Verizon Data Services India Private Limited v. Deputy Commissioner of Income Tax Corporate Circle 3(1),Chennai

ORDER In this Writ Petition, the Petitioner has challenged the impugned Order dated 29.12.2023 passed under Section 270AA of the Income Tax Act, 1961 and Order dated 30.05.2024 imposing penalty against the Petitioner under Section 270A of the Income Tax Act, 1961.

¶2By the former Order dated 29.12.2023, the application filed by the Petitioner in Form 68 on 30.11.2023 for grant of immunity from imposition of penalty under Section 270A of the Income Tax Act, 1961 has been rejected.

¶3By the second mentioned Order dated 30.05.2024, penalty has been Page No. 2 of 32 imposed under Section 270A of the Income Tax Act, 1961 pursuant to a notice dated 02.11.2023.

¶4The aforesaid notice was issued pursuant to an Assessment Officer dated 02.11.2023, wherein the Assessing Officer arrived at the following conclusion:-

4.4 Variation proposed on the basis of Inference drawn: The TPO after making a threadbare analysis of the issue involved and considering the various submissions made during the course of Transfer Pricing proceedings, passed order u/s 92CA(3) of the Act, on

30.03.2023 in order ITBA/TPO/F/92CA3/2022-23/10516605833(1), dated 30.03.2023, made the following upward adjustments:- Sl.No. Description Adjustment

u/s 92CA(In Rs.)

¶1Total Adjustment u/s 92CA 4,49,59,601/-

¶5The facts on record reveals that the Petitioner had filed a return of Income on 24.12.2020 declaring a gross total income for a sum of Rs.283,97,38,290/- for Assessment Year 2020-2021. Page No. 3 of 32

¶6During the course of the proceedings, a reference was made to the Transfer Pricing Officer under Section 92CA(1), which ultimately culminated in an Order dated 30.03.2023 of the Transfer Pricing Officer under Section 92CA(3) wherein the Transfer Pricing Officer proposed to add to sum of Rs.4,49,59,601/- to the income of the petitioner.

¶7In the Assessment Order dated 02.11.2023 itself, it was informed that a separate penalty proceedings under Section 270A for "misreporting" of the income for a sum of Rs.4,99,59,650/- will be added to the income. Relevant portion from the Assessment Order dated 02.11.2023 is extracted below for easy reference: Thus, Rs.4,49,59,601/- being upward adjustment made is hereby added to the total income of the assessee. Penalty proceeding u/s 270A for misreporting of income is initiated separately, in respect of the upward adjustments determined by the TPO.

¶8Later, the Transfer Pricing Officer made further adjustment vide Order dated 03.10.2023 under Section 154 of the Income Tax Act, 1961 pursuant to which, the assessment was completed under Section 143(3) r/w. 144 (c) on

03.11.2023, by which the total income of the Petitioner was arrived at Rs.2,85,99,58,545/- after adding a sum of Rs.2,02,13,455/- to the income Page No. 4 of 32 declared by the Petitioner for a sum of Rs.2,83,97,38,290/-.

¶9A final computation in the aforesaid Assessment Order is reproduced below:- Particulars Amount (Rs.) Total income as per return of income 283,97,38,290 Income as computed u/s. 143(1) (a) 2,83,97,45,100 Add: T.P.Adjustment (As per para-5) 4,49,59,601 T.P.Adjustment

reduced

to Rs.2,02,13,445/- after the rectification order passed by TPO on 03.10.2023 285,99,58,545 Total Assessed Income 285,99,58,545

¶10It is in this background on the same day, a notice under Section 274 r/w Section 270A was issued to proposing impose penalty under Section 270A of the Income Tax Act 1961. The said proceeding culminated in an Order dated 30.05.2024 impugned herein wherein penalty of Rs.1,01,74,640/ under Section 270A of the Income Tax Act, 1961 was imposed on the petitioner.

