Income Tax Act | ITAT Mumbai Grants Major Tax Relief To Vodafone; Deletes Depreciation, TDS & S.14A Disallowances

The Mumbai Bench of the Income Tax Appellate Tribunal has held that multiple additions made by the Assessing Officer could not be sustained in law. The Bench held that the transfer of passive telecom tower assets pursuant to a court-approved demerger amounted to a genuine “gift” under Section 47(iii), and the Assessing Officer could not artificially impute consideration or deny depreciation. It further ruled that roaming services do not involve human intervention so as to qualify as “technical services”, and therefore no TDS was deductible u/s 194J, rendering the consequential disallowance unsustainable. Following the Supreme Court ruling in Bharti Cellular Ltd. Vs. ACIT, reported in (2024) 462 ITR 247 (SC), the Bench held that prepaid distribution margins were merely trade discounts and not “commission” attracting Section 194H. As no exempt income was earned, the Section 14A disallowance and adjustment were directed to be deleted. The Tribunal also affirmed availability of deduction under Section 80-IA(2A) to telecom undertakings on eligible receipts, while remanding only the issue of network site rentals paid to Indus Towers for fresh factual verification. A Bench comprising Sandeep Singh Karhail (Judicial Member) and Vikram Singh Yadav (Accountant Member), while hearing and disposing of the cross-appeals of both the assessee and the Revenue, held that transfer of passive tower infrastructure under a court-approved demerger amounted to a valid “gift” exempt u/s 47(iii), and the Assessing Officer could not impute notional consideration to reduce WDV and deny depreciation. The substantial questions of law arising before the Tribunal were whether the transfer of passive infrastructure assets under a court-approved demerger, without consideration, constituted a valid “gift” exempt under Section 47(iii) or a taxable transfer permitting notional valuation; whether payments of roaming charges involved “technical services” requiring deduction of tax at source under Section 194J, and whether trade discounts to prepaid distributors amounted to “commission” attracting Section 194H; whether disallowance under Section 14A read with Rule 8D was permissible in the absence of exempt income and whether such disallowance could be added back under Section 115JB; whether the network site rentals paid to Indus Towers were excessive or unreasonable so as to warrant disallowance under Sections 37(1)/40A(2); and whether deduction under Section 80-IA(2A) was allowable on SFIS income, foreign exchange gains and related items and how the “initial assessment year” and applicability of amended provisions of Section 80-IA were to be determined. The Assessing Officer had treated the transfer of tower assets to Vodafone Infrastructure Ltd. under a High Court-approved Scheme of Demerger as a colourable device, imputing a deemed sale price and disallowing depreciation of ₹31.60 crore. The Tribunal further ruled that roaming charges do not involve technical services requiring TDS u/s 194J, and following the Supreme Court ruling in Bharti Cellular Ltd. Vs. ACIT, trade discounts to prepaid distributors are not “commission” attracting Section 194H. Finding that no exempt income was earned, the Bench deleted the Section 14A disallowance and corresponding MAT adjustment u/s 115JB. On Section 80-IA, the Bench held that telecom undertakings covered by Section 80-IA(2A) are eligible for deduction on SFIS income and other operational receipts. However, disallowance of network site rentals paid to Indus Towers was remanded for de novo examination. The Revenue's parallel appeal on 80-IA computation issues was dismissed. In view of the above, the ITAT allowed the assessee's appeal on the major issues, deleting disallowances on depreciation, roaming charges, trade discounts, and Section 14A, and upheld eligibility of deduction under Section 80-IA(2A); only the question of network site rentals was remanded for fresh examination, while the Revenue's appeal on 80-IA computation and related grounds stood dismissed. Case Title: Vodafone West Limited (formerly known as Vodafone Essar Gujarat Limited) Vs. Deputy Commissioner of Income Tax Circle- 4(1)(2) Case No.: ITA No. 671/AHD/2015 and ITA No. 1634/AHD/2015 Appearance for Assessee: Shri K.K. Ved and Shri N.A. Patade Appearance for Revenue: Shri Pankaj Kumar, CIT-DR Click Here To Read/Download Order

Income Tax Act | ITAT Mumbai Grants Major Tax Relief To Vodafone; Deletes Depreciation, TDS & S.14A Disallowances

Rajnandini Dutta

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