Automated Roaming Payments and Prepaid Distributor Discounts Attract No TDS: ITAT Mumbai

Vodafone Mobile Services Ltd. Vs DCIT (ITAT Mumbai)

Summary: The Income Tax Appellate Tribunal, Mumbai Bench “J”, disposed of eight connected appeals involving Vodafone Mobile Services Ltd., formerly Vodafone Essar Mobile Services Ltd., for AYs 2003-04 to 2008-09 and 2010-11. The seven assessee appeals were partly allowed for statistical purposes, while the Revenue’s appeal for AY 2010-11 was dismissed. The Tribunal treated AY 2010-11 as the lead year and applied its findings to corresponding grounds in the other appeals. For that year, the revised return disclosed income of ₹231,22,12,779 and book profit of ₹396,51,69,284; the final assessment dated 27 January 2015 determined income at ₹817,19,92,546 after the DRP proceedings. The order grants substantive relief on several disallowances while retaining limited verification or consequential computation on others.

On deduction under Section 80-IA, the dispute concerned whether AY 2010-11 fell within the first five years eligible for 100% deduction or was the eighth year eligible for 30%. Although the AO had initially allowed deduction for AYs 2003-04 to 2005-06, the assessee relied on subsequent appellate and rectification developments resulting, or expected to result, in nil income and no effective deduction for those years. The Tribunal did not conclusively declare AY 2006-07 to be the initial year. It directed the AO to give effect to the appellate orders from AY 2003-04 onwards, identify the first year in which deduction was actually admissible and allowed under the subsisting assessment, and then apply Section 80-IA(2A), after hearing the assessee.

For other income, the Tribunal followed PCIT v. BSNL Ltd., (2016) 381 ITR 371 (Delhi), and the coordinate-bench decisions concerning the special treatment of telecommunication businesses under Section 80-IA(2A). Liabilities written back, interest on business and margin-money deposits, revenue-account foreign exchange gains, cell-site sharing revenue, bounced-cheque charges, late-payment charges and scrap sales were to form part of eligible profits. The capital-account realised foreign exchange loss already added back by the assessee was to be dealt with consistently in computing those profits. The nexus of the remaining miscellaneous receipts required verification. The claim concerning SFIS/export incentives was rejected following the assessee’s own AY 2011-12 order, notwithstanding the favourable group-company decisions cited by the assessee.

The claim under Section 37(1) for annual telecom licence fees of ₹143,15,32,083 in AY 2010-11 failed in view of CIT v. Bharti Hexacom Ltd., (2023) 458 ITR 593 (SC). The Tribunal held that Section 35ABB governed the deduction and remitted only the verification of the year-specific amortisation working and grant of consequential deduction. Corresponding directions applied to the earlier years, including the workings expressly recorded in the order. On asset restoration costs arising from obligations to restore leased cell sites and premises, it upheld denial of depreciation, including the AY 2010-11 claim of ₹68,94,199. Following the Delhi High Court’s judgment reported at (2025) 172 taxmann.com 368, however, it directed allowance of the alternative claim as revenue expenditure under Section 37(1), after verifying the quantum for each year and preventing double deduction.

Domestic roaming charges paid to other telecom operators were held to relate to standard automated services without human intervention. Following the coordinate benches, the Tribunal held that Sections 194C and 194J did not require tax deduction on these payments and deleted the Section 40(a)(ia) disallowance. It separately deleted the disallowance on discounts extended to prepaid distributors, following Bharti Cellular Ltd. v. ACIT, (2024) 160 taxmann.com 12 (SC). The earlier Delhi and Kerala High Court decisions relied on by the AO could not govern the issue contrary to the subsequent binding Supreme Court judgment.

The Tribunal deleted the AY 2010-11 disallowance of ₹1,39,10,000 under Section 14A read with Rule 8D because the assessee earned no exempt income during that year. The same reasoning governed corresponding grounds in the earlier years. It also deleted the disallowance of ₹28,72,000 paid to the Department of Telecommunications. On the identical licence arrangements examined in the earlier cases, these charges were contractual and compensatory, rather than expenditure for an offence or an act prohibited by law attracting Explanation 1 to Section 37(1).

