ITAT Deletes ₹572.83 Crore Transfer Pricing Adjustment on Vodafone Idea’s Brand Royalty Payment

June 30, 2026 : In a significant ruling on transfer pricing principles, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has granted major relief to Vodafone Idea Limited by deleting a transfer pricing adjustment of ₹572.83 crore relating to royalty paid for the use of the Vodafone brand name and trademark. The Tribunal held that a controlled transaction between associated enterprises cannot be used as a comparable while determining the arm’s length price under the Comparable Uncontrolled Price (CUP) Method, reaffirming settled principles governing transfer pricing assessments under the Income-tax Act, 1961.

The appeal arose from the final assessment order passed under Sections 143(3) read with 144C of the Income-tax Act for the Assessment Year 2015-16 after directions issued by the Dispute Resolution Panel (DRP). Vodafone Idea challenged several transfer pricing adjustments and corporate tax disallowances made by the Assessing Officer and the Transfer Pricing Officer (TPO), including substantial additions relating to royalty payments, external commercial borrowings, advertisement and marketing expenditure, spectrum charges, licence fees and other business expenses.

According to the Tribunal, Vodafone Idea had paid brand royalty to its associated enterprise for using the “Vodafone” trademark and trade name under a licensing arrangement. The company benchmarked the transaction using the CUP Method prescribed under Section 92C of the Income-tax Act read with Rule 10B of the Income-tax Rules, 1962. It argued that the royalty rate paid by it was lower than the average royalty emerging from comparable uncontrolled agreements and therefore satisfied the arm’s length standard.

The Transfer Pricing Officer, however, rejected the comparables relied upon by the assessee and instead adopted an agreement between Virgin Enterprises Ltd. and Virgin Mobile USA LLC as the benchmark. Based on that agreement, the TPO determined the arm’s length royalty at 0.25% of gross sales and proposed an upward transfer pricing adjustment of ₹572.83 crore. The DRP affirmed this approach, leading to the final assessment order challenged before the Tribunal.

Before the Tribunal, Vodafone Idea contended that the issue had already been decided in its favour in earlier assessment years as well as in the cases of its group entities. It argued that the Virgin agreement relied upon by the Revenue was itself a controlled transaction between associated enterprises and therefore could not qualify as a valid comparable under the CUP Method.

Accepting the company’s submissions, the ITAT observed that the controversy was no longer open to debate because coordinate benches had consistently ruled on the same issue in earlier years. The Bench noted that “the agreement entered into between Virgin Enterprises Ltd. and Virgin Mobile USA LLC, being a controlled transaction, cannot constitute a valid comparable for determining the arm’s length price under the CUP Method.” It further observed that “the arm’s length price of an international transaction has to be determined only by comparing it with comparable uncontrolled transactions in accordance with Rule 10B of the Income-tax Rules, 1962.”

The Tribunal also found that the Revenue had failed to point out any distinguishing feature in the facts of the present assessment year or cite any subsequent judicial precedent taking a contrary view. Following its earlier decisions in Vodafone Idea’s own cases and those involving its group companies, the Bench directed the Assessing Officer and the Transfer Pricing Officer to delete the entire transfer pricing adjustment relating to brand royalty.

The ruling reinforces an important transfer pricing principle that only uncontrolled transactions can be relied upon for benchmarking under the CUP Method. The decision is likely to have wider implications for multinational enterprises facing similar transfer pricing disputes, particularly where tax authorities attempt to benchmark international transactions using agreements executed between associated enterprises.

The Tribunal also dealt with several other grounds relating to interest on external commercial borrowings, advertisement, marketing and promotion expenditure, depreciation on telecom spectrum, licence fees, WPC royalty, prepaid distributor discounts, IBM payments and other corporate tax issues. Certain issues were allowed, some were treated as consequential, while others were disposed of in accordance with earlier judicial precedents. The Tribunal ultimately held that the appeal was partly allowed. It also directed the Assessing Officer to verify the assessee’s claim for TDS credit, recompute interest under Sections 234B and 234C wherever necessary, and held that the challenge to initiation of penalty proceedings under Section 271(1)(c) was premature.

The judgment primarily interprets the transfer pricing framework contained in Sections 92C and 92CA of the Income-tax Act, Rule 10B of the Income-tax Rules, and the assessment procedure under Sections 143(3) and 144C. It reiterates that transfer pricing adjustments must be based on legally permissible comparables and in accordance with established statutory methodology.

Case Reference: Vodafone Idea Limited (Successor of Vodafone Mobile Services Limited) v. ACIT, Circle-26(2), New Delhi, ITA No. 8971/DEL/2019.