Justice C. Saravanan, while quashing the penalty order and rejection of its immunity application against Verizon observed,

[08/03, 18:55] sekarreporter1: [08/03, 18:54] sekarreporter1: Transfer Pricing Adjustment Cannot Amount To ‘Misreporting of Income’: Madras High Court Quashes Penalty On Verizon
https://www.livelawbiz.com/income-tax/high-court/transfer-pricing-adjustment-does-not-automatically-attract-penalty-for-misreporting-525572
[08/03, 18:55] sekarreporter1: ”

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Home/INCOME TAX/High Courts/Transfer Pricing Adjustment Cannot…
Transfer Pricing Adjustment Cannot Amount To ‘Misreporting of Income’: Madras High Court Quashes Penalty On Verizon
Mehak Dhiman
7 Mar 2026 8:31 PM

(5 mins read )
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The Madras High Court has recently quashed penalty proceedings against Verizon Data Services India Pvt Ltd, holding that a transfer pricing adjustment based on estimation of arm’s length price cannot by itself constitute “misreporting of income” under Section 270A of the Income Tax Act.

A single-bench of Justice C. Saravanan, while quashing the penalty order and rejection of its immunity application against Verizon observed,

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“The 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.”

The writ petition challenged two orders passed by the Income Tax Department, one rejecting the company’s application for immunity under Section 270AA of the Income Tax Act and another imposing a penalty under Section 270A for alleged misreporting of income for the Assessment Year 2020–21.

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The assessment proceedings arose after the Transfer Pricing Officer (TPO) made an upward adjustment while determining the arm’s length price of the company’s international transactions with its associated enterprises.

The petitioner had originally filed its return declaring a gross total income of approximately ₹283.97 crore. During transfer pricing proceedings under Section 92CA, the TPO determined that the profit margin declared by the company was lower than the industry range.

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Based on the Transactional Net Margin Method (TNMM) and a set of comparable companies, the TPO initially proposed an upward adjustment of about Rs 4.49 crore to the petitioner’s income.

Subsequently, on a rectification application filed by the petitioner, the TPO revised the computation and reduced the adjustment to approximately Rs 2.02 crore.

Following the assessment order, the Assessing Officer initiated penalty proceedings under Section 270A, alleging that the underreporting of income resulted from misreporting.

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The department later imposed a penalty of about Rs 1.01 crore and rejected the petitioner’s application seeking immunity from penalty under Section 270AA.

The court observed that misreporting under Section 270A(9) requires specific circumstances such as suppression of facts, failure to record investments, false entries in books, or non-disclosure of transactions. The court noted that none of these conditions was satisfied in the present case.

The court further held that transfer pricing adjustments inherently involve estimation and benchmarking of profit margins and therefore cannot automatically be equated with concealment or misrepresentation. Since the petitioner had maintained the required documentation and disclosed all relevant information relating to its international transactions, the case fell within the statutory exception provided un
[08/03, 18:55] sekarreporter1: English key notes
[08/03, 18:55] Meta AI: – Madras High Court quashed penalty on Verizon Data Services India, holding that a transfer-pricing adjustment (ALP estimation) alone doesn’t equal “misreporting of income” under Section 270A.
– Misreporting requires specific acts—suppression of facts, false entries, nondisclosure—none were present; the company had full documentation.
– The court set aside the ₹1.01 crore penalty and the rejection of immunity under Section 270AA for AY 2020-21.
[08/03, 18:55] Meta AI: Sure—here are the English key points:

– The Madras High Court ruled that a transfer-pricing adjustment, which is an estimate of arm’s length price, does not by itself constitute “misreporting of income” under Section 270A.
– Misreporting requires concrete actions like suppressing facts, false entries, or nondisclosure; Verizon had maintained documentation and disclosed its transactions.
– The court quashed the ₹1.01 crore penalty and the denial of immunity under Section 270AA for assessment year 2020-21.