¶11The Petitioner had earlier filed an application for immunity under Section 27AA of the Income Tax Act on 30.11.2023 which was followed by a Show Cause Notice dated 26.12.2023 to show cause as to why immunity for Page No. 5 of 32 Section 270AA of the Income Tax Act, 1961 claimed by the petitioner should not be rejected.

¶12The Petitioner replied on 28.12.2023 which reiterated it's reply dated

28.11.2023 filed before the National Faceless Assessment Centre. Content of this reply dated 28.11.2023 was reiterated and filed with the Annexure II to the aforesaid reply. By an Order dated 28.12.2023 the application filed for Waiver of penalty was however rejected.

¶13Learned counsel for the Petitioner would submit that imposition of penalty under Section 270A of the Income Tax Act, 1961 vide impugned Order dated 30.05.2024 was unjustified particularly in the light of the fact that the Petitioner had opted for immunity under Section 270AA by filing an application in Form 68 on 03.11.2023.

¶14It is further submitted that imposition of penalty and rejection of the application filed by the immunity without authority of law. It is therefore submitted that the Assessment Order itself confirms that there was misreporting and therefore, denial of the immunity of Section 270 AA of the Income Tax Act, 1961 was unjustified. Page No. 6 of 32

¶15Therefore, it is further submitted even otherwise there is no case for misreporting even as per the Assessment Order dated 02.11.2023. Specifically a reference was made to the Para No.4.4 of the Assessment Order dated

02.11.2023 content of which has already been extracted supra.

¶16It is submitted that there was only a upward revision to the Return of Income filed by the Petitioner and that if at all there was only under reporting and not misreporting of income and therefore, impugned proceedings are liable to be interfered with.

¶17Learned Senior Counsel for the Petitioner on the following decisions:- i.P. M. Perianna pillair Vs. Commissioner, Board of Revenue (Commercial Taxes) (1980) 46 STC 94 (Mad.). ii.State of Tamil Nadu Vs. Sri Swamy and Company (1977) 39 STC 85 (Mad.). iii.The State of Tamil Nadu Vs. R.R. Ramachari and Sons (1977) 40 STC 542 (Mad.). iv.CIT Vs. Anwar Ali (1970) 76 ITR 696 (SC). v.CIT Vs. Durr India (P.) Ltd (2014) 41 taxmann.com 134 (Madras) Page No. 7 of 32 vi.Schneider Electric South East Asia (HQ) PTE Ltd. Vs. ACIT, International Taxation Circle 3(1)(2), New Delhi and Ors. W.P.(C) NO. 5111 of 2022. vii.Prem Brothers Infrastructure LLP Vs. NFAC (2022) 142 taxmann.com 38 (Delhi)

¶18On the other hand, learned counsel for the Respondent would submit that penalty proceeding was initiated for misreporting of Income and therefore the Petitioner was not entitled to file Form-68 for immunity from Section 270AA of Income Tax Act, 1961.

¶19It is further submitted that it is established in the impugned Order that there was indeed misreporting to attract penalty under Section 274 read with 270A of the Income Tax Act, 1961 and therefore Show Cause Notice that was issued to the Petitioner was in order.

¶20It is submitted that jurisdictional Assessing Officer has considered the submission of the Petitioner dated 14.05.2024 and has clearly held that provisions of Section 270A(9) was attracted in the fact of the present case and has thus, levied penalty for misreporting of the Income under Section 274 read with 270A of the Income Tax Act, 1961. Page No. 8 of 32

¶21That apart, it is submitted that the case as relied upon by the Petitioner under Section 271(1)(c) were not applicable for the proceedings initiated under Section 270A of the Income Tax Act, 1961. It is submitted that the Order dated

29.12.2023 and Order dated 30.05.2024 have been passed after following due procedure of law and do not merit any interference under Article 226 of the Constitution of India.

¶22Mrs.S.Premalatha, learned Senior Standing Counsel for the Respondent during the course of arguments also drew the attention to few passages from the impugned Order dated 30.05.2024 passed by the Respondent under Section 270 A of the Income Tax Act, 1961.