The ₹112,01,00,000 network-site rental claim was restored for fresh verification of crystallisation during the relevant previous year. The Tribunal directed consideration of the Indus certificate, indicative site list and Master Service Agreement, with allowance to the extent the expenditure had crystallised. The ₹59.78 crore interest disallowance relating to the loan to Vodafone Spacetel Ltd. was also remitted for a limited factual check. The assessee maintained that it charged interest at 13.25% and subsequently 11.75%, disclosed ₹59.78 crore as interest income, and furnished supporting financial-statement disclosures and its letter dated 23 January 2015. If these facts were verified, a disallowance premised on an interest-free advance could not survive; the AO was also required to implement the binding DRP directions.

The entire transfer pricing adjustment of ₹80,64,73,603 was deleted. For brand royalty of ₹15,04,78,864, the TPO had fixed the arm’s-length price at nil without applying a prescribed method and had principally questioned the payment’s commercial necessity. The Tribunal followed the consistent own-case and group-company decisions on the identical arrangement. For AMP expenditure of ₹65,59,94,739, the Revenue had not demonstrated an international transaction through an agreement, arrangement, conduct or other tangible material. Such a transaction could not be presumed merely from the bright-line test. The AO/TPO was directed to delete both adjustments.

In the Revenue’s AY 2010-11 appeal, the Tribunal sustained deletion of an ad hoc commission disallowance of ₹5,61,30,000. The assessee had furnished particulars of major distributors and TDS certificates, and the AO identified no specific defect or non-genuine payment. Quarterly WPC spectrum charges were accepted as revenue expenditure following the coordinate benches and CIT v. Fascel Ltd., (2009) 221 CTR 305 (Delhi). The Tribunal also rejected capitalisation and four-year amortisation of routine advertisement expenditure of ₹10,38,263, following the earlier decisions and CIT v. Citi Financial Consumer Finance Ltd., (2011) 335 ITR 29 (Delhi).

The Revenue’s challenge concerning interest on capital work-in-progress failed because the DRP had found that the network assets formed part of the existing telecom business rather than an extension of business; the Revenue did not dislodge that finding. Loss of ₹48 million arising from subscriber/customer fraud and non-recovery of bills was treated as incidental to the telecom business and allowable as a business deduction. For passive infrastructure transferred without consideration to Vodafone Infrastructure Ltd. under a court-approved scheme, the assessee had not claimed the transfer loss and had voluntarily reduced the corresponding tax written-down value. The Tribunal held that the AO could not impute a notional sale value and further reduce the block of assets, and sustained deletion of the resulting depreciation disallowance.

For AY 2003-04 and corresponding earlier-year grounds, interest on deposits maintained from business funds and as margin money or security for financing arrangements was held assessable as business income, with consequential benefits. For AY 2006-07, the Tribunal deleted the addition of ₹1,34,31,635 arising from the write-back of refundable customer security deposits. The deposits were capital receipts at inception, no deduction of their principal had previously been claimed or allowed, and their unilateral write-back did not attract Section 41(1) or convert them into trading receipts. The alternative Section 80-IA claim therefore became academic. The ₹7 lakh deduction claimed under Section 80G was remitted for verification of donation receipts, donee approval and statutory conditions.

The AO was directed to verify and grant TDS credit under Section 199 read with Rule 37BA and admissible MAT credit under Section 115JAA. Interest under Sections 234B, 234C and, where raised, 234D was treated as mandatory and consequential, requiring recomputation while giving effect to the order. Challenges to initiation of Section 271(1)(c) penalty proceedings were dismissed as premature in the quantum appeals. Challenges to the CIT(A)’s enhancement jurisdiction became academic because the underlying Section 14A additions were deleted on merits. The Tribunal’s substantive and verification directions were applied to the respective grounds across the connected assessment years.

