Vodafone Idea gets Big relief: Income Tax withdraws Rs 8,500 cr transfer pricing case

New Delhi: Vodafone Idea (Vi) has got a big relief. The Income Tax Department has withdrawn the pending transfer pricing case against the company worth Rs 8,500 crore. In connection with this old dispute filed in the Supreme Court, the Income Tax Department itself filed an application to withdraw the case. This case was related to the sale of Ahmedabad based Vodafone India's call center business. Chief Justice B.R. A bench headed by Gavai approved this application. The court's formal order is yet to be issued.

This case was related to Vodafone India Services Pvt. Ltd. which was caught up in a transfer pricing dispute with its foreign parent organization. This tax issue was related to FY08 and it started with the sale of Vodafone India's Ahmedabad based call center business, which was earlier known as 3 Global Services Private Limited. This business was sold to Hutchison Whampoa Properties (India) Limited as part of the company's internal restructuring. Following this transaction, the Income Tax Department issued an order in October 2012 under sections 143 (3) and 144C (13) of the Income Tax Act, 1961, alleging that Vodafone had conducted an undisclosed international transaction. The department claimed that in this deal, call options and intangible rights with commercial value were transferred to a related entity, which makes it an international transaction under the Indian Transfer Pricing Rules. The Income Tax Department alleged that the company had fixed a price lower than the market price in some international transactions, which caused tax loss to the government. On this basis, the department had imposed a tax demand of Rs 8,500 crore on the company.

On Monday, the Commissioner of Income Tax filed an application before a bench of the Supreme Court to withdraw the matter. Chief Justice B.R. The Bench headed by Gavai accepted his application and granted permission to the Income Tax Department to withdraw the matter. The court's formal order will be issued on November 4.

In 2014, the Income Tax Appellate Tribunal (ITAT) supported the department's stand and said that this transaction comes under the ambit of India's transfer pricing laws, after which Vodafone approached the Bombay High Court. In October 2015, the Bombay High Court set aside the ITAT order, saying that this transaction was completely domestic and did not involve any international element. Therefore, the Income Tax Department did not have the right to impose transfer pricing provisions on it. This resulted in the cancellation of the tax demand of Rs 8,500 crore. The Income Tax Department challenged this decision in the Supreme Court in 2016, but after the matter was pending for years, it has now been withdrawn.