¶23Specifically, the learned Senior Standing Counsel for the Respondent submitted that under Section 270A(8) of the Act, as a consequence of 'Under-reporting" of income penalty equivalent to 200% can be imposed. It is further submitted that in the impugned Order, it has been clarified that as consequence of misreporting, T.P.O. concluded that there was Underreporting of income due to misreporting. Page No. 9 of 32

¶24By way of a rejoinder, Mr.Ajay Vohra, the learned Senior Counsel for the Petitioner has submitted that in the case of the Petitioner, neither any scope to infer "under -reporting nor under "mis-reporting" and at best, it can be construed that there was only "under-reporting" within the meaning of Section 27A(d) of the Act.

¶25It is further submitted that to conclude that there was "mis-reporting", the Respondent-Income Tax Department has to establish one of the following provisions of Section 270A(9) of the Act, viz., :- a.Misrepresentation or suppression of facts: Hiding crucial details to evade tax. b.Non-recording of investments: Failure to record investments in the books of account. c.Substantiation failure: Claiming expenditure not supported by evidence. d.False entries: Recording false entries in the books of account. e.Unrecorded receipts: Failure to record receipts that impact total income. f.Transaction failure: Failure to report international or specified domestic transactions (under Chapter X).

¶26It is submitted that there was no violation on the part of the Petitioner while reporting the international transaction or any transaction deemed to be an Page No. 10 of 32 international transaction or any specified domestic transaction, to which, the aforesaid provision of Chapter X would apply.

¶27I have considered the arguments advanced by the learned counsel for the petitioner and the learned Senior Standing Counsel for the respondent.

¶28In this case, the Assessment Order dated 02.11.2023 was passed pursuant to the Draft Assessment Order dated 20.09.2023 under Section 144C(3) of the Income Tax Act, 1961. On the very same day i.e., 02.11.2023, notice for initiating proceedings for Penalty under Section 274 read with Section 270A of the Income Tax Act, 1961 was issued to the Petitioner.

¶29As per Section 270A of the Income Tax Act, 1961, the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under the Income Tax Act, 196l, direct any Person who has under-reported his income shall be liable to pay a penalty in addition to tax.

¶30In the present case, the Petitioner has been subjected to a penalty of two hundred percent (200%) of the amount of tax payable on the under-Page No. 11 of 32 reported income, on the ground that such under-reporting is in consequence of misreporting of income under Section 270A(9)(a) of the Income Tax Act, 1961.

¶31Section 270A of the Income Tax Act, 1961 is extracted as under for the sake of clarity:- 270A. Penalty for under reporting and misreporting of income.—

(1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.

(2) A person shall be considered to have under-reported his income, if—

(a)

the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;

(b)

the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;

(c)

the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;

(d)

the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;

(e)

the amount of deemed total income assessed as per the provisions Page No. 12 of 32 of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;

(f)

the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such, reassessment;

(g)

the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

(3) The amount of under-reported income shall be,—

(i)

in a case where income has been assessed for the first time,—

(a)

if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143;

(b)

in a case where no return has been furnished,—

(A)

the amount of income assessed, in the case of a company, firm or local authority; and

(B)

the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A);

(ii)

in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula— (A — B) + (C — D) where, Page No. 13 of 32 A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income: Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. Explanation.—For the purposes of this section,—

(a) "preceding order" means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated;

(b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.

(4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as "preceding year") and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. Page No. 14 of 32

(5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order—

(a)

the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and

(b)

where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.

(6) The under-reported income, for the purposes of this section, shall not include the following, namely:—

(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;

(b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom;

(c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;

(d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and

(e) the amount of undisclosed income referred to in section 271AAB. Page No. 15 of 32

(7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income.

(8) Notwithstanding anything contained in sub-section (6) or sub-section

(7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income.

(9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—

(a)

misrepresentation or suppression of facts;

(b)

failure to record investments in the books of account;

(c)

claim of expenditure not substantiated by any evidence;

(d)

recording of any false entry in the books of account;

(e)

failure to record any receipt in books of account having a bearing on total income; and

(f)

failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

(10) The tax payable in respect of the under-reported income shall be—

(a)

where no return of income has been furnished and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income;

(b)

where the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income;

(c)

in any other case determined in accordance with the formula Page No. 16 of 32 —

(X-Y)

where,

X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and

Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order.

