Defence Contract Confidentiality Clause Cannot Be Basis for Adverse TP Inference: ITAT Deletes ₹38.20 Cr Addition [Read Order]

The Income Tax Appellate Tribunal(ITAT) Delhi Bench deleted a transfer pricing adjustment of ₹38.20 crore made against Boeing India Defense Private Limited, holding that the non-disclosure of defence contracts due to confidentiality obligations could not be used to draw an adverse inference against the assessee.

The assessee Boeing India Defense Private Limited a subsidiary of Boeing Singapore Pte. Ltd. had entered into agreements relating to C-17 aircraft training and Boeing Business Jet (BBJ) technical support services for the IAF. During the assessment year 2021-22, the company reported international transactions including receipt of training and technical services from its AE amounting to ₹39.67 crore.

The Transfer Pricing Officer (TPO) proposed an adjustment of ₹38.20 crore on technical fees paid to

Boeing Aerospace Operations (BAO) alleging that the assessee failed to establish arm’s length pricing.

The Revenue primarily relied on the assessee’s inability to furnish complete defence contracts executed with the Ministry of Defence and the IAF. However, the assessee contended that the agreements contained strict confidentiality clauses prohibiting disclosure of sensitive defence-related information without governmental approval.

Further, it was argued that Boeing India merely acted as a coordination and liaison entity while the AE owned the technical aspect of simulators, proprietary systems and bore all performance risks including liquidated damages and contractual liabilities. The assessee further submitted that it had only one employee coordinating C-17 training activities and did not possess the infrastructure or capability to independently provide such services.

The Tribunal accepted these submissions and noted that the assessee neither owned the training simulators nor possessed the technical expertise necessary to independently render the services to the IAF. It observed that the entire operational framework demonstrated that the AE controlled and executed the core functions, while Boeing India performed only facilitation and coordination activities.

The bench comprising Challa Nagendra Prasad and S. Rifaur Rahman held that the TPO proceeded on an incorrect assumption that Boeing India itself rendered the technical services as a result directed the Assessing Officer and TPO to accept the benchmarking adopted by the assessee and deleted the transfer pricing adjustment of ₹38.20 crore made in relation to technical and training service fees paid by the assessee to Boeing Aerospace Operations (BAO).

Accordingly, the appeal of the assessee was allowed.

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