Cases Discussed

• Vodafone Mobile Services Ltd. v. DCIT, ITA No. 8971/Del/2019, AY 2015-16, order dated 30 June 2026 (ITAT Mumbai) — Followed on licence-fee amortisation, asset restoration costs, prepaid discounts, DoT charges and WPC expenditure.
• Vodafone Mobile Services Ltd. v. DCIT, ITA No. 9160/Del/2019, AY 2011-12, order dated 11 May 2026 (ITAT Mumbai) — Applied on recurring telecom issues; its adverse conclusion on SFIS incentives was also followed.
• Vodafone West Ltd., ITA Nos. 443/Ahd/2016 and 443/Ahd/2019 as variously recorded in the source, AY 2011-12, order dated 2 April 2026 (ITAT) — Cited concerning business receipts, Section 80-IA, Section 14A and group-company issues; the source contains inconsistent appeal identifiers.
• Vodafone Idea Ltd. v. ACIT, [2026] 184 taxmann.com 472, ITA No. 8362/Del/2019, AY 2013-14, order dated 18 March 2026 (ITAT Delhi) — Followed on the recurring claims reproduced in the order.
• Vodafone West Ltd., ITA Nos. 671 and 1634/Ahd/2015, AY 2010-11, order dated 11 December 2025 (ITAT) — Cited on Section 80-IA, Section 14A, royalty and borrowing costs. A later source passage records No. 1643/Ahd/2015 for the passive-infrastructure issue.
• Vodafone Mobile Services Ltd. v. DCIT, ITA No. 8361/Del/2019, AY 2012-13, order dated 24 October 2025 (ITAT) — Followed on recurring licence-fee, restoration-cost, distributor-discount, DoT and WPC issues.
• Vodafone Digilink Ltd. v. DCIT and connected Revenue appeal, ITA Nos. 1073 and 1158/Del/2015, AY 2010-11, order dated 14 October 2025 (ITAT) — Cited on telecom business receipts, royalty, AMP, network rentals and passive infrastructure; one passage records 1073/Mum/2015.
• Vodafone Digilink Ltd., ITA No. 1079/Del/2018, AY 2010-11, order dated 21 March 2025 (ITAT) — Cited in the reproduced earlier order for verification of consequential Section 35ABB amortisation.
• Vodafone Mobile Services Ltd. v. DCIT, [2025] 172 taxmann.com 368; 304 Taxman 285, order dated 11 March 2025 (Delhi High Court) — Depreciation on restoration costs was disallowed, but the alternative revenue deduction was accepted and applied subject to quantum verification.
• CIT v. Whirlpool of India Ltd., [2024] 169 taxmann.com 95, order dated 20 November 2024 (Supreme Court) — The reproduced submissions record dismissal of the Revenue’s SLP on the AMP issue.
• Vodafone Mobile Services Ltd., ITA No. 137/Del/2021, AY 2012-13, order dated 5 June 2024 (ITAT) — Cited on roaming charges; a reproduced later order separately refers to ITA No. 37/Del/2023 dated 5 June 2024.
• Vodafone India Ltd. v. DCIT, ITA Nos. 884/Mum/2016 and 2834/Mum/2017, AYs 2011-12 and 2012-13, consolidated order dated 17 May 2024 (ITAT Mumbai) — Cited on roaming charges, Section 14A and AMP expenditure.
• DCIT v. Vodafone India Ltd., ITA No. 1919/Mum/2016, order dated 17 May 2024 (ITAT Mumbai) — Cited concerning the deductibility of contractual DoT charges.
• Bharti Cellular Ltd. v. ACIT, [2024] 160 taxmann.com 12; 2024 INSC 148 (Supreme Court) — Binding decision followed to delete the disallowance concerning prepaid-distributor discounts.
• Vodafone India Ltd., ITA No. 1121/Mum/2014, AY 2009-10, order dated 8 November 2023 (ITAT Mumbai) — Cited on automated roaming services and the absence of exempt income.
• CIT v. Bharti Hexacom Ltd., [2023] 155 taxmann.com 322; 458 ITR 593 (Supreme Court) — Annual telecom licence fees were governed by Section 35ABB; the Section 37(1) claim was rejected.