(11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

(12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be.".

¶32The aforesaid penalty under Section 270A of the Income-tax Act, 1961 has been imposed on the allegation of under-reporting of income in consequence of misreporting, purportedly arising out of the following adjustment made by the Transfer Pricing Officer (TPO) while determining the Arm's Length Price (ALP) of the petitioner's transactions under Section 92CA(3) of the Income Tax Act, 1961. Page No. 17 of 32

¶33Under Section 92C(3) of the Income Tax Act, 1961, the Assessing Officer may proceed to determine the arm's length price in relation to an international transaction where during the course of any proceeding for the assessment of income, the Assessing Officer is of the opinion on the basis of material or information or document in his possession that:-

(a)the price charged or paid in an international transaction has not been determined in accordance with Section 92C, or

(b)any information and document relating to an international transaction have not been maintained by the Assessee; or

(c)the information or data used in computation of arm's length price is not reliable or correct; or

(d)the Assessee has failed to furnish any information or document,

¶34Petitioner had arrived at margin of profit at Rs.139,01,96,202/-based on Transactional Net Margin Method (TNMM) and Comparable Uncontrolled Price Method (CUP) as per Rule 10B of the Income Tax Rules, 1961. The Petitioner placed reliance on details of the following companies for Comparable Uncontrolled Price Method (CUP) :-

1.Allsec Technologies Ltd.

2.Anderson Business Solutions Pvt. Ltd.

3.Cosmic Global Pvt. Ltd.

4.Datamatics Business Solutions Ltd.

5.Digicall Global Pvt. Ltd. Page No. 18 of 32

6.Global Healthcare Billing Partners Pvt. Ltd.

7.Silgate Solutions Ltd.

8.WE Win Ltd. (Surevin BPO services Ltd.)

¶35On examination of the above comparables offered by Petitioner for determination of Arm's Length Price, the Transfer Pricing Officer held that the data of the following two comparables were to be rejected. The reasons given for rejection were as under:- S.No. Name of the Comparable Reason for rejection

¶1Anderson Business Solutions Pvt. Ltd. Failed in Employee Cost Filter (<60%)

¶2Digicall Global Pvt. Ltd. Failed in Employee Cost Filter (<60%) & Negative

NCP margin

¶36Therefore, the Transfer Pricing Officer proceeded to determine the Arm's Length Price (ALP) in accordance with sub-Sections (1) and (2) of Section 92C of the Income Tax Act, 1961 by conducting an independent search through Prowess IQ database applying the following filters:-

¶1Companies in predefined sets – Companies involves in ITeS and support Services

¶2Sales > 1 crore Page No. 19 of 32

¶3Financial Year ending 31st March

¶4Rejection of persistent loss-making companies

¶5Positive Net Worth

¶6Employee Cost to Sales > 60%

¶7Export Income to Total Sales > 75%

8. RPT < 25%

¶9Functionally similar services

¶37The Transfer Pricing Officer concluded that since the margin of petitioner was not within the range and therefore sent a SCN dated 06.03.2023 to show cause as to why the above comparables referred by the petitioner should not be considered as the benchmark for the International Transactions using TNMM with the profit margin of 17.67%.

¶38The Profit Level Indicator (PLI) of the Petitioner Company was computed by the Transfer Pricing Officer (TPO) by dividing Operating Profit

(OP) with Operating Cost (OC) [OP/OC] as determined under:- Particulars Amount in INR Revenue from operation 1386980501 Exchange gain 9584757 Operating Income [OI] 1396565258 Expenses Employee benefit expenses 867009540 Technical and helpdesk 62034672 Page No. 20 of 32 services cost Depreciation and amortization expenses 56805097 Other expenses 239204456 Operating Cost [OC] 1225053765 Operating Profit [OP] 171511493 OP/OC

