5.81 Crores.\n\n11.

12. In view of the Paragraph 12.6 to 12.11 above, Ground No.1 raised by\nthe Assessee is partly allowed.\n\nGround No.2\n12. Ground No.2 raised by the Assessee reads as under:\n\n“2. Ground No. 2-Disallowance of license fee u/s 37(1) of the\nAct\n\n2.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in holding that the annual revenue\nshare based license fee of INR 2,26,09,97,608 payable by the\nAppellant to the Department of Telecommunications ('DoT'),\nqualifies as a capital expenditure being consideration for\nobtaining the telecom license and hence, amortisable u/s 35ABB\nof the Act.\n\n\n Assessment Year 2010-2011\n41\n2.

2. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in not applying the decision of the\njurisdictional Delhi High Court in the case of Bharti Cellular\nLimited and others 221 Taxman 323 on identical issue, on the\nbasis that it is pending adjudication before the Supreme Court.”\n\n12.

1. Ground No.2 raised by the Assessee pertains to disallowance of\nlicense fees amounting to INR.1,40,20,51,723/- claimed as deduction\nunder Section 37(1) of the Act. Both sides agreed that the issue in\ndispute stands covered by the decision of the Hon'ble Supreme Court\nin the case of Commissioner of Income Tax Vs. Bharti Hexacom\nLtd. [2023] 155 taxmann.com 322 (SC), dated 16/10/2023. On\nperusal of the judgment of Hon'ble Supreme Court in the case of\nCommissioner of Income Tax Vs. Bharti Hexacom Ltd. (Supra), we\nfind that the Hon'ble Supreme Court had held that the annual license\nfees paid by the Telecom Companies was capital in nature and will be\ncapital in nature and is accordingly required to be amortised under\nSection 35ABB of the Act. The Learned Authorized Representative for\nthe Assessee had submitted that the license fees paid by the Telecom\nCompanies in terms of the National Telecom Policy (NTP) - 94, being\nin the nature of capital expenditure was not claimed as business\nexpenditure under Section 37(1) of the Act as the same was\namortized in terms of Section 35ABB of the Act. Pursuant to the\nimplementation of the NTP-99 the variable license fee was annual fee\npayable in the normal course of business for operating and providing\ntelecommunication services and the fees paid covered the relevant\nprevious year only, the Telecom companies claimed the entire amount\nof variable license fees paid to the Department of Telecommunication\nas deductible revenue expenditure under Section 37(1) of the Income\nTax Act from financial year 199-2000 onwards. However, the Hon'ble\nSupreme Court has, in the case of Bharti Hexacom Ltd. (Supra), held\nthat even the annual fees paid by telecom operators was capital\nexpenditure covered under Section 35ABB of the Act. The aforesaid\njudgment of the Hon'ble Supreme Court does not result into\n\n\n Assessment Year 2010-2011\n42\npermanent disallowance but lead to staggered allowance of annual\nlicense fees over the period of license. Accordingly, the amount of\nvariable license fees paid to the Department of Telecommunication\nannually and debited to Profit & Loss Account would get disallowed\nand consequential deduction would be allowed to the Assessee over\nthe balance period of license on amortization basis which shall also\ninclude consequential deduction towards past year disallowance.\nDuring the course of appellate proceedings, the Learned Authorised\nRepresentative for the Assessee filed working showing that in view of\nthe aforesaid a disallowance to the extent of INR1.41 Crores would\nget sustained as per the aforesaid judgment of the Hon'ble Supreme\nCourt. Accordingly, we direct the Assessing Officer to verifying the\nworking furnished by the Assessee and compute the quantum of\ndisallowance as per the judgment of the Hon'ble Supreme Court in the\ncase of Bharti Hexacom Ltd. (Supra). Accordingly, in terms of\naforesaid, Ground No.2 raised by the Assessee is partly allowed.\n\nGround No.3:\n\n13. Ground No.3 raised by the Assessee reads as under:\n\n“3. Ground No. 3-Disallowance of depreciation on provision\nfor Asset Restoration Cost ('ARC') obligation\n\n3.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in disallowing tax depreciation of\nINR 16,00,000 claimed by the Appellant on the addition to fixed\nassets on account of ARC obligation.\n\n3.

2. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in not including the amount of ARC\nas a part of the cost of the telecom towers u/s 43(1) of the Act.\n\n3.

3. On the facts and in the circumstances of the case and in law and\nwithout prejudice to Grounds 3.1 and 3.2, the learned DRP/AO\nhave erred in not allowing deduction for ARC as a revenue\nexpense u/s 37(1) of the Act.\n\n3.

4. On the facts and in the circumstances of the case and in law and\n\n\n Assessment Year 2010-2011\n43\nwithout prejudice to Grounds 3.1 to 3.3, the learned DRP/ AO\nhave erred in not allowing deduction for ARC on a proportionate\nbasis over the period of lease.”\n\n13.

1. Ground No.3 raised by the Assessee pertains to depreciation on\nprovision for Assets Restoration Cost (ARC) made by the Assessing\nOfficer as per directions of the DRP.\n\n13.

2. The relevant facts in brief are that the Assessee was in the business\nof providing mobile telephonic service and the same required setting\nup of large number of transmission towers for providing sufficient\nnetwork coverage in the licensed territory. The Assessee entered into\nlease agreements with various owners of premise for setting up of\ntelecom towers for duration of about 15-20 years. As per the said\nlease agreements, the Assessee was required to remove the towers\nfrom the said leased premises on the expiry of the lease period.\nAccording to the Assessee, an obligation was cast upon the assessee\nto restore the lease premises to their original form and therefore,\nfollowing Accounting Standard-29 (AS-29), estimated cost to be\nincurred for meeting the aforesaid obligation was determined. As per\nnotes to the Audited Financial Statement for the relevant previous\nyear the aforesaid estimated cost was treated as directly attributable\nto the cost of the acquisition of the capital asset (i.e. telecom towers)\nand therefore, it was treated as part of the cost of acquisition of the\nsaid capital asset and accordingly, depreciation of INR.16,00,000/-\nwas claimed in respect of the same. Before the Assessing Officer it\nwas contended that obligation cost was expenditure necessary to\nbring such capital asset into existence and put them in working\ncondition and therefore depreciation claimed should be allowed.\nAlternatively, obligation cost should be allowed on proportionate basis\nover the period of the lease. The Assessing Officer rejected the\naforesaid contentions and disallowed the depreciation claimed\nconcluding that the obligation cost was in the nature of unascertained\n\n\n Assessment Year 2010-2011\n44\nliability; it was not possible for anybody to say with certainty as to\nwhat will be the expenditure required to restore the leased premises\nto original position at the time of vacating it; and therefore; any\nallocation made in that regard at the time of acquisition of the assets\nwas only in the nature of the provision for an unascertained liability,\nwhich was not allowable as deduction under the provisions of the Act.\n\n13.

3. The objections filed by the Assessee before the DRP were rejected and\nthe Assessing Officer passed Final Assessment Order making\ndisallowance of depreciation of INR.16,00,000/- concluding as under:\n\n“3. Disallowance of depreciation claimed on the addition to fixed\nassets on account of Asset Restoration Cost Obligation\n\nAs per the tax audit report filed by the assessee for the\nsubject assessment year, the assessee has capitalized certain\nsum on account of asset restoration cost obligation, being\nthe estimated cost to be incurred at leased and shared\nnetwork sites and office premises to restore them to restore\nthem to their original condition at the end of the leased\nperiod. Tax depreciation claimed on such ARO obligation has\nnot been furnished by the assessee. Hence, the balance of Rs\n64 lacs as depicted in note 11 of schedule 19. Thus by\napplying the rate of 25% on 64 lacs, the depreciation comes\nout to be Rs 16,00,000. Since, the asset restoration cost\nobligation was not in the nature of an ascertained liability,\nthe amount so allocated was only in the nature of a\nprovision. Therefore, no depreciation is allowable on the\nsame. Thus, vide notice dated 12.07.2013 the assessee was\nasked to justify the claim of depreciation on the asset\nrestoration cost obligation. In response the assessee\nsubmitted that as per Accounting Standard-29 issued by ICAI\nit was compulsorily required to make this provision. It was\nrequired as the assessee had entered into lease agreement\nwith various owners for its office space and for setting up of\ncell site towers and such lease agreements put the assessee\ncompany under obligation to restore the leased premises to\nits original form at the time of vacating such premises. It was\nargued that these obligations were directly attributable to the\nacquisition of capital asset and therefore formed part of the\ncost of acquisition. The assessee pleaded that the asset\nrestoration obligation cost was expenditure necessary to\n\n\n Assessment Year 2010-2011\n45\nbring such assets into existence and put them in working\ncondition and so the deprecation claimed on the same should\nbe allowed. The assessee has relied on various decisions in\nsupport of its contention Without prejudice to the above\nclaim of the assessee, the assessee has raised an alternate\ncontention that the liability shall be allowed as revenue\nexpenditure under section 37(1).\n\nThe above submissions of the assessee and the documents filed in\nthis regard have been duly considered. As per the Schedule - 20\nrelated to the \"Statement of Significant Accounting Policies\", the\nbasis and the method of accounting regarding Asset Restoration\nCost is given, which is reproduced as below:\n\n\"4 Fixed Assets, Depreciation and Amortization.\n(a) Asset restoration obligation are capitalized when it is\nprobable that an outflow of resources will be required to\nsettle the obligation and a reliable estimate of the amount\ncan be made\"\n\nThe above accounting policy statement makes it clear that the\noutflow on account of ARC is probable and the amount of outflow\nof resources on account of restoration is purely estimated.\nFurther, it has to be analyzed as to whether there is any legal\nobligation cost on the assessee company to restore the leased\npremises to its original position after the expiry of the lease\nperiod.\n\nIt is a fact that the lease periods are having gestation period of 15\nto 20 years and thus the assessee as a lessee is going to enjoy\nthe leased premises for a sufficient long period of time. However,\nit is not clear as to show the assessee has calculated the\nexpenses, which he is supposed to incur in future and that also\nafter a period of 20 years.\n\nTo examine further, it is worthwhile to refer to the sample lease\nagreement filed by the assessee company. The assessee has\nrelied on the 'Sample Agreement to claim that there is liability on\nassessee Company to restore the leased premises to its original\ncondition. In this regard, it is submitted that there is nothing in\nthe agreement, which casts an obligation on the assessee to incur\nexpenditure after the expiry of the lease period for restoration of\nthe leased premises. The agreement simply states that the\nassessee company shall carry out all work at its own cost and\nexpense and the licensor is indemnified in respect thereof. This\nprovision of the agreement is quite unambiguous and clear. It\nsimply states that whatever expenditure is to be done regarding\nthe installation of the cell site has to be borne by the licensee i.e.\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n46\nthe assessee company. Further, the agreement also gives the\npermission to the licensee (assessee company) to install the\nequipments at the cell site. Thus, there is no provision in the lease\nagreement, which creates a liability on the licensee to incur\nexpenditure on the restoration of the leased premises to its\noriginal condition after the expiry of the lease period. Since there\nis no legal binding on the assessee to incur Asset Restoration Cost\nthe expenses op account of ARO are neither allowable u/s 37(1)\nnor it can be capitalized under the provisions of the I.T. Act, 1961.\n\nAs per the Accounting Standard 29 (AS-29), the assessee\ncompany is entitled to create a provision but only when there is a\npresent obligation on the assessee company to incur the\nexpenditure, which is not so in the present case. Further, no\nreliable estimate can be made of the Asset Restoration Cost\nObligation on the basis of an event which is going to happen after\n20 years.\n\nThe AS-29 has been introduced to make provisions for ascertained\nliabilities which has crystallized during the year under\nconsideration and has to be booked by the assessee on mercantile\nbasis of accounting. Under the \"mercantile accountancy system\",\nthe net profit or loss is calculated after taking into account all the\nincome and all the expenditure relating to the period, whether\nsuch income has been actually paid or not. That is to say, the\nprofit computed under this system is the profit actually earned,\nthough not necessarily realized in cash, or the loss computed\nunder this system is the loss actually sustained, though not\nnecessarily paid in cash. The distinguishing feature of this method\nof accountancy is that it actually received, and it brings into debit\nexpenditure the amount it becomes legally due and before it is\nactually has been incurred before it actually disbursed. The\nassessee company is not entitled to distort the accounting\nstandards to make claims on account of fictitious and non existing\ncost/expenses.\n\nIt is further to see that as to whether the expenses which have to\nbe incurred in future can be set to form part of the 'actual cost' as\nper sub section (1) of Section 43. The definition of the term\n"Actual Cost" as per Section 43(1) is reproduces hereunder:-\n\n1) \"actual cost\" means the actual cost of the assets to the\nassessee, reduced by that portion of the cost thereof, if any,\nas has been met directly or indirectly by any other person or\nauthority:\n\nThus, actual cost means the actual cost of the assessee but does\nnot include estimated cost to be incurred by the assessee in\nfuture. So, the natural question which arises is -" What is\nincludible in actual cost? The expression "actual cost" should be\nconstrued in the sense in which no man of commerce would\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n47\nmisunderstand. For this purpose, it would be necessary to\nascertain the connotation of the expression in accordance with the\nnormal rules of accountancy prevailing in commerce and industry.\nThe accepted accounting rule for determining cost of fixed asset is\nto include all expenses directly relatable to acquisition of the asset\n(viz, cost price of the asset, interest on money borrowed for the\npurchase of the asset, bank charges). Expenses necessary to\nbring the asset to site, install it and make it fit for use (viz,\ncarriage inwards, loading and unloading charges, installation\ncharges, etc.) and expenses incurred to facilitate the use of the\nasset (viz, cost of repairs and modification prior to use the asset\nto make it workable, training expenses of the staff before the use\nof the plant, expenses on essential construction work such as cold\nstorage rooms, cooling towers, etc.) and expenses on insurance,\npower and fuel, incurred before the commencement of business.\nThus, according to the meaning of the term 'actual cost' discussed\nabove, the Asset Restoration Cost Obligation cannot form part of\nthe 'actual cost of the asset.\n\nAs per Section 32 of the I.T. Act, 1961, there are certain\nconditions laid down for claiming depreciation and for availing the\nsame, one has to satisfy the following conditions:-\n\nCondition 1: Asset must be owned by the assessee.\nConditions 2: It should be used during the relevant previous\nyear.\nCondition 3: It should be used during the relevant previous\nyear.\nCondition 4 Depreciation is available on tangible as well as\nintangible assets.\n\nThe asset must be owned by the assessee, in order to be entitled\nfor the claim of depreciation allowance. In case of the assessee,\nthe asset is not owned by the assessee company. Thus, the\nassessee is not fulfilling even the Condition 1 as stated above and\nhence is not entitled for depreciation allowance on Asset\nRestoration Cost.\n\nAs regards the claim of the assessee u/s 37(1) of the IT. Act,\n1961 is concerned, it is stated that only revenue expenditure is\nallowable as deduction and not the capital expenditure under the\nprovisions of section-37(1). As discussed above, the leased\npremises have been taken on rent for a long period of time (15-20\nyears) by the assessee company, the expense cannot be said to\nbe of revenue nature. It is further stated that u/s 37(1) only\nactual expenses, which have been incurred during the year under\nconsideration are allowable. Admittedly, the assessee company\nhas not incurred any expenditure on account of Asset Restoration\nCost Obligation. Further, the section 37(1) does not allow\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n48\nimaginary expenses, which have neither been incurred nor whose\nliability to incur has arisen during the year under consideration.\n\nFurther, the claim of the assessee that liability on account of ARO\nhas arisen in the year in which the lease agreement has been\nentered into is also without any basis. The expense on account on\naccount of ARO on leased premises is allowable u/s 37(1) to the\nassessee company in the year in which such expenses are actually\nincurred by the assessee on the completion of the lease period or\non termination of the lease agreement, whichever is earlier.\n\nThe Hon'ble DRP, New Delhi on similar facts for the assessee's\nown case for AY 2009-10 has upheld the disallowance.\n\nThus, it is clear that at the time of the acquisition of the asset, the\nliability to restore the asset to its original form at the time of\nvacating it is still an unascertained liability. At the time of the\nacquisition of the asset, it is not possible for anybody to say with\ncertainty as to what would be the expenditure required to restore\nthe asset to its original form at the time of vacating it. Thus, any\nallocation made in this regard at the time of acquisition of the\nasset is only in the nature of a provision for an unascertained\nliability which in any case is not allowable, Therefore, there is no\nquestion of there being allowed any depreciation on the same.\nHence, the depreciation claimed by the assessee amounting to Rs.\n16,00,000/- on the capitalization of the asset restoration\nobligation cost was disallowed and added to the income of the\nassessee in draft assessment order.\n\nHowever, the assessee filed its objections before the Hon'ble DRP.\n\nDirections of DRP:\n\nVide order dated 18-12-2014, the DRP-II considered the objection\non this issue and rejected the same giving detailed reasons for the\nsame. The DRP-II concluded as follows:\n\n\"The panel has considered the submission of the assessee.\nWhile it is true that an assessee, particularly a corporate\nassessee normally makes a provision for an expense or\nexpenditure etc. in the accounts of an estimated basis.\nHowever, there should be a gentific basis based on statistical\ninformation and past experience and also a reasonable estimate\nof liability fastened on the assessee. In the instant case, it\ncannot be said that provision for Asset Restoration Cost (ARC)\nis based on ascertained or crystallized liability that is based on\nhistorical data, computed in a scientific manner. Therefore, the\nstand taken by the AO is found to be tenable by the panel as\nsuch liability is contingent in nature. For A.Y. 2009-10, the DRP\nhas upheld the disallowance of depreciation on provision of\nARC. The assessee, therefore gets no relief on this ground of\nobjection.\"\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n49\nSince the DRP-II has not made any variation in the addition as\nproposed in the draft assessment order, an addition of Rs.\n16,00,000/- is made to the total income on account of\ndisallowance of depreciation claimed on the ARC-provision. Since I\nam satisfied that the assessee has furnished inaccurate particulars\nof its income, penalty proceedings under section 271(1)(c) are\nbeing initiated separately on this account.”\n\n13.

