ITAT Delhi Allows Verizon India’s Claims on Section 80-IA Deduction and Telecom Payments

The “I” Bench of the Income Tax Appellate Tribunal, Delhi, delivered its order on 25 February 2026 in the case of Verizon Communications India Pvt. Ltd. for Assessment Year 2012–13. The appeal challenged multiple additions made in assessment relating to deduction under Section 80-IA, disallowance of foreign telecom payments, and transfer pricing adjustments.

Section 80-IA Deduction on NLD/ILD Services Upheld

The Assessing Officer had proportionately disallowed deduction under Section 80-IA on profits earned from National Long Distance and International Long Distance services, treating them as a separate undertaking commenced after the statutory cut-off date of 31 March 2005. It was also held that income from other telecom services should be excluded while computing eligible profits. The Tribunal noted that identical issues had already been decided in the assessee’s favour in earlier assessment years. It held that the NLD/ILD licences only expanded the existing telecom undertaking and did not create a new business. Since the nature of services remained fundamentally the same, profits from these services continued to qualify for deduction under Section 80-IA. Accordingly, the proportionate disallowance was directed to be deleted.

Foreign Telecom Payments and Transfer Pricing Additions Set Aside

The Revenue had disallowed large payments made to foreign telecom operators by treating them as royalty liable for withholding tax under Section 40(a)(i). The Tribunal followed earlier rulings in the assessee’s own case and held that data transmission services do not constitute royalty under the India–US tax treaty. Consequently, no tax deduction at source was required and the disallowance was unsustainable. On transfer pricing, the Tribunal criticised the rejection of the assessee’s TNMM analysis and adoption of the “Other Method” without identifying any comparable uncontrolled transactions. It observed that arm’s length price cannot be determined on an ad hoc basis. Since the assessee’s operating margins were higher than comparable companies, the international transactions were held to be at arm’s length.

Overall, the major additions were deleted, granting substantial relief to the assessee.