14.00

¶39After considering objection of the Petitioner, the Transfer Pricing Officer by an order dated 30.03.2023 concluded as under:- ts: The assessee has selected 8 comparables and six of the assessee's comparables were also included in the final list of comparables. This office has conducted an independent search to know the broader view of the operating margins reported by the companies in the segments submitted by the assessee. The independent search done by the undersigned has resulted in 12 comparable companies (including 6 of assessee's comparables). From the weighted average margin of the comparable companies, it is observed that, the 35th Percentile margin is 17.45% and the 65th Percentile Margin is 18.76%. Since the margin of assessee is not within the range. The assessee was sent a SCN dated 06/03/2023 to show cause as to why the above comparables should not be considered to benchmark the international transactions using TNMM with the profit margin of 17.67%. The same has been discussed elaborately in Para 6.1 supra. There is no base on the assessee's request to include two more comparable companies at this stage. The assessee company is a well established reputed company with significant turnover. The assessee submitted that it "being a captive service provider, assumes less than normal risks relating to business Page No. 21 of 32 and operations and all significant business and entrepreneurial risks are borne by its AEs, outside India. In other words, VDSI is insulated from most of the business and operational risks which the comparable companies are exposed to, e.g., market risk, services liability risk, technology risk, credit risk, etc." This clearly shows that the assessee's margin is not within the arm's length price of the industry wide margins which is clearly visible from the margins computed by this office. In view of the above discussion, the assessee's request for inclusion of two new comparables are not accepted as the assessee has cherry picked these two comparables as these companies have tendency to skew the results and cannot be considered representative of the industry. Hence, the claim of the assessee is denied. Final List of Comparables: ITES and supervisory support services S.No. Name of the Comparables WT OP/OC

¶1Global Healthcare Billing Partners Pvt. Ltd.

1.55

¶2Silgate Solutions Ltd.

7.60

¶3Cosmic Global Ltd.

10.34

¶4Sundaram Business Services Limited

14.99

¶5Tech Mahindra Business Services Ltd.

17.45

¶6M O L Information Processing Services (India) Pvt. Ltd.

17.57

¶7Bahar Infocons Pvt. Ltd.

17.76

¶8Allsec Technologies Ltd.

18.76

¶9WE Win Ltd. (Surevin BPO services Ltd.)

19.89

¶10Datamatics Business Solutions Limited

21.08

¶11Designed Products Ltd.

21.83

¶12Inteq BPO Services Private Limited

40.85 35th PERCENTILE

17.45 Page No. 22 of 32 65th PERCENTILE

18.76 MEDIAN

17.67

¶40The Arms Length Price was determined by the Transfer Pricing Officer vide order dated 30.03.2023 as follows:- ALP Calculation: Value of International Transactions =Rs. 13,65,65,258/- Margin of Assessee Company = 14.00% Median of Comparable Companies = 17.67% Cost Margin Sale Assessee Company

14.00%

114.00 Comparable Companies

17.67%

117.67 ALP Calculation Amount in INR 139,65,65,258 X 117.67/114 144,15,24,859 Less AE Sale 139,65,65,258 ALP 4,49,59,601

¶41Thus, an upward adjustment of Rs.4,49.59,601/-was proposed in the Software development, testing and support services Segment for the AY 2020-

21.

¶42Later, the said order dated 30.03.2023 was rectified by a Rectification Order dated 03.10.2023 under Section 92CA(5) read with Section 154 of the Page No. 23 of 32 Income Tax Act, 1961 by the Transfer Pricing Officer with the following observations in respect to an application filed by the Petitioner:- The assessee filed rectification application under Section 154 of the Income Tax Act, 1961 regarding margin computation of comparable companies. The details submitted by the assessee has been duly verified with the financials. As this constitutes a mistake apparent from record, the same is rectified under Section 92CA(5) read with Section 154 of the Income Tax Act, 1961 and the revised computation of the comparables after Rectification are as under: ITES and supervisory support survices S.No. Name of the Comparables WT OP/OC

¶1Global Healthcare Billing Partners Pvt. Ltd. -2.66

¶2Designed Products Ltd.