• Celio Future Fashions Pvt. Ltd. v. ACIT, [2023] 155 taxmann.com 60 (ITAT Mumbai) — The assessee cited it against DRP directions remitting verification to the AO; the present Tribunal ordered limited factual verification.
• Vodafone India Ltd., ITA No. 5078/Mum/2017, AY 2005-06, order dated 28 November 2022 (ITAT Mumbai) — Cited on interest and other telecom business income under Section 80-IA.
• CIT v. GVK Project and Technical Services Ltd., [2019] 106 taxmann.com 180 (Delhi High Court) — Cited on Section 14A where there was no exempt income.
• PCIT v. GVK Project and Technical Services Ltd., [2019] 106 taxmann.com 181 (Supreme Court) — The source records dismissal of the SLP against the preceding Section 14A decision.
• PCIT v. Oil Industries Development Board, [2019] 103 taxmann.com 325 (Delhi High Court) — Cited on the absence of exempt income for Section 14A purposes.
• PCIT v. Oil Industries Development Board, [2019] 103 taxmann.com 326 (Supreme Court) — The source records dismissal of the Revenue’s SLP.
• CIT v. Mahindra & Mahindra Ltd., [2018] 404 ITR 1 (Supreme Court) — Followed on the absence of a previously allowed deduction and the inapplicability of Section 41(1) to the capital security deposits.
• DCIT v. Vodafone Essar Digilink Ltd., [2018] 92 taxmann.com 234; 170 ITD 430; ITA No. 1950/Del/2014, AY 2009-10, order dated 14 March 2018 (ITAT Delhi) — Cited on telecom business receipts, commission expenses, advertising and other recurring issues. The source also cites 193 TTJ 150 for a Vodafone Digilink decision.
• CIT v. Chettinad Logistics (P.) Ltd., [2018] 95 taxmann.com 250 (Supreme Court) — The source records dismissal of the SLP on the Section 14A issue.
• DCIT v. Erstwhile Vodafone Digilink Ltd., [2018] 92 taxmann.com 250, forum recorded in the reproduced source as “NCLT – New Delhi” — Cited in the reproduced restoration-cost discussion; the source’s citation/forum combination requires editorial verification.
• DCIT v. Vodafone Mobile Services Ltd., [2017] 83 taxmann.com 7 (ITAT Delhi) — Cited in the reproduced precedent sustaining deletion of an ad hoc commission disallowance.
• CIT v. Chettinad Logistics (P.) Ltd., [2017] 248 Taxman 55 (Madras High Court) — Cited against Section 14A disallowance without exempt income.
• Vodafone West Ltd., ITA Nos. 909 and 944/Ahd/2014, AY 2009-10, order dated 17 November 2016 (ITAT) — Cited on the group’s Section 14A and business-deduction issues.
• PCIT v. BSNL Ltd., [2016] 381 ITR 371 (Delhi High Court) — Followed for the special treatment of telecommunication undertakings under Section 80-IA(2A).
• CIT v. Whirlpool of India Ltd., [2016] 381 ITR 154 (Delhi High Court) — Cited on proving an AMP international transaction independently of the bright-line test.
• Maruti Suzuki India Ltd. v. CIT, [2016] 381 ITR 117 (Delhi High Court) — Cited and reproduced on the statutory limits of AMP transfer pricing adjustments.
• Vodafone East Ltd. v. Addl. CIT, [2015] 61 taxmann.com 263; [2016] 156 ITD 337 (ITAT Kolkata) — Cited on roaming charges and contractual DoT charges.
• CIT v. Corrtech Energy (P.) Ltd., [2014] 45 taxmann.com 116 (Gujarat High Court) — Cited in the reproduced order for deletion of Section 14A disallowance where no exempt income arose.
• LG Electronics India Pvt. Ltd. v. ACIT, [2013] 140 ITD 41 (ITAT Delhi, Special Bench) — The DRP relied on the bright-line approach in the reproduced earlier proceedings; the present AMP adjustment was deleted.
