The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted Rs. 1,205 crore transfer pricing adjustment on Vodafone–Essar trademark royalty as the controlled transactions cannot be used for Comparable Uncontrolled Price (CUP) benchmarking.
The bench of Shriyogesh Kumar U.S. (Judicial Member) and S. Rifaur Rahman (Accountant Member) has observed that the AO wrongly relied on a controlled transaction between Virgin group companies for benchmarking.
The appellant, Vodafone Idea Ltd challenged an assessment order for AY 2016–17, where the AO added ₹1,879.7 crore to book profits under Section 115JB of the Income Tax Act. The addition arose from the demerger of passive infrastructure assets to Vodafone Infrastructure Ltd., where unamortized expenditure from merged entities (VCL and VSL) was charged to the Profit & Loss account following a court-approved merger scheme. The AO and DRP held that this write-off should be added back for MAT computation, leading to the disputed adjustment.
Vodafone Idea Ltd paid royalties of ₹158.91 crore to Vodafone Ireland Marketing Ltd. and Vodafone Sales & Services Ltd. for use of the “Vodafone” trademark (0.7% of net service revenue) and ₹19.17 crore to Rising Group Ltd. for use of the “Essar” trademark (0.35%). The TPO rejected Vodafone’s benchmarking under the CUP and TNMM methods, disallowed the Essar royalty entirely, and reduced the Vodafone rate to 0.25% based on a controlled transaction between Virgin group companies, resulting in a ₹1,205 crore adjustment. The DRP upheld the TPO’s view.
However, on appeal, the ITAT noted that controlled transactions cannot be used for comparability under the CUP method, relying on earlier rulings in Vodafone West Ltd. and Vodafone Digilink Ltd. It held that the royalty payments were made at arm’s length and directed deletion of the ₹1,205 crore transfer pricing adjustment.
The ITAT ruled that related party transactions cannot be used for comparability under the Comparable Uncontrolled Price (CUP) method.
Case Details
Case Title: Vodafone Idea Ltd Versus ACIT
Case No.: ITA No. 8361/Del/2019
Date: 24/10/2025
Counsel For Appellant: Salil Kapoor, Adv
Counsel For Respondent: S. K,. Jadav, CIT DR
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