3.97

¶3Silgate Solutions Ltd.

7.54

¶4Cosmic Global Ltd.

9.55

¶5Datamatics Business Solutions Limited

14.49

¶6Sundaram Business Services Limited

14.99

¶7WE Win Ltd. (Surevin BPO services Ltd.)

16.32

¶8Tech Mahindra Business Services Ltd.

17.45

¶9M O L Information Processing Services (India) Pvt. Ltd.

17.66

¶10Bahar Infocons Pvt. Ltd.

17.76

¶11Allsec Technologies Ltd.

18.76

¶12Inteq BPO Services Private Limited

40.85 35th PERCENTILE

14.49 65th PERCENTILE

17.45 MEDIAN

15.65 From the weighted average margin of the comparable companies, it is observed that, the 35th percentile margin is

14.49% and the 65th percentile margin is 17.45%. Since the margin of assessee i.e., 14.00% is not within the range, the ALP of the assessee is computed as follows. Page No. 24 of 32 Value of International Transactions = Rs. 139,65,65,258 Margin of Assessee Company = 14.00% Median of Comparable Companies = 15.65% Cost Margin Sale Assessee Company

14.00%

114.00 Comparable Companies

15.65%

115.65 ALP Calculation Amount in INR 139,65,65,258 X 115.65/114 1,41,67,78,703 Less AE Sale 1,39,65,65,258 ALP 2,02,13,445 Hence the original adjustment of INR 4,49,59,601 as per the earlier order dated 30.03.2023 is reduced to INR 2,02,13,445 as per this rectification order.

¶43Penalty for "under-reporting of income" and for "under reporting of income is in consequence of any misreporting" are prescribed in Sub Section (7) and (8) to Section 270A of the Income Tax Act, 1961. They are as under:- Under-reporting of income Under-reporting of Income is in consequence of misreporting Provision 270A(7) 270(8) Penalty 50% of the amount of tax payable on under-reported income 200% of the amount of tax payable on under-reported income Page No. 25 of 32

¶44The immunity contemplated under Section 270AA of the Income Tax Act, 1961 is available to an assessee only for "under-reporting of income" simplicitor.

¶45No immunity from penalty is available to an assessee under Section 270AA of the Income Tax Act, 1961 where "under-reporting of income is as a consequence of misreporting of income" as is contemplated in Sub Section (8) and (9) to Section 270A of the Income Tax Act, 1961.

¶46Situations for "Under-reporting of income is in consequence of any misreporting of income" has been stipulated under Sub Section (9) to Section 270A of the Income Tax Act, 1961.

¶47"Under-reporting of income as a consequence of misreporting of income" would arise only if any of one or more of the ingredients mentioned in Sub Section (9) to Section 270A of the Income Tax Act, 1961 were present.

¶48Instances of "misreporting of income" for the purpose of Sub Section

(8) to Section 270A of the Income Tax Act, 1961 are specified in Sub Section Page No. 26 of 32

(9) to Section 270A of the Income Tax Act, 1961. Sub Section (9) to Section 270A of the Income Tax Act, 1961 is reproduced below:-

(9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—

(9) The cases of misreporting of income referred to in sub-section

(8) shall be the following, namely:— a) misrepresentation or suppression of facts; b) failure to record investments in the books of account; c) claim of expenditure not substantiated by any evidence; d) recording of any false entry in the books of account; e) failure to record any receipt in books of account having a bearing on total income; and f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

¶49"Misreporting of income" represents an aggravated form of under-reporting, characterized by a deliberate and willful attempt to evade tax. In the facts of the case, there is no scope to infer aggravated form of under-reporting, characterized by a deliberate and willful attempt to evade tax. Page No. 27 of 32

¶50The entire basis for initiation of penalty proceedings is the transfer pricing adjustment proposed in the draft assessment order. Such adjustment, by its very nature, involves estimation and determination of arm's length price and cannot, in law, be equated with either concealment or misrepresentation so as to attract the Clause (a) to Sub Section (9) to Section 270A.