• CIT v. EKL Appliances Ltd., [2012] 345 ITR 241 (Delhi High Court) — Cited within the reproduced royalty discussion against rejection based merely on necessity or prudence.
• CIT v. Tosha International Ltd., [2011] 331 ITR 440 (Delhi High Court) — The assessee relied on it in support of the capital character of written-back security deposits.
• CIT v. Citi Financial Consumer Finance Ltd., [2011] 335 ITR 29; [2012] 20 taxmann.com 452 (Delhi High Court) — Cited in support of current deduction for advertisement expenditure.
• CIT v. Idea Cellular Ltd., [2010] 325 ITR 148 (Delhi High Court) — Relied on by the AO on prepaid discounts; the later Supreme Court ruling governed the present decision.
• Vodafone Essar Cellular Ltd. v. CIT, [2010] 332 ITR 255 (Kerala High Court) — Relied on by the AO on prepaid discounts; the Tribunal followed the subsequent Supreme Court ruling.
• CIT v. Fascel Ltd., [2009] 221 CTR 305 (Delhi High Court) — Considered in treating recurring WPC spectrum charges as revenue expenditure.
• PNB Finance Ltd. v. CIT, [2008] 307 ITR 75; 175 Taxman 242 (Supreme Court) — Appears in the reproduced Maruti Suzuki discussion on the relationship between charging and computation provisions.
• S.A. Builders Ltd. v. CIT (Appeals), [2007] 288 ITR 1 (Supreme Court) — Cited by the assessee concerning commercial expediency of advances to group companies.
• Mahindra & Mahindra Ltd. v. CIT, [2003] 261 ITR 501 (Bombay High Court) — Cited on capital liabilities and the Section 41(1) requirement of an earlier deduction.
• CIT v. Tibruz Mustafa Bilgen, [1986] 157 ITR 723 (Madras High Court) — Cited in the reproduced passive-infrastructure discussion concerning a real gift under Section 47(iii).
• CIT v. B.C. Srinivasa Setty, [1981] 128 ITR 294; 5 Taxman 1 (Supreme Court) — Appears within the reproduced AMP reasoning concerning the charging and computation provisions.
• Madhav Prasad Jatia v. CIT, [1979] 118 ITR 200 (Supreme Court) — The DRP cited it on the conditions for deduction of interest on borrowed capital.
• Banarsi Das Gupta v. CIT, [1977] 106 ITR 559 (Allahabad High Court) — Cited in the DRP’s discussion of capital borrowed for business purposes.
• K.M.S. Lakshmanier and Sons v. CIT, [1953] 23 ITR 202 (Supreme Court) — Cited by the assessee on the nature of customer security deposits.
• Vodafone Mobile Services Ltd., ITA No. 1042/Del/2016, AY 2011-12 (ITAT) — Cited for commission, advertising and subscriber-fraud issues; the supplied order does not give a reliable decision date with this identifier.
• Vodafone Mobile Services Ltd., ITA No. 1752/Mds/2004 (ITAT) — Cited by the assessee on mixed funds and commercial expediency; the source records the assessment year as “1990-2000”.
• Vodafone West Ltd., ITA No. 443/Ahd/2022, AY 2011-12 (ITAT) — Cited in the reproduced licence-fee discussion on consequential Section 35ABB verification; decision date is not supplied.
• Technimont ICB Pvt. Ltd., Third Member decision (ITAT) — Cited in the reproduced royalty discussion on comparing controlled transactions with uncontrolled transactions; fuller identification is not supplied.
• Vodafone Digilink Ltd. v. DCIT, ITA No. 1169/Del/2014, AY 2009-10 (ITAT) — Cited concerning brand royalty and AMP expenditure; a reproduced page reference instead records 1169/Mum/2014.