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Delhi High Court Upholds Legitimate Business Expenses: No Transfer Pricing Adjustment for Intra-Group Services


The Hon’ble Delhi High Court (‘DHC’), in the matter of Principal Commissioner of Income-tax v. A.T. Kearney Limited[i], held that transfer pricing adjustments cannot be made for intra-group services (‘IGS’) related to legitimate business expenses, especially when a detailed break-up of costs is provided. This significant judgment restricts the powers of tax administrators to restructure legitimate business transactions and affirms the Assessee’s right to make commercial decisions.

Brief Facts

  • The assessing officer (‘AO’) adjusted approximately Rs. 5.32 crore in A.T. Kearney Limited’s (‘Assessee') income on account of IGS payment to its associated enterprises (‘AEs’).

  • Aggrieved by such an adjustment, the Assessee was compelled to file an appeal before the Commissioner of Income-Tax (Appeals) (‘CIT(A)’), who sustained 50% of the adjustment and directed the transfer pricing officer (‘TPO’) to delete Rs. 2.66 crore as payments made for IGS to AEs.

  • The Assessee filed an appeal before the Income Tax Appellate Tribunal (‘ITAT’) which further deleted the addition sustained by the CIT(A).

  • Aggrieved by the ITAT’s order, the Principal Commissioner of Income-tax (‘Appellant’) approached the DHC contending the ITAT’s order to delete the adjustments was legally unsound. Consequently, the appeal was lodged.


  • The DHC ruled in favour of the Assessee, confirming that the deletion of the adjustment by the ITAT was correct in law and that the adjustments made by the TPO/AO lacked merit.

  • It observed that the Assessee had given a detailed breakup of costs incurred related to the IGS and the rendering of service was undisputed, restructuring these legitimate transactions by the TPO was arbitrary.

  • Additionally, the DHC reasserted that only in exceptional cases is the tax administration allowed to disregard the actual transactions and/or substitute it with others. It relied on its judgments in EKL appliances[ii] and Cotton Naturals India Pvt Ltd[iii], which held that revenue authorities are not permitted to step into the shoes of the Assessee or decide whether a transaction should have been entered into.

Our Analysis

The DHC has, through the aforementioned decision, limited the exercise of authority by the tax administrators in dealing with adjustments for IGS to AEs. It emphasized that such adjustments cannot be mechanically imposed in unwarranted circumstances. The AO/TPO is not authorized to make adjustments merely because payments for IGS have been made to an AE.  This decision highlights the importance of respecting the business decisions of the Assessee, the legitimate services availed, and the detailed documentation provided regarding such transactions.

End Notes

[i] [2024] 161 310 (Delhi)

[ii] 2012 SCC OnLine Del 1897 dated 29.03.2012

[iii] 2015 SCC OnLine Del 8414 dated 27.03.2015

Authored by Aditya Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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