¶51Since the Petitioner had maintained information and documents as prescribed under Section 92D, and complied with all statutory requirements under Chapter X of the Income Tax Act, 1961.

¶52Therefore, the case squarely falls within the exception carved out under Clause (d) to Sub Section (6) to Section 270A, which expressly excludes such cases from the ambit of under-reporting. In the facts of the case, it cannot be held that there was "under-reporting of income as a consequence of misreporting of Income" either to impose penalty under Section 270A(8) read with Section 270A(9) of the Income Tax Act, 1961 as the ingredients thereof are not satisfied.

¶53Unless tax is a clear and categorical incriminating facts to infer Page No. 28 of 32 deliberate and conscious concealment or furnishing of false particulars, it cannot be said that there was "under-reporting of income as a consequence of misreporting of income" which is completely absent in the present case.

¶54At best, it could have been surmised that the petitioner was guilty for "under-reporting of income" simplicitor to impose penalty under Section 270A(7) of the Income Tax Act, 1961. However, even that is not made out in view of Clause (d) to Sub Section (6) to Section 270A of the Income Tax Act, 1961.

¶55As per Section 270A(6) of the Income Tax Act, 1961, "under-reporting of income" under shall not include the following, namely:—

(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;

(b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Page No. 29 of 32 Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom;

(c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;

(d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and

(e) the amount of undisclosed income referred to in section 271AAB.

¶56In the present case, the income of under-reported was represented by addition made in conformity with the arm's length price determined by the Transfer Pricing Officer vide Order dated 30.03.2023 as modified vide Order dated 30.10.2023.

¶57That apart, the Petitioner had maintained information and documents as was prescribed under Section 92D and had declared the international transaction under Chapter X, and, disclosed all the material facts relating to the Page No. 30 of 32 international transaction. Therefore, the Petitioner was entitled for immunity under Section 270AA of the Income Tax Act, 1961.

¶58Therefore, this Writ Petition deserves to be allowed and accordingly, it is allowed. Consequently, connected miscellaneous petitions stand closed. No costs.

06.02.2026 gv/raja To Deputy Commissioner of Income Tax Corporate Circle 3(1), Chennai 131, Mahatma Gandhi Road, Nungambakkam Chennai 600034

Page No. 31 of 32

C. SARAVANAN, J. gv/raja W.P.No18377/2024

06.02.2026 Page No. 32 of 32

2026:MHC:586 IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on 02.02.2026 Pronounced on 06.02.2026 CORAM THE HONOURABLE MR.JUSTICE C.SARAVANAN and W.M.P.Nos.20189 & 20190 of 2024 Verizon Data Services India Private Limited Rep by its authorized Signatory Mr.Ramanth Subramanian No.1, Olympia Tech Park, Citius B Block, 8th floor, Guindy Chennai 600032,Tamil Nadu, India ...Petitioner Vs. Deputy Commissioner of Income Tax Corporate Circle 3(1), Chennai 131, Mahatma Gandhi Road, Nungambakkam Chennai 600034 ...Respondent Prayer : Writ Petition is filed under Article of the 226 of the Constitution of India, for issuance of a Writ of Certiorarified Mandamus to call for the records of the respondent and quash the impugned Order No.1 in PAN: AABCV1758N bearing DIN:ITBA/PLN/F/270AA/2023-24/1059206899(1) passed by the respective u/s.270AA of the Act dated 29.12.2023 for the Assessment Year Page No. 1 of 32 2020-21 as also the Impugned Order No.2 passed by the Respondent in PAN: AABCV1758N bearing DIN:ITBA/PNL/F/270A/2024-25/1065274075(1) levying penalty under Section 270A dated 30.05.2024 for the AY 2020-21 and thereby directing grant of immunity under Section 270AA of the Act for the Assessment Year 2020-21. For Petitioner : Mr.Ajay Vohra Senior Advocate For Respondents : Mrs.S.Premalatha Senior Standing Counsel