4. Being aggrieved, the Assessee has carried the issue in appeal before\nthis Tribunal.\n\n13.

5. We have heard both the sides and have perused the material on\nrecord.\n\n13.

7. We concur with the above view taken by the Co-ordinate Bench of the\nTribunal rendered in identical factual matrix. Admittedly, there is no\nchange in the facts and circumstances of the present case. For the\n Assessment Year 2010-2011 also, the quantum of claim made by\nAssessee was not examined or verified during the assessment\nproceedings. Therefore, respectfully following the above decision of\nthe Tribunal, we restore the issue back to the file of the Assessing\nOfficer with the direction for deciding the issue in the light of the\njudgment of the Hon’ble Delhi High Court [reported in the (2025) 172\ntaxman.com 378 (Delhi)] after verifying the quantum and\ncomputation of deduction/depreciation claimed by the Assessee in\nrespect of obligation cost. Thus, Ground No.3 raised by the Assessee\nis allowed for statistical purposes.\n\nGround No.4\n\n14. Ground No.4 raised by the Assessee reads as under:\n\n“4. Ground No. 4-Disallowance u/s 40(a)(ia) of the Act on\naccount of non-deduction of tax at source on domestic\nroaming charges paid to other telecom operators\n\n4.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP/ AO have erred in making an addition u/s 40(a)(ia)\nof the Act on account of non-deduction of taxes at source on\nroaming charges of INR 88,88,09,342 paid/payable by the\nAppellant to other telecom operators for the financial year\nrelevant to the subject AY.\n\nGrounds with respect to applicability of TDS:\n\n4.

2. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in holding that the Appellant was\n\n\n Assessment Year 2010-2011\n55\nrequired to deduct tax under section 194J of the Act on the\nroaming charges' paid/payable by the Appellant to other telecom\noperators, during the subject financial year.\n\n4.

3. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in not appreciating the fact that\nroaming services are standard automated services requiring no\nhuman intervention which is sine qua non for a service to qualify\nas a technical service for the purposes of section 194J of the Act.\n\n4.

4. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in not appreciating that the\nexamination of technical experts by the TDS officer subsequent\nto the judgment of the Hon'ble Supreme Court in the case of\nVodafone Mobile Services Limited ('VMSL' sister concern of the\nAppellant) for AY 2003-04 was in the context of interconnect\nservices ('IUC services') and not roaming services.\n\n4.

5. On the facts and in the circumstances of the case and in law and\nwithout prejudice to Ground 4.4, the learned DRP/AO have erred\nin not appreciating that even as per the statement of technical\nexperts recorded in the context of IUC services in the case of the\nAppellant itself, it has been stated that the carriage of calls is an\nautomatic activity and human intervention, if any, is required\nonly at the stage of inter-connect set-up, capacity enhancement,\nmonitoring, maintenance, fault identification, repair, etc.\n\n4.

6. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in ignoring the statement of\ntechnical experts recorded by the income-tax authorities in\nCoimbatore during proceedings conducted in the case of a group\ncompany of the Appellant Vodafone Cellular Limited, in the\ncontext of roaming services, wherein it has been clearly\nobserved that roaming services are automated services requiring\nno human intervention.\n\n4.

7. On the facts and in the circumstances of the case and in law and\nwithout prejudice to Grounds 4.2 to 4.6, the learned DRP/AO\nhave erred in not holding that characterization of a payment\nmust be done having regard to the dominant purpose/ intention\nof the payment.\n\nGrounds with respect to applicability of section 40(a)(ia) these grounds\nare without prejudice to the grounds stated above with respect to\napplicability of TDS on roaming charges:\n\n\n Assessment Year 2010-2011\n56\n4.

8. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in not holding that no disallowance\ncan be made u/s 40(a)(ia) of the Act since the Appellant is of a\nbonafide belief that no tax was required to be deducted at\nsource on roaming charges.\n\n4.

9. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in not restricting the disallowance\nu/s 40(a)(ia) of the Act to the amount which remains payable at\nthe end of the year.\n\n4.

10. On the facts and in the circumstances of the case and in law and\nwithout prejudice to Grounds 4.2 to 4.7, the learned DRP/AO\nhave erred in not adjudicating and holding that since the\ninsertion of second proviso to section 40(a)(ia) of the Act vide\nFinance Act, 2012 is curative in nature, the benefit of the same\nshould be extended to the past years and accordingly, the\nlearned AO be directed:\n\na. to allow deduction in respect of the disallowance of INR\n88,88,09,342 made u/s 40(a)(ia) of the Act for the\nsubject AY in the subsequent year's, basis the conditions\nprescribed in the second proviso to section 40(a)(ia) of\nthe Act;\n\nb. to allow deduction in the subject AY (i.c. AY 2010-11) for\nthe similar disallowance made in prior years basis the\nconditions prescribed in the second proviso to section\n40(a)(ia) of the Act.”\n\n14.

1. Ground No. 4 raised by the Assessee is directed against the\ndisallowance of roaming charges made by the Assessing Officer under\nsection 40(a)(ia) of the Act holding that the Assessee had failed to\ndeduct tax from the same. During the relevant previous year, the\nAssessee incurred domestic roaming charges amounting to\nINR.88,88,09,342/-. The roaming charges were paid by the Assessee\nto telecom operators towards roaming services provided by such\noperators to the subscribers of the Assessee. According to the\nAssessing Officer even though the process of carriage of calls was\nfully automated and no human intervention was involved, there was\nan element of human intervention at the time of setup, monitoring,\n\n\n Assessment Year 2010-2011\n57\nfault identification etc and therefore, the Assessing Officer was of the\nview that the roaming charges were subject to tax deduction at\nsource in terms of Section 194J of the Act. Since the Assessee had\nfailed to deduct tax at source in compliance with the provisions of\nSection 194J of the Act, the Assessing Officer made disallowance of\nINR.88,88,09,342/. in respect of roaming charges invoking provisions\ncontained in Section 40(a)(ia) of the Act in the Draft Assessment\nOrder, dated 31/03/2014.\n\n14.

2. In the objections filed by the Assessee on this issue. However, the\nDRP rejected the objections holding as under:\n\n“12.1 The assessee has further assailed in this ground of objection\n(objection no. 9), the disallowance u/s 40(a)(ia) of the Act on\naccount of non deduction of tax at source on domestic roaming\ncharges paid/payable to other telecom operators of Rs.\n88,88,09,342/- for the F.Y. relevant to the subject AY. The\nassessee has contended that roaming charges do not qualify as\nFee for Technical Services (FTS) under the Act since roaming\nservices are standard automated services i.e. standard facility\nrequiring no human intervention, as the entire process of\ntransmission of the call is fully automatic.\n\n12.2 However, the panel is of the opinion that provisions of section\n194J of the Act is clearly applicable in case of roaming charges\nas in the case of Inter connect services (IVC Services), [Refer\nCIT v. Bharti Cellular Ltd (2011) 330 ITR 239 (SC)), where\nhuman intervention is required. Therefore, the stand taken by\nthe assessing officer is ratified by the panel. The alternative\nplea of the assessee that provision of section 40(a)(ia) of the\nAct is only applicable for the amount which remains 'payable' at\nthe year end cannot be accepted in view of the decision of\nHon'ble Gujarat High Court in the case of CIT v. Sikandar Khan\nN. Tunvar (Tax Appeal No. 905, 709, 710, 832, 857, 894 and\n928 of 2012 and Tax Appeal No. 12, 51, 58, 218 and 333 of\n2013) where it has been held that the provision of Sec.\n40(a)(ia) are clear and the disallowance u/s 40(a)(ia) is not\nrestricted to amounts 'payable' at the end of the previous year\nsince section 40(a)(ia) does not require that the amount sought\nto be disallowed u/s 40(a)(ia) must be 'payable' at the end of\nthe previous year. Similar views have been upheld by the\n\n\n Assessment Year 2010-2011\n58\nCalcutta High Court in Crescent Export Syndicate/Md. Jakir\nHossain Mondal. The DRP for A.Y. 2009-10 upheld disallowance\nof roaming charges paid by the assessee on account of non\ndeduction of tax at source, u/s 40(a)(ia) of the Act. Therefore,\nthe stand taken by the AO is hereby confirmed and the\nassessee gets no relief on this ground of objection.” (Emphasis\nSupplied)\n\n14.

3. Accordingly, in the Final Assessment Order, dated 27/01/2015, the\nAssessing Officer made disallowance of INR.88,88,09,342/- under\nSection 40(a)(ia) of the Act.\n\n14.

4. Being aggrieved, the Assessee has carried the issue in appeal before\nthe Tribunal.\n\n14.

6. During the course of hearing, both the sides agreed that identical\nissue had come for consideration before the Tribunal in the case of\nthe Assessee in appeals pertaining to Assessment Year 2009-2010.\nVide Common Order, dated 14/03/2018, passed in [ITA Nos.\n1169&1950/Del/2014, titled Deputy Commissioner of Income\nTax, Circle-17(1), New Delhi vs Vodafone Essar Digilink Ltd.\nreported in [2018] 92 taxmann.com 234 (Delhi)] ppertaining to\n Assessment Year 2009-2010 [reported in (2018) 170 ITD (Delhi\n– Trib)] 2009-2010 the Co-ordinate Bench of the Tribunal decided\nthis issue in the favour of Assessee and deleted the disallowance of\nroaming charges under Section 40(a)(ia) of the Act holding that the\nprovision of Section 194J of the Act were not attracted in case of\npayments made by the Assessee towards roaming charges to other\ndomestic telecommunication companies for use of their respective\nnetworks. The relevant extract of the aforesaid decision of the\nTribunal reads as under:\n\n\n Assessment Year 2010-2011\n59\n“31. The next ground is against the disallowance of Rs.70,86,29,294 u/s.\n40(a)(ia) of the Act on account of 'Roaming charges'.\n\n32. The facts apropos this ground are that the assessee incurred\nexpenditure of Rs.70,86,29,294/- on domestic roaming charges on\nwhich no deduction of tax at source was made. On being called upon\nto explain as to why such payment be not considered as 'fees for\ntechnical services' under section 9(1)(vii) of the Act, the assessee\ncontended that the payments made for inter-connectivity/roaming\ncharges did not involve any human intervention and, hence, such\namount could not be considered as 'fees for technical services.' In\nsupport of its contention, the assessee relied on the judgment of the\nHon'ble jurisdictional Delhi High Court in CIT v. Bharti Cellular Ltd.\n[2009] 319 ITR 139/[2008] 175 Taxman 573 (Delhi) in which it has\nbeen held that the services rendered by MTNL and other\ntelecommunication companies qua inter-connection do not involve\nany human interface and, hence, the same cannot be regarded as a\n'technical service' so as to require deduction of tax at source u/s.\n194J of the Act. Not convinced, the AO treated such payment as\n'fees for technical services' requiring deduction of tax at source and\nin the absence of non-deduction of tax, the disallowance was made.\nThe assessee has come up in appeal before the Tribunal on the\ndisallowance.\n\n33. We have heard both the sides and perused the relevant material on\nrecord. It is noticed that the judgment relied by the assessee before\nthe authorities below in Bharti Cellular Ltd.'s case (supra) came up\nfor consideration before the Hon'ble Supreme Court. Vide its\njudgment dated 12.08.2010, the Hon'ble Supreme Court in CIT v.\nBharti Cellular Ltd. [2011] 330 ITR 239/[2010] 193 Taxman 97\nremanded the matter to the AO with a direction to seek expert\nevidence for showing if any human intervention was involved during\nthe process when call takes place so as to bring the payments of\ninter-connection charges within the ambit of 'fees for technical\nservices' u/s.194J of the Act. It is pertinent to note that pursuant to\nthis judgment, a detailed statement of technical experts of C-DOT\nwas recorded in the case of Vodafone Essar Mobile Services Ltd.,\nbased on which the AO in the instant case opined that the provision\nof section 194J were attracted and, hence, the failure to deduct tax\nat source invited the wrath of section 40(a)(ia). The AO in the\nimpugned order has also referred to the statement of Shri Tanay\nKishna from C-DOT based on which he reached the conclusion that\nsection 194J was attracted. It is pertinent to mention that when Shri\nTanay Krishna was cross-examined, he admitted that no human\nintervention was involved in the entire process of carriage of call\nfrom one operator to another. An elaborate discussion has been\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n60\nmade in this regard by the Kolkata Bench of the Tribunal in Vodafone\nEast Ltd. v. Addl. CIT [2016] 156 ITD 337/61 taxmann.com 263\n(Kol. - Trib.). After discussing the issue at length, the Tribunal\neventually held that the payment of roaming charges did not require\nany deduction of tax at source either u/s.194C or 194I or 194J and, hence, no disallowance could be made u/s.40(a)(ia) of the Act.\n\n34. At this stage, it is relevant to mention that after the judgment of the\nHon'ble Supreme Court in Bharti Cellular Ltd. (supra), there is some\nfurther development of law. In Bharti Cellular Ltd. (supra) the\nHon'ble Supreme Court remitted the matter to the AO for having\nexpert opinion to ascertain if any human intervention was involved\nso as to consider the attractability or otherwise of the definition of\n'technical services' under section 9(1)(vii) of the Act. In a later\ndecision in CIT v. Kotak Securities Ltd. [2016] 383 ITR 1/239\nTaxman 139/67 taxmann.com 356 (SC), the Hon'ble Supreme Court,\nafter considering its earlier decision in Bharti Cellular Ltd. (supra),\nobserved that: \"modern day scientific and technological\ndevelopments tend to blur the specific human element in an\notherwise fully automated process by which such service may be\nprovided.\" It was held that: 'the transaction charges, which were\ncore of dispute in that case, were paid for services fully automated in\nrespect of every transaction.' The Hon'ble Supreme Court held that if\nthere is certain exclusive or customised service rendered by the\nStock Exchange to individual person, that would fall within the ambit\nof 'technical services' and, if, however, such services are available to\nall the members of the Stock Exchange, it will cease to be a technical\nservice. Similar view has been reiterated in DIT (IT) v. A.P. Moller\nMaersk A.S [2017] 392 ITR 186/246 Taxman 309/78 taxmann.com\n287 (SC) in which their Lordships applied the test laid down in Kotak\nSecurities Ltd. (supra), and held that automated software based\ncommunication system set up by the assessee for use to its agent\nenabling them to access customer and documents etc. was not 'fees\nfor technical services.' It is significant to mention that the Hon'ble\nKarnataka High Court in CIT v. Vodafone South Ltd. [2016] 241\nTaxman 497/72 taxmann.com 347 has considered the judgment of\nthe Hon'ble Supreme Court in the case of Kotak Securities Ltd.\n(supra) and has eventually held that the roaming processes between\nthe participating companies cannot be termed as technical services\nand, hence, no deduction of tax at source is required. In view of the\nforegoing discussion, we are satisfied that the payment of roaming\ncharges by the assessee to other domestic players for use of their\nrespective networks does not amount to payment of fees for\ntechnical services within the meaning of section 9(1)(vii) of the Act\nand, hence, no deduction of tax was required u/s.194J. Ex\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n61\nconsequenti, no disallowance u/s.40(a)(ia) is called for. We, therefore, order to delete the disallowance.” (Emphasis Supplied)\n\n14.

7. Respectfully following the above decision of the Tribunal in the case\nof the Assessee for the preceding Assessment Year 2009-10, the\nAssessing Officer is directed to delete the disallowance made under\nSection 40(a)(ia) of the Act in respect of roaming charges. Ground\nNo. 4 raised by the Assessee is allowed.\n\nGround No.5\n\n15. Ground No.5 raised by the Assessee is directed against the\ndisallowance of deduction for discount extended by the Assessee to\nthe Pre-paid Distributors by invoking the provisions contained in\nSection 40(a)(ia) of the Act and the same reads as under:\n\n“5. Ground No. 5-Disallowance u/s 40(a)(ia) of the Act on\naccount of non-deduction of tax at source on the discount\nextended to prepaid distributors\n\n5.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in making an addition u/s 40(a)(ia)\nof the Act on account of non-deduction of tax at source on the\ndiscount of INR 1,44,45,51,001 extended to distributors of\nprepaid SIM cards/talktime during the financial year relevant to\nthe subject assessment year.\n\n5.

2. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in concluding that the relationship\nbetween the Appellant and its distributors is that of a Principal\nand Agent.\n\n5.

3. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in not holding that no disallowance\ncan be made u/s 40(a)(ia) of the Act since the Appellant is of a\nbonafide belief that no tax was required to be deducted at\nsource on discount extended to distributors of prepaid SIM\ncards/talktime.\n\n5.

4. On the facts and in the circumstances of the case and in law and\nwithout prejudice to Grounds 5.1 to 5.3, the learned DRP/AO\nhave erred in not restricting the disallowance u/s 40(a)(ia) of the\n\n\n Assessment Year 2010-2011\n62\nAct to the amount which remains payable at the end of the year\nwhich stands at 'NIL'.\n\n5.

5. On the facts and in the circumstances of the case and in law and\nwithout prejudice to Grounds 5.1 to 5.4, the learned DRP/AO\nhave erred in not adjudicating and holding that the insertion of\nsecond proviso to section 40(a)(ia) of the Act vide Finance Act,\n2012 is curative in nature and its benefit should be extended to\nthe past years and accordingly the learned AO be directed to\nallow benefit of the same after verification of supporting\ndocuments to be submitted by the Appellant and accordingly,\nthe learned AO be directed:\n\na. to allow deduction in respect of the disallowance of INR\n1,44,45,51,001 made u/s 40(a)(ia) of the Act for the\nsubject AY in the subsequent year/s, basis the conditions\nprescribed in the second proviso to section 40(a)(ia) of\nthe Act;\n\nb. to allow deduction in the subject AY (ie. AY 2010-11) for\nthe similar disallowance made in prior years (i.e. in AYs\n2007-08 to 2009-10) basis the conditions prescribed in\nthe second proviso to section 40(a)(ia) of the Act.”\n\n15.

1. The relevant facts in brief are that during the relevant previous year,\ndiscount amounting to INR.1,44,45,51,001/- were extended by the\nAssessee to its distributors of pre-paid products (for short 'Pre-paid\nDistributors'). The discount extended represented the difference\nbetween the Maximum Retail Price (MRP) of the talk-time & pre-paid\nconnections; and the price at which these were transferred to the\nPre-paid Distributors. The Assessing Officer and the DRP were of the\nview that the upfront discount given by the Appellant to the Pre-paid\nDistributor was in the nature of ‘commission’ liable to withholding of\ntax at source under section 194H of the Act. Since the Appellant had\nfailed to deduct tax at source, the Assessing Officer passed the Final\nAssessment Order, dated 27/01/2015, making disallowance of\nINR.1,44,45,51,001/- under Section 40(a)(ia) of the Act.\n\n15.

2. Being aggrieved, the Appellant has carried the issue in appeal before\n\n\n Assessment Year 2010-2011\n63\nthis Tribunal.\n\n15.

3. We have considered the rival submissions and perused the material\non record.\n\n15.

4. It emerges that identical issue had come up for consideration before\nthe Mumbai Bench of the Tribunal in case of the Assessee for the\n Assessment Year 2009-10 [ITA No. 1121 & 1885/Mum/2014,\ncommon order dated 08/11/2023], and identical disallowance made\nunder Section 40(a)(ia) of the Act by the Assessing Officer in respect\nof the upfront discount was deleted by the Tribunal holding as under:\n\n“11. The next issue urged in Ground no.9 relates to disallowance of\ndiscount extended on pre-paid cards/recharge vouchers u/s 40(a)(ia)\nfor non-deduction of tax at source. It was brought to our notice that an\nidentical issue was examined by the co-ordinate bench in ITA\nNo.3425/Mum/2014 relating to AY 2009-10 in the case of M/s Vodafone\nIdea Ltd (As successor to Spice Communications Ltd) and the Tribunal,\nvide its order dated 24-02-2023, has held that the TDS is not\ndeductible from the discount paid on prepaid cards. The relevant\nobservations are extracted below:-\n\n“3.

8. 2. We find that in the case before the Co-ordinate Bench of\nPune Tribunal in the case of Idea Cellular Limited vs DCIT (TDS )\nin 1042, 1953 -1955/Pun/2013 and ITA Nos.1867\n19 M/s. Vodafone India Ltd. 1870 /Pun/2014 dated 04/01/2017,\nthe lower authorities had held that relationship between assessee\nand its distributors was Principal and Agent. It was only the Pune\nTribunal which after examining the distributors agreement came\nto the conclusion that the relationship is that of Principal to\nPrincipal. In fact Pune Tribunal also examined the very same\nagreement which is the subject matter of agreement before us in\nthe instant case before us, as it is not in dispute that all the\ndistributors agreements are standard agreements across India.\nWe also find that the Pune Tribunal relied on para 62 of the\ndecision of Hon'ble Karnataka High Court in the case of Bharti\n\n\n ITA No.1158/Del/2015\n Assessment Year 2010-2011\n64\nAirtel Ltd vs DCIT reported in 372 ITR 33 (Kar). We find that the\nPune Tribunal had taken note of the fact that Hon'ble Karnataka\nHigh Court in 372 ITR 33 had distinguished all the three High\nCourt judgements (i.e. Kerala, Calcutta and Delhi) relied upon by\nthe ld. DR hereinabove. Effectively Pune Tribunal adopted the\ndecision of Hon'ble Karnataka High Court. The ld. DR relied on\npara 64 of decision of Hon'ble Karnataka High Court and argued\nthat it is against assessee for the first 7 months since discount is\nseparately shown in the books of the assessee as an expenditure.\nIn our considered opinion, what is to be seen is the broader\nquestion raised before the Hon'ble Jurisdictional High Court in\nIncome Tax Appeal No. 1129 of 2017 dated 13/01/2020 in\nassessee's own case against the order of Pune Tribunal. For the\nsake of convenience, the entire order is reproduced hereunder:-\n\n“Heard learned counsel for the parties.\n2. The Appellant-Revenue challenges the order dated\n4 January 2017 passed by the Income Tax Appellate\nTribunal in Income Tax Appeal No.1041, 1042 and 1953 to\n1955/PUN/2013.\n\n3. This Appeal pertains to the Assessment Year is\n2010-11.\n\n4. The Appellant-Revenue has raised the following\nquestions as a substantial questions of law :-\n\n\"(a) Whether on the facts and circumstances of\nthe case and in law, the Hon'ble Income Tax\nAppellate Tribunal erred in holding the\ndiscount given by the assessee to its\ndistributors on prepaid SIM Cards does not\nrequire deduction of tax under Section 194H\nof the Income Tax Act ?\n\n(b) Whether on the facts and in the\ncircumstances of the case and in law, the\nHon'ble Income Tax Appellate Tribunal erred\nin setting aside the case to the Assessing\nOfficer?\"\n\n5. The Tribunal noted the observations of the\nAssessing Officer that the discount allowed to the\ndistributors by the Respondent - assessee company is on\naccount of principal to principal relationship and not that of\nprincipal to agent. The Tribunal followed the decision of\nthe Karnataka High Court in the 20 M/s. Vodafone India\nLtd. case of Bharati Airtel Ltd. vs. DCIT [372 ITR 33] and\nheld that the sale of SIM cards/recharge coupons at\ndiscounted rate to the distributors was not commission\nand therefore not liable to deduct the TDS under Section\n194H. The Tribunal noted that there was no decision of\nthis Court on this issue on that date.\n\n6. Learned counsel for the parties have tendered the\ncopy of the order passed in Income Tax Appeal No. 702 of\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n65\n2017 subsequently in the case of Pr. Commissioner of\nIncome Tax-8 vs. M/s. Reliance Communications\nInfrastructure Ltd ., where same issue arose for the\nconsideration of this Court. The Division Bench of this\nCourt while holding against the Appellant - Revenue\nobserved thus :-\n\n\"3. Having heard the learned Counsel for the parties\nand having perused the documents on record, we do\nnot find any error in the view of the Tribunal. The\nTribunal, as noted, besides holding that the\nCommissioner's order setting aside the order passed\nunder Section 201 was not carried in appeal, had also\nindependently examined the nature of the transaction\nand come to the conclusion that when the transaction\nwas between two persons on principal to principal\nbasis, deduction of tax at source as per section 194H\nof the Act, would not be made since the payment was\nnot for commission or brokerage.\"\n\n7. In view of the finding of fact rendered by the Tribunal\nwhich we have noted above, the same principle would\napply in the present case. Therefore, the questions of law\nas proposed do not give any rise to substantial question of\nlaw. The Appeal is disposed of. (emphasis supplied by us)\n\n2.

8. 2.

1. It is also pertinent to note that the Distribution\nAgreement of Maharashtra Circle was subject matter of\nexamination and adjudication by the Pune Tribunal wherein the\nPune Tribunal had recorded a finding of fact that the relationship\nbetween assessee and distributor is that of Principal to Principal.\nThis Order has been approved by the Hon'ble Jurisdictional High\nCourt. We find that the Hon'ble Jurisdictional High Court held that\nonce Principal to Principal relationship is established, there could\nbe no commission or discount and consequently no deduction of\ntax at source in terms of section 194H of the Act is warranted.\n\n2.

8. 3. With regard to reliance placed by the ld. DR vehemently\non the decision of Hon'ble Delhi High Court in assessee's own case\nreported in 325 ITR 148 (Del) is concerned, we find that the\nHon'ble Karnataka High Court in the case of Bharti Airtel Ltd (372\nITR 33) referred supra had after considering the decision of\nHon'ble Delhi High Court referred supra and decided the issue in\nfavour of the assessee. We find that the Hon'ble Karnataka High\nCourt had also followed the decision of Hon'ble Jurisdictional High\nCourt in the case of Qatar Airways reported in 332 ITR 21 M/s.\nVodafone India Ltd. 253 (Bom). Hence the reliance placed on the\ndecision of Hon'ble Delhi High Court by the ld. DR does not\nadvance the case of the revenue. In any case, the decisions of\n\n\n Assessment Year 2010-2011\n66\nHon'ble Delhi High Court, Hon'ble Kerala High Court and Hon'ble\nCalcutta High Court referred supra had been considered and\ndistinguished by the Hon'ble Karnataka High Court referred supra.\n\n2.

8. 4. We further find that the Hon'ble Rajasthan High Court in\nthe case of Hindustan Coca Cola Beverages (P) Ltd vs CIT III\nJaipur reported in 402 ITR 539 (Raj) which had rendered a\ncomprehensive judgement on the impugned issue together with\nvarious other assesses including Idea Cellular Ltd (assessee\nherein). The relevant Income Tax Appeal Nos.168/2015,\n169/2015, 170/2015 and 171/2015 which were admitted by the\nHon'ble Rajasthan High Court on 18/10/2016 relates to assessee\nherein for Rajasthan Circle in respect of the identical issue. The\nquestion no.1 raised before the Hon'ble Rajasthan High Court is as\nunder:-\n\n1. Whether in the facts and circumstances of the case, the\nTribunal was justified in holding that whether the assessee is\nliable to deduct TDS u/s.194-H of IT Act, as the relation\nbetween assessee and distributor is that of Principal to\nAgent?\n\n2.

8. 4.

1. We find that the Hon'ble Rajasthan High Court after\nconsidering the plethora of judgements on the impugned issue of\nvarious High Courts (which includes the three High Court decisions\nof Kerala, Delhi and Calcutta relied upon by the ld. DR before us\nherein) had rendered its decision as under:-\n\n“Idea Cellular\n\n58. As the agreement is produced, issues are answered in\nfavour of assessee in the departmental appeals.\n\n59. Even the contention which has been raised by the\ncounsel for the assessee that the final tax is paid by the\nDistributor and not by the agent, the revenue is not at loss in\nany form.\n\n………………………\n\n61. In view of the above discussion, all the appeals of\nassessees are allowed and those of Department are\ndismissed.”\n\n2.

8. 5. We further find that the Hon'ble Rajasthan High Court in\nthe case of CIT (TDS) Jaipur vs Idea Cellular Ltd in Income Tax\nAppeal No. 90/2018 dated 12/04/2018 had taken an identical view\non the identical set of facts. Further we find that the Hon'ble\nJurisdictional High Court in the case of CIT(TDS) Pune vs\nVodafone Cellular Ltd (assessee's own case) in Income Tax Appeal\nNos.1152 , 1274, 1995, of 2017 & Income Tax Appeal Nos.571,\n1266 of 2018 dated 27/01/2020 had also taken an identical view\n\n\n Assessment Year 2010-2011\n67\nin respect of identical issue.\n\n2.

8. 6. The ld. DR before us placed heavy reliance on the decision\nof Hon'ble Supreme Court in the case of Union of India vs\nAssociation of Unified Telecom Service Providers of India and\nOthers reported in (2020) 3 SCC 525 dated 24/10/2019 to drive\nhome the point that the assessee had erred in accounting the\ndiscounted price of sales as its revenue when sim cards are sold to\ndistributors. We have gone through the said decision and we find\nthat the said decision was rendered in the context of\ndetermination of Annual Gross Revenue for the purpose of fixing\nthe licence fee payable to Government by the telecom service\nproviders. It further held that while reckoning the Gross\nRevenues, no deduction would be available such as discount,\ncommission etc. First of all, we have already held that the\nassessee had not made any payment of discount to the\ndistributors. In any case, we have already held that the entries in\nthe books of accounts are not determinative of tax liability of an\nassessee by placing reliance on various decisions of Hon'ble Apex\nCourt. Those decisions still rule the field as they were not\noverruled by the latest Supreme Court decision relied upon supra\nby the ld. DR. It is trite law that though the decision of Hon'ble\nApex Court would be binding as per Article 141 of the Constitution\nof India, still the judgement of the Hon'ble Supreme Court should\nbe understood from the issue raised before it. In our considered\nopinion, this decision has got absolutely nothing to do with the\napplicability of provisions of section 194H of the Act. Hence we\nhold that the reliance placed by the ld. DR on the said decision is\ngrossly misplaced.\n\n2.

8. 7. The ld. DR before us vehemently submitted that the\norders of Hon'ble Rajasthan High Courts and Hon'ble Jurisdictional\nHigh Courts and Hon'ble Karnataka High Court had not attained\nfinality as they had been appealed by the revenue before the\nHon'ble Supreme Court. This argument of the revenue, in our\nconsidered opinion, cannot be a deterrent for this Tribunal to\nfollow those High Court orders. We find that the similarly worded\ndistribution agreement had been subject matter of adjudication\nand examination by the Hon'ble Rajasthan High Court and Hon'ble\nJurisdictional High Court wherein the Hon'ble High Courts had\ntaken a categorical view that the relationship between assessee\nand distributor is only that of Principal to Principal. Hence this\nfinding cannot be disturbed by this tribunal by respectfully\nfollowing the judicial hierarchy. Infact no contrary materials on\nfacts were even brought on record by the revenue before us to\n\n\n Assessment Year 2010-2011\n68\ndisturb the findings of Hon'ble High Courts. Hence we have no\nhesitation in holding that the relationship between assessee and\ndistributor is only that of Principal to Principal and not that of\nPrincipal to Agent and accordingly there is no obligation for the\nassessee to deduct tax at source in terms of section 194H of the\nAct.\n\n2.

8. 8. In view of the aforesaid observations and findings given\nthereon, we do not deem it fit to adjudicate other arguments\nadvanced by the ld. AR on the applicability of second proviso to\nsection 40(a)(ia) read with section 201 of the Act, as it would\nbecome academic in nature. This aspect of the issue is left open.”\n\n3.

5. On perusal of above extract of the decision of the Co-ordinate Bench\nof the Tribunal it can be seen that the Tribunal had concluded that tax\nwas not required to be withheld under Section 194H of the Act from\nthe upfront discount offered to Pre-paid Distributors, and\nconsequently, no disallowance could be made under Section 40(a)(ia)\nof the Act for failure to deduct tax at source. The above decision of\nthe Tribunal has been followed by the Co-ordinate Benches of the\nTribunal while deciding identical issue in favour of the Assessee in\nappeal preferred for the Assessment Years 2011-2012 & 2012-13 [ITA\n\n\n Assessment Year 2010-2011\n69\nNo.884/Mum/2016 & 2834/Mum/2017, common order dated 17/05/2024]\nand for the Assessment Year 2013-2014 [ITA No.6671/Mum/2017, dated\n22/10/2024].\n\n15.

6. Therefore, respectfully following the above decisions of the Tribunal in\nthe case of the Assessee, the disallowance of INR.1,44,45,51,001/-\nmade under Section 40(a)(ia) of the Act in respect of the upfront\ndiscount extended to Pre-paid Distributors is deleted. Ground No. 5\nraised by the Assessee is allowed.\n\nGround No.6\n\n16. Ground No.6 raised by the Assessee is as under:\n\n“6. Ground No. 6-On Disallowance of Penalty paid to DoT:\n\n6.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP/AO have erred in disallowing penalty paid to the\nDoT amounting to INR 2,41,63,000 under section 37(1) of the\nAct.”\n\n16.

1. Ground No. 6 raised by the Assessee pertains to disallowance of\npenalty paid to Department of Telecommunications (‘DoT’). During the\nrelevant previous year, the Assessee paid INR.2,41,63,000/- to DoT\nas penalty for non-compliance of the various requirements prescribed\nby the DoT in connection with verification of subscribers. According to\nthe Assessee the aforesaid penalty was levied on account of default\ncommitted in compliance with the terms of the license agreement\nentered into between the Assessee and DoT, it represented a\ncontractual liability arising as a result of breach/non-compliance of the\nterms of the contract and not a statutory liability imposed under the\nprovisions of any statutory enactment. Accordingly, the aforesaid\npenalty levied by DoT was not disallowed by the Assessee in the\ncomputation of income. However, the Assessing Officer was of the\nview that aforesaid penalty amount could not be allowed as deduction\nunder Section 37 of the Act. Therefore, in the Draft Assessment\n\n\n Assessment Year 2010-2011\n70\nOrder, dated 31/03/2014, the Assessing Officer proposed\ndisallowance of the aforesaid penalty paid to DoT by invoking\nprovisions of Section 37 of the Act. However, the objections filed by\nthe Assessee against the proposed disallowance were rejected by the\nDRP. Accordingly, as per the directions of the DRP the Assessing\nOfficer passed the Final Assessment Order, dated 27/01/2015 making\ndisallowance of INR.2,41,63,000/- invoking Section 37 of the Act\nread with Explanation thereto. The relevant extract of the Final\nAssessment Order, giving the applicable facts and contention of both\nthe sides, reads as under:\n\n“7. Penalty amounting to Rs 2,41,63,000/-\nThe assessee was asked to show cause as to why penalty paid of\nRs 2,41,63,000/- be not disallowed vide show cause dated\n24.

2. 104. It was submitted that the amount was paid to DoT as\npenalty for non compliance of various guidelines prescribed by\nDOT/irregularing. However they submitted u/s 37(1) there is\ndisallowance for infringement of law but not contractual\nobligation. As per the provisions of section-4 of the Indian\nTelegraph Act, 1885, the Central Govt has the exclusive privilege\nof establishing, maintaining and working in telegraphs within the\nterritory of India. The provisions appended thereto, however\nconfer power upon the Central Government to part with its right\nof exclusive privilege by grant of licenses on such terms and\nconditions and on such consideration as it think fit and proper for\nthe aforementioned purpose.\n\nFurther, Section-7(3) provides that in the event of any breach of\nany conditions of license, the Central Government may by rules,\nprescribe fines for the conduct of any telegraphs established,\nmaintained or worked by any person licensed under the act.\nFurther, Section-20 provides for penalties for breach of\nconditions of license.\n\nThus, the contention of the assessee that the said fines are\ncontractual in nature and are flowing through the license\nagreement is not true as the terms provided in the license\nagreement arise from section-7(3) of the Indian Telegraphs Act,\n1885 which clearly states that that in the event of any breach of\nany conditions of license, the Central Government may by rules,\n\n\n Assessment Year 2010-2011\n71\nprescribe fines for the conduct of any telegraphs established,\nmaintained or worked by any person licensed under the act. The\npenalties have arisen on account of anomalies and irregularities\nin the Customer Identification Form (CIF) and Customer\nAcquisition Form (CAF) are serious in nature and pertain to the\nsecurity of the nation and as such do not constitute contractual\nviolations but are arising out of non-adherence to law. As per the\nexplanation provided under section-37(1) of the Income Tax Act,\n1961, whereby it is declared that any expenditure incurred by an\nassessee for any purpose which is an offence or which is\nprohibited by law shall not be deemed to have been incurred for\nthe purpose of business or profession and no deduction or\nallowance shall be made in respect of such expenditure, the said\npayment towards penalty which is an infringement of law\namounting to Rs.2,41,63,000/- was disallowed u/s 37(1) and\nadded into the income of the assessee as per draft assessment\norder.\n\nHowever, the assessee filed its objections before the Hon'ble\nDRP on this issue.\n\nDirections of the DRP:\n\nVide order dated 18-12-2014, the DRP-II considered the\nobjection on this issue and rejected the same giving\ndetailed reasons in its order. The DRP-II concluded as\nfollows:\n\n\"However, from the fact of the matter, it is clear\nthat explanation to section 37(1) is clearly\napplicable for such violation on account of\ncontractual provisions For the AY 2009-10, the DRP\nhas upheld the disallowance. Hence, the addition\nmade by the AO is hereby confirmed.\"\n\nSince, the DRP-II has not made any variation in the addition as\nproposed in the draft assessment order, an addition of\nRs.2,41,63,000/- is made to the total income on account of\ndisallowance of penalty amount. I am satisfied that the assessee\nhas filed inaccurate particulars of its income, penalty\nproceedings under section 271(1)(c) are being initiated\nseparately on this account.”\n\n16.

2. Being aggrieved the Assessee has carried the issue in appeal before\nthis Tribunal.\n\n\n Assessment Year 2010-2011\n72\n16.

4. It emerges that this is a recurring issue and had also come up for\nconsideration before the Tribunal in the case of Vodafone East\nLimited Vs. ACIT [2016] 156 ITD 337 and in Assessee’s own\ncase for the Assessment Year 2009-2010 [Deputy\nCommissioner of Income Tax, Circle-17(1), New Delhi vs\nVodafone Essar Digilink Ltd. [ITA Nos.1169&1950/Del/2014,\ndated 14/03/2018, reported in [2018] 92 taxmann.com 234\n(Delhi), (2018) 193 TTJ 150 (Delhi Trib)]. In identical facts and\ncircumstances, the disallowance made under Section 37 of the Act in\nrespect of penalty paid to DOT was deleted by the Tribunal holding\nthat penalty paid to DOT was for the breach of contractual obligation\nand hence, the same was allowable as a deduction under Section 37\nof the Act read with Explanation thereto. The relevant extract of the\ndecision of the Delhi Bench of the Tribunal in the Assessee’s own case\nfor the immediate preceding Assessment Year 2009-2010 reads as\nunder:\n\n“43. The next ground is against the disallowance of penalty paid to\nDepartment of Telecommunications (DoT) amounting to Rs.\n63,83,000/-.\n\n44. Succinctly, the facts of this ground are that the assessee paid a\nsum of Rs.63,83,000/- to DoT as penalty for non-compliance.\nThe AO observed that the penalties were levied on account of\nanomalies and irregularities in the Customer Identification Form\n(CIF) and Customer Acquisition Form (CAF). Such amount was\nconsidered as hit by Explanation 1 to section 37(1) as in the\nopinion of the AO, it was an expenditure incurred for a purpose\nwhich is an offence or prohibited by law. No relief was allowed\nby the DRP which resulted into an addition of Rs.63.83 lac by\nthe AO in the impugned order. The assessee has assailed this\naddition before the Tribunal.\n\n\n Assessment Year 2010-2011\n73\n45. We have heard both the sides and perused the relevant material\non record. The AO has correctly recorded that penalty of Rs.\n63.83 lac was paid by the assessee on account of anomalies and\nirregularities in CIF and CAF. For giving a hue of penalty to such\nan amount as magnetized under Explanation 1 to section 37(1)\nof the Act, the AO referred to the provisions of section7(3) and\nsection 20 of the Indian Telegraphs Act, 1885. We have gone\nthrough the relevant provisions of the Indian Telegraphs Act,\n1885 and find that anomalies and irregularities in CIF and CAF\nare not covered under any of the specific provisions of the Indian\nTelegraphs Act. Rather, such penalties were imposed for non\ncompliance with the contractual obligations under the Licence\nagreement. As the payment by the assessee is not for an\noffence, nor is it prohibited by law, the same being failure to\ncomply with the contractual obligations, cannot fall within the\ndomain of Explanation 1 to section 37(1) of the Act. Similar\nissue came up for consideration before the Kolkata Bench of the\nTribunal in the case of Vodafone East Ltd. (supra). The Tribunal\nhas held in para 10.5 of its order that the amount paid under\nsimilar circumstances cannot be disallowed under Explanation 1\nto section 37(1) of the Act. No contrary decision has been\nbrought to our notice by the ld. DR. Respectfully following the\nprecedent, we hold that the addition of Rs.63.83 lac has been\nwrongly made and the same is directed to be deleted.”\n\n16.

5. The Revenue has failed to bring any material on record to distinguish\nthe above decision of the Tribunal either on facts or in law. Therefore,\nrespectfully following the above decision of the Tribunal, we delete the\ndisallowance made by the Assessing Officer in respect of penalty paid\nto DOT and direct the Assessing Officer to allow deduction of\nINR.2,41,63,000/- as claimed by the Assessee under Section 37(1) of\nthe Act. Accordingly, Ground No.6 raised by the Assessee is allowed.\n\nGround No.7\n\n17. Ground No.7 raised by the Assessee is as under:\n\n“7. Ground No. 7-Disallowance of network site rentals:\n\n7.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP has exceeded its jurisdiction in directing the learned\nAO to verify the crystallization of \"network site rentals' which is\nin direct conflict with the provision of section 144C(8) of the\nAct,\n\n\n Assessment Year 2010-2011\n74\nwhich prohibits the learned DRP from issuing any direction for\nfurther enquiry.\n\n7.

2. Without prejudice to ground 7.1, on the facts and in the\ncircumstances of the case and in law, the learned DRP erred in\ndirecting the learned AO to verify whether network site rental\nexpenses of INR 396.25 crores crystallised during the subject\nAY, instead of the amount paid/payable by the Appellant to\nIndus Towers Limited ('Indus') as network site rental.\n\nThe below grounds under point 7 are without prejudice to Grounds 7.1\nand 7.2.\n\n7.

3. On the facts and in the circumstances of the case and in law, the\nlearned AO has erred in disallowing expense of INR 396.25\ncrores appearing as 'network site rental' in the P&L account for\nthe subject year.\n\n7.

4. On the facts and in the circumstances of the case and in law,\nthe learned AO has erred in alleging that the Appellant has failed to\nfurnish any evidence to substantiate whether such expenses\ncrystallized in the subject AY\n\n7.

5. Without prejudice to grounds 7.3 and 7.4, on the facts and in\nthe circumstances of the case and in law, the learned AO has\nerred in rejecting the Master Services Agreement under which\nthe aforesaid charges were billed by Indus, audited financial\nstatements and list of Passive Infrastructure sites, which were\nfurnished by the Appellant as evidence of crystallisation of the\naforesaid expenses.\n\n7.

6. On the facts and in the circumstances of the case and in law, the\nlearned AO grossly. erred in directing the Appellant to justify\nreasonableness/genuineness of network site rental expense,\ndespite express directions of the Hon'ble DRP which required him\nto allow deduction for \"network site rentals' if the same had\ncrystallized' in the subject AY.\n\n7.

7. Without prejudice to grounds 7.3 to 7.6, on the facts and in the\ncircumstances of the case and in law, the learned AO has erred\nin rejecting the third party confirmation additionally sought and\nsubmitted by the Appellant, wherein Indus confirmed that Indus\nbilled service charges amounting to INR 418.71 crores to the\nAppellant during the subject year towards rendition of Passive\nInfrastructure services.\n\n\n Assessment Year 2010-2011\n75\n7.

8. Without prejudice to grounds 7.3 to 7.7, on the facts and in the\ncircumstances of the case and in law, the learned AO has erred\nin disallowing the entire expense of INR 396.25 crores appearing\nas network site rental in the P&L account of the subject year,\ninstead of the amount which actually represents network site\nrentals paid/ payable by the Appellant to Indus.”\n\n17.

1. Ground No. 7 raised by the Revenue pertains to disallowance of\nNetwork Site Rentals. We have heard both the sides on this issue and\nhave perused the material on record.\n\n17.

2. The issue before us pertains to implementation of the directions issued\nby the DRP. It was contended by the Learned Authorised Representative\nfor the Assessee that the Assessing Officer had exceeded jurisdiction by\nmaking disallowance of Network Site Rental expenses under Section\n40A(2)(b), while the Learned Authorised Representative for the\nAssessee supported the Final Assessment order and submitted that the\nAssessee had failed to comply with directions of the DRP and place on\nrecord relevant documents and details. On perusal of the order passed\nby the DRP we find that the DRP had concluded that the provisions of\nSection 40A(2)(b) of the Act were not applicable in the facts of the\npresent case. The amount of Network Site Rentals charged by 'Indus\nTowers Ltd.' ['Indus'] was neither excessive nor unreasonable and that\nthe there is no evasion of taxes or reduction of tax liability once the\nHon’ble High Court had approved the Scheme of Demerger. However,\nthe DRP had directed the Assessing Officer allow the deduction for\nNetwork Site Rentals charged claimed by the Assessee to the extent the\nsame had crystallised during the relevant previous year.\n\n17.

3. Pursuant to the DRP directions, the Assessing Officer issued a notice,\ndated 13/01/2015, calling upon the Assessee to furnish detailed\nworking of the Network Site Rental charges paid to Indus and also to\njustify the reasonability of the rent so paid. In response, the Assessee\nfiled Reply Letter, dated 23/01/ 2015 [placed at page Nos.375 to 376\nPaper Book-Vol. 2 filed by the Assessee] furnishing certificate issued by\n\n\n Assessment Year 2010-2011\n76\nIndus confirming that it has billed service charges to the Appellant for\nthe captioned year towards rendition of passive infrastructure services.\nReference was made to (a) the Master Service Agreement entered into\nbetween Indus and the Appellant (alongwith supplementary\nagreements) documenting the arrangement between Indus and the\nAppellant for rendition of the passive infrastructure services; (b) the\nTax Audit Report obtained by the Appellant wherein no qualification\nunder clause 17(k) 'amount debited to Profit & Loss A/c. which is of\ncontingent in nature' was made; and (c) the Financial Statements of the\nAppellant. The Assessee also furnished details/chart of Network Site\nRental charges paid to Indus. Thus, perusal of record shows that the\nAssessee had furnished the aforesaid documents/details for\nsubstantiating crystallisation of the expenses during the relevant\nprevious year and therefore, we reject the contention of the Revenue\nthat the Assessee had not furnished any documents/details in\ncompliance with the directions of the DRP. To the contrary we note that\nthe Assessing Officer had rejected the submission of the Assessee\nstating that the documents/details furnished were not sufficient without\npointing out any infirmity in the said documents. We note that the DRP\nhad already concluded that the provisions of Section 40A(2)(b) of the\nAct were not attracted. The relevant extract of the decision of the DRP\nreads as under:\n\n“19.

1. It has been contended in this ground of objection (objection no.\n16) that the AO has erred in proposing to disallow expenses of\nRs.396.25 crores appearing as 'network site rental in the P&L\nAccount for the subject year u/s 40A(2)(b) of the Act. The\nassessee has submitted that it is a subsidiary of Vodafone East\nLtd (VEL) who is a subsidiary of Vodafone India Ltd (VIL),\nengaged in provision of mobile telephony services and Vodafone\nInfrastructure Ltd (VinfL) was another wholly owned subsidiary\nof VIL, which was registered as infrastructure provider, VDL\ntogether with its group entities transferred their PL assets to\nVinfl, without any consideration, which thereafter merged with\nIndus together, with the tower companies of Bharti & Idea\ngroup. The intent of transferring the PI assets to Indus was to\npromote passive infrastructure sharing for administrative ease of\nrunning and maintaining such PI assets and also to enable the\n\n\n Assessment Year 2010-2011\n77\noperators to provide improved quality of services. Further, post\nmerger, VDL pays service charges to Indus for the tower\nservices provided and during the financial year relevant to the\nsubject AY, charges of Rs.396.25 crores has been claimed as a\nfully deductible revenue expenses out of which VMSL has paid\nIndus Rs.393.92 crores. On the other hand, the AO concluded in\nthe draft assessment order that the entire scheme of transfer of\nPl assets was to evade taxes and reduce tax liability. For using\nthe Pl assets, that have been transferred by VDL for nil\nconsideration, VMSL has paid Rs.393.92 crores as network\nrental to Indus and hence the entire network site rental paid to\nIndus is excessive and unreasonable u/s 40A(2)(b) of the Act.\n\n19.2 The assessee has further submitted before the panel that\namendment in section 40A(2)(b) (v) of the Act to bring in its\nambit companies which have common shareholders, having\nsubstantial interest, was brought in by the Finance Act, 2012,\nw.e.f 1 April, 2013 and accordingly the said amendment is not\napplicable for the AY 2010-11. Moreover, the payment made to\nIndus for availing tower services does not fall under the purview\nof section 40A(2)(b) of the Act, since there is\nno substantial interest of Indus in the business of VDL. From the\nshareholding structure of the Vodafone group Indus Towers Ltd\n(Ann I), it is evident that the basic requirement of section\n40A(2)(b) of the Act i.e. the recipient of the payment (i.e.\nIndus) having a substantial interest in the payer company (i.e.\nVDL) is not met. Without prejudice to the above, the site\nnetwork rentals were genuine business expenses and the very\nprovisions of section 40A(2)(b) of the Act, under which expenses\nhave been disallowed by the AO cannot be applied to the facts of\nthe present case. As regards whether Vodafone Group (the\nultimate holding company of VDL) has received any dividend\nfrom M/s Indus Towers Ltd, the assessee has submitted that\nIndus was operative from 1 April, 2009 and it has distributed\ndividend to its shareholders for the first time in F.Y. 2012-13 and\nthe details of dividend received by the Vodafone group from\nIndus till date is as under, on which DDT has been paid.\n\nF.Y. A.Y. Amount\n(In INR. Millions)\n2012-13 2013-14 4050\n2013-14 2014-15 2200\n\nMoreover, dividend distribution tax u/s 115 O of the Act has duly\nbeen paid by Indus, while distributing such dividend. Further,\nthe assessee has submitted and placed on record the fact that\nwhile network site rentals paid by the assessee are bonafide\nexpenses for the assessee, the said charges recovered by Indus\nhave been duly offered to tax by Indus in the nature of business\nincome. Moreover, it is the DOT that in a bid to create a high\nquality low cost, rapid, wide coverage mobile telecommunication\nnetwork in India, proposed through the project 'MOST a system\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n78\nof sharing of Pl assets by the telecom operators, with the further\nobjective of reducing the number of towers and thus optimizing\nthe capital and operational expenditure of the telecom operators.\nIt is in line with the above that it was agreed among Vodafone,\nBharti and Idea groups to transfer their Pl assets to Indus\n(Including those belonging to the VDL) in order to promote PI\nsharing for administrative ease of running and maintaining such\nPl assets. Further, this aspect is also clearly brought out in the\nscheme of demerger filed by the assessee with the Hon'ble Delhi\nHigh Court. Therefore, the expenses should be allowed as\ngenuine business expenses.\n\n19.3 The panel has carefully considered the submission of the\nassessee. The Hon'ble Supreme Court in Upper India Publishing\nHouse Pvt. Ltd v. CIT (1979) 117 ITR 569 (SC) has held the\nexpenses or payment cannot be disallowed unless it is held that\nthe expenditure is excessive or unreasonable. U/s 40A(2)(b),\nany payment made to related persons, if considered excessive or\nunreasonable by the AO is not allowed as deduction and the AO\ncan make such disallowance on the basis of the fair market value\nof goods, services or facilities or the legitimate needs of the\nbusiness or profession or the benefit derived or accruing there\nfrom. The specified related persons in the case of company\nIncludes Any Director of the Company or any relative of such a\nDirector and also any person in whose business or profession,\nthe assessee or Director or any relative of such person has a\nsubstantial interest (i.e. 20% or more of voting power/profits).\nHowever, companies having the same holding company are also\nto be included but effective from AY 2013-14. Therefore, the\namendment that was brought in by the Finance Act 2012,\napplicable from 1" April, 2013 (AY 2013-14) is not applicable in\nthe case of the assessee for the AY 2010-11. Moreover, the\npayment made to Indus by the assessee for availing\ntower services does not fall under the purview of\nsubstantial interest, as contemplated u/s 40A(2)(b), as\nthere is no substantial interest of Indus in the business of\nthe assessee. Therefore, the very provisions of section\n40A(2)(b) of the Act under which the expenses have been\ndisallowed by the AO cannot be applied to the facts of the\npresent case.. Even otherwise, the payments cannot be\ntermed as excessive or unreasonable as the AO has not\nprovided the details regarding such excessiveness or\nunreasonableness based on certain instances except for\nmerely stating that the entire scheme of transfer of PI\nassets was to evade taxes and reduce tax liability and for\nusing Pl assets that have been transferred by the\nassessee for nil consideration, the assessee has paid Rs.\n393.92 crores (Rs.396.25 crores has been claimed as\ndeductible) as network rental to Indus. This fact of the\nmatter has already been brought out in the scheme of\nmerger filed by the assessee as duly approved by the\nHon'ble Delhi High Court. Therefore, the AO is directed to\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n79\ndelete the said addition of Rs.396.25 crores as appearing\nin the P & L Account, made u/s 40A(2)(b) of the Act and\nallow the said expenses, if the same have crystallized in\nthe subject assessment years.” (Emphasis Supplied)\n\nThus, it is clear that the DRP had directed the Assessing Officer to allow\nthe said expenses if the same have been crystallised during the\ncaptioned year. Pursuant to the DRP directions, the Assessing Officer\nissued a notice dated 13/01/2015 [placed at page No. 374 of Paper\nBook Vol. 2 furnished by the Assessee] calling upon the Assessee to\nfurnish detailed working of the rent paid to Indus and also to\njustify the reasonability of the rent so paid. We hold that the approached adopted\nby the Assessing Officer cannot be countenanced. Therefore, Assessing\nOfficer is directed to follow the directions issued by the DRP and allow\ndeduction for Network Site Rental expenses after verifying that the\nexpenses had crystallized during the relevant previous year.\n\n17.

4. In this regard, we note that the Assessee had made following\nsubmission in this regard before the Assessing Officer vide 23/01/2015.\n\n“Crystallisation of Site Network Charges:\n\n• At the outset, we wish to submit that out of the total network\nsite expenses of Rs 396.25 crores debited to the profit and loss\naccount of VDL during the subject AY, a significant portion\npertains to charges paid to Indus, which should have in fact\nbeen disallowed by your office instead of disallowing the entire\nexpense as appearing in the books.\n\n• Without prejudice to the above, as regards the issue of\ncrystallization/ accrual of network site charges amounting of Rs\n396.25 crores, we wish to submit that the very fact that the\nsame are appearing under schedule 13 of the audited Financial\nStatements of the subject AY, and as there is no qualification in\nthe Tax Audit Report under clause 17(k)' amount debited in\nprofit and loss account which is of contingent in nature,\nestablishes that the aforesaid expense have indeed crystallised/\naccrued during the subject AY. Copy of the audited Financial\nStatements and the tax audit report for the subject AY has\nalready been filed before your office on 19 December 2013 and\n\n\n Assessment Year 2010-2011\n80\n28th January 2014. However, for your ready reference the\nsame is again attached as Annexure 2 and 3 respectively.\n\n• Therefore, the aforesaid information is sufficient for your office\nto determine that such expenses indeed crystallized/ accrued in\nthe subject AY. However, without prejudice to our contention\nthat exercise undertaken and information sought by your office\nis patently illegal, in the interest of justice and to eliminate any\ndoubt which your office may have on the question of\ncrystallization of such charges, we wish to submit the following\ninformation/documents with your office:\n\n- Certificate issued by Indus confirming that Indus billed\nservice charges amounting to Rs 418.71 crores to VDL\nduring the subject AY towards rendition of Passive\nInfrastructure services to VDL Certificate enclosed as\nAnnexure 6.\n\n- Indicative list of sites in the Rajasthan, UP (East) and\nHariyana circles -enclosed in CD due to large file size\n\n- Master Services Agreement dated March 7, 2008 between\nIndus and VDI. (together with supplementary agreements)\ndocumenting the arrangement between Indus and VDL for\nrendition of the Passive Infrastructure services-enclosed in\nCD due to large file size.\n\nIn view of the above discussion and the abovementioned direction\nof the Hon'ble DRP, we request your office to provide relief of Rs\n396.25 crores incurred on site network charges paid by VDL\nduring the subject AY and thereby delete the disallowance made\nunder section 40A(2)(b) of the Act by your office in the draft\nassessment order passed for the subject AY.\n\n17.

5. The Assessing Officer is directed to consider afresh the above\nsubmissions made by the Assessee and examine the documents relied\nupon by the Assessee for the purpose of implementing directions of\nthe DRP to verify if the expenses have been crystallised during the\nyear and grant deduction for the expenses so verified. Since we have\ndirected the Assessing Officer to implement the directions given by\nthe DRP, the Assessee is granted liberty to place before the Assessing\nOfficer such supporting documents/details as the Assessee may deem\n\n\n Assessment Year 2010-2011\n81\nfit to establish crystallization of expenses during the relevant previous\nyear. In terms of aforesaid, Ground No.7 raised by the Assessee is\nallowed for statistical purposes.\n\nGround No.8\n\n18. Ground No.8 raised by the Assessee is as under:\n\n“8. Ground No. 8-Addition on account of unsecured loans:\n\n8.

1. On the facts and in the circumstances of the case and in law, the\nlearned AO has erred in making an addition of security deposits\namounting to INR 3,94,50,000 obtained by the Appellant from\nthe distributors under Section 68 of the Act.”\n\n18.

1. Ground No.8 raised by the Assessee pertains to disallowance of\naddition made by the Assessing Officer under Section 68 of the Act on\naccount of unsecured loan.\n\n18.

2. During the assessment proceedings the Assessing Officer noted that\nthe according to the tax audit report the Assessee had received\nINR.3,94,50,000/- as additional loans/advances during the relevant\nprevious year. The Assessee was required to furnish the copy of PAN,\ncurrent address, copy of ledger, confirmation from the parties from\nwhom this amount has been received during the relevant previous\nyear. The Assessee claimed that the aforesaid amount represented\nthe aggregate deposits received by the Assessee from the distributors\nduring the relevant previous year. However, according to the\nAssessing Officer Assessee failed to furnish any confirmation or any\nother documentary evidence during the assessment proceedings and\nmerely relied upon the particulars furnished by the tax auditor in their\ntax audit report. Therefore, the Assessing Officer concluded that the\nAssessee has failed to establish identity of lenders and the source of\ncredit. Accordingly, in the Final Assessment Order addition of\nINR.3,94,50,000/- was made in the hands of the Assessee invoking\nthe provisions contained in Section 68 of the Act.\n\n\n Assessment Year 2010-2011\n83\n18.

3. During the course of hearing both the sides had agreed that in case of\nDeputy Commissioner of Income Tax, Circle-17(1), New Delhi\nvs Vodafone Essar Digilink Ltd. [ITA Nos.1169 & 1950/Del/2014,\ndated 14/03/2018, reported in [2018] 92 taxmann.com 234 (Delhi),\n Assessment Year 2009-2010] the Tribunal had set aside this issue to\nthe files of the Assessing Officer with a direction to the Assessee to\nfurnish all the relevant details/information to satisfy the Assessing\nOfficer about the genuineness of the transactions. The relevant\nextract of the decision of Co-ordinate Bench of the Tribunal in the\ncase of the Vodafone Essar Digilink Ltd. (Supra) for the Assessment\nYear 2009-2010 reads as under:\n\n“54. Ground no.8 of the assessee's appeal is against the addition of\nRs.2,00,75,850/- made by the AO u/s.68 of the Act.\n\n55. Briefly stated, the facts of this ground are that the assessee\nshowed unsecured loans in its audited balance sheet at Rs.\n4,45,76,609/-. On being called upon to prove the genuineness of\nthe loans, the assessee did not furnish any confirmation or any\nother documentary evidence to support the fresh cash credits\nreceived during the year. The AO noticed that in case of 816\nparties, neither there were complete addresses nor even the PANs\nmentioned in the tax audit report. The assessee showed to have\nreceived Rs.25,000/-each from 803 parties; Rs.50,000/- each\nfrom 9 parties and Rs.1 lac each from four parties. Total amount\nfrom these 816 parties came at Rs.2.00 crore and odd. The AO\ntreated the same as unexplained cash credit u/s.68 in the draft\norder. The assessee contended before the DRP that these 816\ncreditors were its 'Distributors' who deposited security through\nbanking channel. The DRP accepted the assessee's contention and\nheld that no addition should be made in case the identity of these\npersons to whom regular commission/discount was paid, was\nestablished. The AO was directed to verify the claim of the\nassessee in this regard.\n\n56. In the consequential proceedings, the assessee furnished PAN\ndetails only in respect of 264 cases. Even in such cases where PAN\ndetails were furnished, the assessee did not furnish any address.\nThe assessee's contention that the amount of security deposits\nwere received through banking channel and, hence, they should\n\n\n Assessment Year 2010-2011\n84\nper se be considered as genuine, was turned down by the AO. This\nresulted into an addition of Rs.2.00 crore against which the\nassessee has come up before the Tribunal.\n\n57. Having heard both the sides and perused the relevant material on\nrecord, it is seen that the assessee claimed to have received\nsecurity deposits from its 'distributors' to whom commission etc.\nwas also paid. We agree with the view point of the AO that a mere\nreceipt of an amount through banking channel cannot prove the\ngenuniness of credit in terms of section 68 of the Act. The\nassessee is not only required to prove identity and capacity of the\ncreditor, but also genuineness of transactions so as to escape the\nclutches of section 68 of the Act. Adverting to the facts of the\ninstant case, we find that the claim of the assessee of having\nreceived such amounts from Distributors has not been\ncorroborated before the AO and hence the same cannot be\naccepted. The ld. AR contended that the necessary details are\navailable for production and one more opportunity be granted to\nit. Considering the totality of the facts and circumstances of the\ninstant case, we are of the considered opinion that it would be\nin the fitness of things if the impugned order on this score is set\naside and the matter is restored to the file of the AO for a fresh\ndecision. We order accordingly and direct him to decide this issue\nafresh. The assessee is also directed to furnish all the relevant\ndetails/information as called for by the AO to satisfy himself as to\nthe genuineness of the transactions. If the assessee again fails to\nfurnish necessary details as called for, the AO will be entitled to\ndraw an adverse inference against the assessee.”\n\n18.

4. It is admitted position that in fact and circumstances identical to\n Assessment Year 2009-2010, addition of INR.3,94,50,000/- was made\nunder Section 68 of the Act for the Assessment Year 2010-2011.\nTherefore, in the line of the above decision of the Tribunal in the case\nof Vodafone Essar Digilink Ltd. for the Assessment Year 2009-2010\n(Supra), we deem it appropriate restore the issue back to the file of\nthe Assessing Officer with identical directions. Accordingly, the\naddition of INR.3,94,50,000/- is set aside, and the issue is restored to\nthe file of the Assessing Officer for a fresh adjudication. The Assessee\nis directed to furnish all the relevant details/information as called for\nby the Assessing Officer to establish the genuineness of the\ntransactions. It is clarified that in case the Assessee fails to furnish\n\n\n Assessment Year 2010-2011\n85\nnecessary documents/details, the Assessing Officer would be at liberty\nto draw an adverse inference against the Assessee. In terms of the\naforesaid, Ground No. 8 raised by the Assessee is allowed for\nstatistical purposes.\n\nGround No. 9\n\n19. Ground No.9 raised by the Assessee is pertains to the following\ntransfer pricing adjustments and the same reads as under:\n\n“9. Ground No. 9-Transfer pricing adjustment\n\n9.

1. On the facts and in the circumstances of the case and in law, the\nlearned DRP has erred in confirming the adjustments\naggregating to INR 195,03,55,009 made by the learned AO and\nthe Additional Director of Income-tax, Transfer Pricing Officer\nII(4), New Delhi (hereinafter referred to as 'the learned TPO')\nu/s 92CA of the Act.\n\nTransfer Pricing adjustment-Disallowance of brand royalty\npayment\n\n9.

2. On the facts and in the circumstances of the case and in law, the\nlearned TPO/AO/DRP have erred in rejecting the economic\nanalysis undertaken by the Appellant using comparable\nuncontrolled price method ('CUP') and transactional net margin\n('TNMM') Method to determine the arm's length price (ALP) of\nthe royalty payments made to associated enterprises ('AEs').\n\n9.

3. On the facts and in the circumstances of the case and in law,\nthe learned TPO/AO/DRP have erred in determining the ALP of the\nroyalty transaction at Nil price without application of any transfer\npricing method prescribed u/s 92C of the Act.\n\n9.

4. On the facts and in the circumstances of the case and in law, the\nlearned TPO/AO/DRP have exceeded its jurisdiction in\ndetermining the ALP of the royalty transaction at Nil price by\nchallenging the business and the commercial decision of the\nAppellant of making royalty payments to AEs and by erroneously\nholding that Appellant has not derived any benefits from royalty\npayments to AEs despite holding that the advertisement,\nmarketing and promotion ('AMP') expenditure incurred by the\nAppellant has increased the value of the brands owned by such\n\n\n Assessment Year 2010-2011\n86\nAEs.\n\nTransfer Pricing adjustment - Reimbursement of excessive\nadvertisement & marketing spend\n\n9.

5. On the facts and in the circumstances of the case and in law, the\nlearned TPO/AO/DRP have erred in holding AMP expenditure\nincurred by the Appellant is a separate international transaction\nu/s 92B of the Act, without appreciating the functional profile of\nthe Appellant according to which such expenses were incurred as\npart of the Appellant's roles and responsibilities as a telecom\nservice provider and not under a separate arrangement/\nagreement with AEs to promote brands owned by such\nenterprises.\n\n9.

6. On the facts and in the circumstances of the case and in law,\nthe learned TPO/Assessing Officer/DRP have erred in not\nappreciating the fact that the AMP expenses were incurred by\nthe Appellant on its own account and the same didn’t require\nany separate compensation/reimbursement from the AEs.\n\n9.

7. On the facts and in the circumstances of the case and in law,\nthe learned TPO/Assessing Officer/DRP have erred in arbitrarily re-\ncharacterizing the Appellant to earn its remuneration in\naccordance with such re-characterised business model without\nappreciating the fact that the Appellant is an entrepreneurial\ntelecom service provider engaged in provision of\ntelecommunication services in its licenses telecom circle(s).\n\n9.

8. On the facts and in the circumstances of the case and in law, the\nlearned TPO/AO/DRP have erred in applying the 'bright line\nmethod to determine the excessive/non-routine AMP expenses\ngiven the fallacies and deficiencies in applying such quantitative\nparameters without having regard to the nature of business\ncarried by the Appellant and the industry in which it operates &\nby using inappropriate set of comparable companies.\n\n9.

9. Without prejudice to the above, on the facts and in the\ncircumstances of the case and in law, the learned TPO/AO/DRP\nhave erred in considering expenses in the nature of selling &\ndistribution expenses & sales promotion expenses while applying\nbrightline. Further, while doing so, the learned TPO/AO/DRP\nhave erred in not following the findings of various benches of the\njurisdictional ITAT on this issue.\n\n\n Assessment Year 2010-2011\n87\n9.

10. On the facts and in the circumstances of the case and in law, the\nlearned TPO/AO/DRP erred in holding that the Appellant has\nrendered a service to its AE by incurring excessive AMP expenses\nand hence should have charged an additional mark-up of\n12.50% on the alleged excessive AMP expenses from the AEs.\nFurther, while doing so, the learned TPO/AO/DRP erred in\nappreciating that if at all a mark-up of 12.50% has to be\napplied, then the same should have been applied only on the\nvalue-added expenses (excluding third party costs) incurred by\nthe Appellant for providing the alleged service in the nature of\nbrand promotion.\n\n19.

1. We would first take up Ground No. 9.1 read with 9.2 to 9.10 raised by\nthe Assessee pertaining to the transfer pricing adjustment of INR. in\nrespect of Brand Royalty Expenses.\n\n19.

2. The relevant facts in brief are that during the Financial Year 2009-\n2010, the Assessee along with its group companies had entered into a\n‘Trademark License Agreement’ with Rising Group Limited and\nVodafone Irelard Marketing Limited for use of ‘Vodafone’ and ESSAR’\nname and trademark while providing telecommunication services in\nIndia. In terms of the aforesaid agreements, the Assessee made\nfollowing payments during the relevant previous year:\n\nS.No.\nDescription of transaction\nValue (INR.)\n1\nPayment for software development charges to AE\n1,06,49,210\n2\nPayment of royalty fee to AEs for the grant of\nright to use “Vodafone” and “Essar”\ntrademark/ trade name\n27,20,28,430\nTotal 66,07,05,614\n\n19.

3. The Assessee bench-marked the royalty payments by using three\ncomparables:\n\nSNo.\nName of the Licensor\nName of Licencee\nRoyalty Rate\n(%)\n1.\nOmniReliant. Inc.\nNet Talk.com Inc.\n1\n2.\nHarnishfeger Technologies Inc.\n.75\n3.\nJean michel Cousteau ocean\nfuture society Inc.\nUltrastripMorris\nmaterial handling Inc.\nsystems Inc.\n2\nMean\n1.25\n\n\n Assessment Year 2010-2011\n88\nIt was contended on behalf of the Assessee Since the royalty\npayments of 0.5% and 0.25% of net service revenue was lower than\nthe royalty payments being made under comparable third-party\nagreements (mean being 1.25%), the royalty payments made by\nAppellant were established to be at an ALP.\n\nDuring the Assessment proceedings, the TPO issue show cause notice\ndated 20/12/2013 requiring the Assessee to furnish\ndetails/submissions in relation to royalty payments. In response the\nAssessee filed submissions vide letter dated 20/01/2014 in the said\nsubmissions the Assessee added another comparable using CUP\nMethod to bench mark payments of royalties. The summary of the\nsaid comparable is as under:\n\nLicensor\nLicensee\nPeriod of\nexistences of\nagreement\nProduct\ndescription\nRate of\nroyalty\nMotorola\nInc., USA\nForward\nIndustries INC.,\nUSA\nJanuary 2008\n– March\n2009\nTrademark license\nfor the use of the\n‘Motorola’\nsignature and the\nM logo (insignia)\n7% of the net\nsales\nAccording to the Assessee the royalty amounts paid to VIML and\nRising Groups Limited were lower than the royalty payments being\nmade under comparable third-party agreements, and therefore, no\nTransfer Pricing Adjustment was warranted.\n\n19.

4. However, the TPO rejected the aforesaid submissions of the Assessee\nand concluded as under:\n\n“9. Thus it can be easily concluded that there seems to be no\nrationale behind Payment of Royalty to Essar and Vodafone by\nthe assessee. It was a device used by the assessee to shift\nprofits out of the country disguised as Royalty to its AE's\noutside the country. Thus the payment was not at Arm's\nLength.\n\n\n Assessment Year 2010-2011\n89\nIn view of the above facts and discussions I have reached\nfollowing conclusions:\n\n• The taxpayer did not produce any evidence /\ndocumentation on how the royalty rate has been fixed.\nAs an arm's length, party paying royalty would like to\nsee the profitability from future revenue streams before\nfixing a royalty rate\n\n• The taxpayer did not produce any cost benefit analysis\nat the time of entering into the agreement with its AE\nshowing the: the royalty rate is not fixed based on\nexpected benefit\n\n• The taxpayer has also not been able to show that it\nderived any economic benefit from the alleged use of\nname and trademark of the AEs and it has failed to\nprovide any details regarding payment of such royalty in\nthe past.\n\n• The profit that accrues to the licensee may not arise\nsolely through the engine of the use of name and\ntrademark. There are returns from the mix of assets it\nemploys such as fixed and working capital and the\nreturns from intangible assets such as distribution\nsystems, trained workforce, etc. Allowances need to be\nmade for them. In the absence of any data provided by\nthe taxpayer, it is impossible to know what percentage\nof profits the licensee would like to share at an arm's\nlength after removing the returns from assets employed\nand other economic factors.\n\n• The taxpayer did not give the details of royalty rates in\nthe industry and has not been able to benchmark this\ntransaction properly so as to prove that it was at Arms\nLength.\n\nThus the taxpayer has failed to discharge its onus to produce\nany primary evidence, e.g..(0) how the royalty rate has been\nfixed to justify that the payment of royalty is at arm's length,\n(ii) cost benefit analysis, (iii) economic benefit derived by the\nassessee and (iv) details of royalty rates in the industry etc.CUP\ndata or any other data to support its payment being at arm's\nlength.\n\n10. In view of the detailed discussions in the preceding paragraphs\nthe arm's length price of royalty is determined at Rs. Nil in\nplace of Rs.27,20,28,430. The amount of Rs.27,20,28,430 is\n\n\nITA No.1073/Del/2015 & ITA No.1158/Del/2015\n Assessment Year 2010-2011\n90\ntreated as adjustments U/s/92CA as the value of royalty\ntransactions in uncontrolled conditions is treated as Rs Nil\nunder CUP and in the absence of any substantiation to show\nthat substantial benefit has accrued to the taxpayer.”\n\n19.

5. Thus, vide Order dated 27/01/2014, passed under Section 92CA(3) of\nthe Act the TPO proposed the Transfer Pricing Adjustment of\nINR.27,20,28,430/- which was incorporated in the Draft Assessment\nOrder dated 31/03/2014 passed under Section 143(3) read with\nSection 144C(1) of the Act.\n\n19.

6. The Assessee filed objection against the aforesaid proposed Transfer\nPricing adjustment before DRP which were dismissed by the DRP vide\norder dated 18/12/2014 passed under Section 144C(5) of the Act.\nAccordingly, the Assessing Officer passed Final Assessment Order,\ndated 27/01/2015, under Section 144C(1) read with Section 143 of\nthe Act making the Transfer Pricing Addition of INR.27,20,28,430/-.\n\n19.

7. Being aggrieved, the Assessee carried the issue in appeal before\nthe Tribunal.\n\n19.

8. Meanwhile, in appeal preferred by the Assessee against the Order,\ndated 14/03/2018, passed by the Delhi Bench of the Tribunal for the\n Assessment Year 2009-2010 [ITA No.1950/Del/2014], the Hon'ble\nDelhi High Court passed Order, dated 01/06/2018, issuing certain\ndirections to the Tribunal. Pursuant thereto, Interim Order, dated\n25/03/2019, was passed by the Co-ordinate Bench of the Tribunal in\nrelation to Assessment Years 2009-2010 to Assessment Year 2012-\n2013. Against the aforesaid Interim Order passed by the Delhi Bench\nof the Tribunal in the present appeal [ Hon'ble Delhi High Court and vide Order, dated\n22/05/2019, passed in Writ Petition (Civil) No.5606/2019, the Hon'ble\nDelhi High Court clarified that the Tribunal shall adjudicate the\nTransfer Pricing grounds on merits uninfluenced by the Interim Order\n\n\nITA No.1073/Del/2015 & Assessment Year 2010-2011\n91\ndated 25/03/2019 passed by the Tribunal.\n\n19.

9. Thereafter, vide letter dated 15/05/2019, the Assessee filed fresh\ncomparability analysis for benchmarking of royalty payments (Placed\nat Page 96 to 109 of the Paper Book). As per the fresh comparability\nanalysis performed by the Assessee the royalty rate as per Internal\nComparable Agreements came to 0.7% to 1.7% and External\nComparable Agreements (Mean rate) came to 5.20%. According to\nthe Assessee, the rate at which the Assessee paid royalty to its AEs\nwas less than the aforesaid royalty rates, and therefore, no transfer\npricing adjustments were warranted. Thereafter, the Assessee filed\nanother submission on 06/06/2019 placing on record benchmarking\nanalysis for the Assessment Year 2009-2010 which, according to the\nAssessee were also relevant for the Assessment Year 2010-2011. In\nresponse the Assessing Officer filed a common remand report for\n Assessment Years 2009-2010 to 2012-2013 objecting to the fresh\ncomparability analysis done by the Assessee and reiterated the\nconclusion drawn by TPO. The Assessee was confronted with the\naforesaid remand report and in response to the same the Assessee\nfile submissions dated 16/09/2019 rebutting the objections raised in\nthe remand report.\n\n19.

10. We find that the identical issue had come for consideration before the\nCo-ordinate Bench of the Tribunal in the case of the Assessee for the\n Assessment Year 2009-2010 [ITA Nos.1169/Mum/2014, dated\n12/02/2025, titled Vodafone Digilink Limited Vs. Deputy\nCommissioner of Income Tax, Circle 17(1), New Delhi].\nParagraph 4 of the said order of the Tribunal, recording identical set\nof the facts, reads as under:\n\n“4. Ground of appeal No.9 related Transfer Pricing adjustment relating\nto payment of royalty:\n\n4.

1. During the alleged assessment year, the assessee paid royalty for\n\n\n Assessment Year 2010-2011\n92\nuse of trademark/ trade name to the following Associated\nEnterprises [‘AES’]:\n\nName of the AE\nAmount of\nroyalty paid\n(in INR.)\nRate of royalty\nAgreement\nVodafone Ireland\nMarketing Limited\n[‘VIML’]\n7,64,77,939\n0.30% of the net\nservice revenues for\nthe use of ‘Vodafone’\ntrademark/ trade name\nTrademark Licence\nAgreement dated 19\nDecember 2008\n(effective date – 29 June\n2007) (refer page\nNos.178 to 195 of paper\nbook Volume I dated 17\nOctober 2014.\nRising Group Limited\n[‘RGL’]\n3,82,38,969\n0.15% of the net\nservice revenues for\nthe use of ‘Essar’\ntrademark/ trade name\nTrademark License\nAgreement dated 19\nDecember 20008\n(effective date – 29 June\n2007) (refer page\nNos.196 to 208 of the\npaper book Volume I\ndated 17 October 2017)\n\n4.

2. The assessee inter-alia benchmarked the aforesaid transaction of\npayment of royalty using the Comparable Uncontrolled Price\n[‘CU’} as the most appropriate method wherein it selected the\nlicense agreement entered into between ‘Motorola Inc., USA\n[‘Motorola’] and ‘Forward Industries Inc., USA’ for the use of\n‘Motorola’ trade name and trademark as the CUP data. The\nsummary of this comparable agreement is given hereunder:\n\nLicensor\nLicenseee\nPeriod of\nexistence of\nagreement\nProduct description\nRate of\nroyalty\nMotorola\nInc., USA\nForward\nIndustries\nInc., USA\nJanuary 2008 –\nMarch\n2009\nTrademark license\nfor the use of the\n‘Motorola’ signature\nand the M logo\n(insignia)\n7% of the net\nsales\n\n4.

3. Since the royalty payment of 0.15% and 0.30% of net service\nrevenues made by the assessee was lower than the royalty\npayment being made under comparable third-party agreement,\nroyalty payments made by the assessee were considered to be at\nan arm's length.\n\n4.

4. The TPO in terms of Order dated 29/01/2013 determined the arms\nlength price ['ALP') of the royalty transactions at Nil on account of\nthe following reasons:-\n\n• the CUP analysis undertaken by the assessee is incorrect\nsince Motorola is involved in the business of designing and\n\n\n Assessment Year 2010-2011\n93\nselling wireless network infrastructure equipment such as\ntransmission base stations and signal amplifiers whereas the\nassessee is engaged in providing telecommunications\nservices. Thus, the royalty payments made by the assessee\ncannot be compared with the royalty payment made by\nMotorola.\n\n• the payment of royalty by the assessee to its foreign AEs has\nnot resulted in the increase in the profitability of the\nassessee and, hence, the use of Vodafone and Essar\ntrademark/ trade name have not brought any commercial\nbenefit to the assessee.\n\n• the assessee did not produce any cost benefit analysis\nundertaken at the time of entering into the agreement with\nits AEs and hence, royalty rate paid by the assessee was not\nfed based on expected benefit accruing from the use of\ntrademark trade name;\n\n• the assessee did not provide any details of the royalty rates\nin the industry; and\n\n• the increase in the sales of the assessee cannot be solely\nattributed to the big brands. A subscriber's choice of service\nprovider is not exclusively dependent on a particular\ntrademark/ trade name. Varied factors like overall service\nquality, free calls, free SMS's networks capability, reliability\nof services, network innovations, low rates charges,\naccessibility, promotion with discounts, refund and free\nsamples, geographic network coverage, customer care,\nfamily and friends influence the preference of a subscriber.\nThus, it is the attributes related to the service provider which\nforms the basis or reason for a customer for preferring any\nparticular service provider over another.\n\n4.

5. The DRP vide its Directions dated 18/12/2013 upheld the findings\nof the TPO and held that there are considerable differences\nbetween the royalty agreement for Motorola and between the AEs\nand the assessee and, hence, the Motorola. transaction cannot be\ntreated as a CUP, Further, the DRP held the assessee has failed to\nprovide any evidence to show how the royalty payment has\nbenefitted its business and, hence, upheld the findings of the TPO\nof treating the ALP of the royalty transaction as Nil.\n\n4.

6. Considering the DRP Directions, the Ld. AO in terms of the final\nassessment order dated 30/01/2014 inter-alia made an addition of\n\n\n Assessment Year 2010-2011\n94\nRs.11,47,16,908/- to the income of the assessee being the TP\nadjustment made by the TPO on the transaction of royalty\npayments.\n\n4.

11. Further, in the said Remand Report, the TPO alleged that none of\nthe comparable selected by the assessee by applying external CUP\nare comparable in true sense and the search conducted by the\n\n\n Assessment Year 2010-2011\n95\nAppellant has not yielded correct results. With respect to the\ncomparable agreement used by the assessee as an internal CUP,\nthe TPO rejected the same by stating that no details of this\ntransaction were given during the course of proceedings earlier\nand observed that the assessee has not entered into any\ntransaction with the other Group entity. He also stated that a copy\nof the said agreement used as internal CUP has not been\nfurnished by the assessee.\n\n4.

12. In response thereto, the assessee vide letter dated 16/09/2019\nfiled its rebuttals to the Remand Report and pointed out flaws in\nthe Remand Report issued by the TPO. The assessee also pointed\nout that because of the confidentiality clause in the Agreement the\ninternal CUP agreement was not filed and even otherwise the TPO\nduring the course of the Remand proceedings had never called for\nthe same but, nonetheless, it filed a copy of the same with the\nBench and the Ld. DR. The assessee prayed that the rate of\nroyalty of 0.70% to 1.70% arrived at by applying internal CUP\nshould be accepted as the ALP and, in the alternative, to accept\nthe fresh comparables submitted by it with the mean of 5.20%\narrived at by applying external CUP.”\n\n19.

12. Identical submissions are made by both sides for the Assessment Year\n2009-2010.\n\n\n Assessment Year 2010-2011\n97\n19.

14. Plain reading of the above makes it clear that the Tribunal accepted\nthe contention advanced by the Assessee (identical to those raised in\nthe present appeal for the Assessment Year 2010-2011) and deleted\nthe Transfer Pricing Addition in relation to brand royalty payment for\nthe Assessment Year 2009-2010. For the Assessment Year 2010-\n2011) there is no change in the facts and circumstances of the case\nand the Revenue has failed to bring on record any material to\n\n\n Assessment Year 2010-2011\n98\ndistinguish the above decision in the case of the Assessee/Vodafone\nDigilink Limited (supra) for the Assessment Year 2009-2010 either on\nfacts or in law. We note that even in the submissions filed on behalf of\nthe Revenue vide a Letter, dated 16/07/2025, reliance was placed on\nthe Order, dated 27/01/2014, passed by the Transfer Pricing Officer\nand not to the remand report dealing with the fresh benchmarking\nanalysis furnished by the Assessee during the proceedings before the\nTribunal. We note that identical contentions of the Revenue were\ntaken into consideration and rejected by the Tribunal while deleting\nidentical transfer adjustment made the case of the Assessee for the\n Assessment Year 2009–2010. For the Assessment Year 2010-2011\nalso, the Transfer Pricing Officer had questioned the commercial\nprudence of the Assessee to pay royalty and had arrived at ALP\nwithout referring to any of the prescribed methods. While the\nAssessing Officer has rejected the transfer pricing method and the\ncomparable adopted by the Assessee, the TPO/Assessing Officer has\nfailed to provide/apply alternative method and has arrived at ALP by\nplacing reliance on a control transaction. The aforesaid approach of\nthe TPO for the assessment year 2009-2010 stands rejected by the\nTribunal. We are the view that there is nothing on record to persuade\nus to take a view different from the view taken with Tribunal in the\ncase of for Assessment Year 2009-2010. Accordingly, addition of\nINR.27,20,28,430/- made in respect of brand royalty payments is\nhereby deleted.\n\n19.

No.

10. (Transfer Pricing adjustment relating\nto AMP expenditure):\n\n11.

2. The TPO in terms of the Order dated 20/01/2013 alleged that\nthe aforesaid expenses of Rs.282.24 crores result in creating a\nmarketing tangible for the 'Vodafone' and 'Essar' trademark/\ntrade name and, thus, the assessee ought to have been\nreimbursed by its foreign AEs for such expenses. While doing\nso, the TPO also held that distribution expenses like commission\npaid to distributors, payments for subscriber verification,\npayment collection, etc. are also in the nature of brand\npromotion.The TPO also alleged that the assessee has incurred\nexcessive AMP expenditure which has benefitted the brand\nowned by the AEs of the assessee and hence the assessee\nshould be reimbursed by its foreign AEs. The TPO applied the\n'bright line limit' while holding that the AMP expenses incurred\nby the assessee are excessive. The TPO also applied a mark-up\nof 15.46% on the assessee's alleged excessive AMP expenses.\n\n11.

3. The DRP vide its directions dated 18/12/2013, relying on the\ndecision of the Special Bench of the Tribunal in the case of LG\nElectronics India Pvt. Ltd. vs. ACIT (2013) 140 ITD 41 (Delhi)\n(SB), upheld the applicability of the bight line test while\ncomputing the ALP of the AMP expenditure. It further upheld\nthe TPO's stand of adding a markup of 15.46% on the ALP of\nthe AMP expenditure.Pursuant to the DRP Directions, the Ld. AO\nin terms of the Final Assessment Order dated 30/01/2014 inter alia\nmade an addition of Rs.2,84,68,27,994/- to the income of\nthe assessee being the transfer pricing adjustment made by the\nTPO on the transaction of AMP expenditure.\n\n11.

4. Mr.Pardiwallasubmits that the revenue has not discharged the\nonus cast on it by bringing any material on record to prove that\nthere is an understanding / arrangement or an action in concert\n\n\n Assessment Year 2010-2011\n100\nbetween the assessee and the AEs for promotion of trademark/\ntrade name owned by the AEs.The AMP expenses have been\nincurred as a function as part of the assessee's roles and\nresponsibilities as a service provider and not under a separate\narrangement/ agreement with the AEs to promote brands\nowned by such AEs. The assessee has the license to provide\ntelecommunication services in India and the AEs cannot provide\nsuch services in India since it does not have such license and,\nhence, the AMP expenses have been incurred as a function by\nthe assessee.\n\n11.

5. The assessee further submits that no cost/ income can be\nattributed only to 'brand promotion'. The entire advertisement\nexpenditure incurred by the assessee was intended to reach out\nto the subscriber base in order to inform them about the\ndifferent services rendered by it. The advertisement agencies\ndo not charge different rates for advertisements for unbranded\nservices vis-à-vis advertisements for branded services. Thus, it\nis evident that there is no expenditure incurred towards\ntrademark/trade name. It is further submitted that basis the\nfunctions performed, and risks assumed, it has been\ncharacterised as a full-fledged telecom service provider\nengaged in the provision of telecommunication services.\nHowever, while determining the appropriateness of AMP\nexpenses, the TPO has characterised the assesseeas a\ndistributor without providing any reasons for the same, thereby,\nleading to an inaccurate transfer pricing analysis. It is\nsubmitted that it a long-settled jurisprudence that the business\nmodel chosen by the assessee has to be respected and it is not\nopen to the revenue to dictate any other model to the assessee.\nThe application of bright line method does not take into\nconsideration the impact of various factors on deciding the\nappropriateness of the level of AMP expenses incurred by an\nassessee. The TPO has not established functional similarities\nbetween the assessee and the comparable chosen by him for\napplication of bright line method and, thus, bright line method\ncannot be applied.\n\n11.

6. In this connection, the Ld. AR submits that this issue is covered\nin its favour by the decision of the coordinate Bench ITAT Mumbai in the case of 'Vodafone India Ltd.' bearing ITA No.\n884/Mum/2016 dated 17/05/2024 wherein the Hon'ble Bench\nrelying on the judgement of the Hon'ble Delhi High Court in the\ncase of Maruti Suzuki India Ltd. v/s. CIT (2016) 381 ITR 117\n\n\n Assessment Year 2010-2011\n101\n(Delhi) deleted the transfer pricing adjustment made by the\nTPO in respect of AMP expenditure.\n\nThe facts of the aforesaid case before the Bench are detailed in\npara Nos.12.4 to 12.5 on page Nos.40 to 42 of its Order, the\nsaid findings are extracted hereunder for ready reference:\n\n\"………..

5. We note that in the present case the TPO has\narrived at a conclusion that there existed international\ntransaction solely on the basis of the fact that the\nAssessee has incurred high AMP Expenditure at the rate\nof 6.2% of sales. While AMP Expenses may constitute\nan international transaction, the existence of an\narrangement and consequently, an international\ntransaction cannot be presumed on the basis of bright\nline test only. In the case of Maruti Suzuki India Limited\nVs Commissioner of Income Tax: [2016] 381 ITR 117\n(Delhi) it has been held by the Hon'ble Delhi High Court\nthat the existence of AMP Expenditure, being an\ninternational transaction, will have to be established de\nhors the bright line test. In absence of any written\nagreement, whether any arrangement existed or the\nAssessee along with its AE acted in concert would\ndepend upon the facts and circumstances of each case.\nWhere an assessee denies existence of international\ntransaction in case of AMP Expenditure, as is the case in\nthe present appeal, the onus would be on the Assessing\nOfficer to bring out facts, circumstances, policy or\nconduct to support existence of an international\ntransaction. In the present case, there is nothing on\nrecord to show or infer the existence of international\ntransaction. We also note that in the subsequent\n assessment years (ie. Assessment Year 2012-13, 2