Mumbai: The Bombay high court on Monday asked the income-tax (I-T) department to respond to arguments by the Indian units of Vodafone Group Plc and Royal Dutch Shell Plc against alleged transfer pricing.

Both the firms have challenged tax demands through writ petitions in the high court, which have been bunched together as both relate to transfer pricing.

Transfer pricing is the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged to an unrelated party—is levied.

Vodafone challenged a transfer-pricing order over the issue of shares by its unit Vodafone India Services Pvt. Ltd. Shell India is fighting a tax order accusing it of underpricing an intra-group share transfer by 15,000 crore and consequently evading taxes.

On Monday, lawyer Harish Salve, who represented both Vodafone and Shell India, argued that the orders passed by the tax department are incorrect as no income arose out of the transactions, which have been taxed.

The high court asked the tax department to file a reply in both the cases. It will hear the matter again on 30 September.

Companies such as Vodafone, Shell India and Microsoft India have recently come under the tax department’s scanner for transfer pricing-related issues. Many are exploring legal options.

India has seen a sharp increase in disputes relating to transfer pricing, with the tax department adopting an aggressive stand while arriving at a price for such transactions. The transfer-pricing assessment by the tax department for the year ended March 2008 saw the government raising claims to the tune of $9.5 billion.

The Vodafone and Shell cases are a fallout of retrospective amendments introduced in the national budget of 2012 that included capital financing under the transfer-pricing net, analysts say.

With multinational companies looking to expand business in India, the issue of arm’s length pricing has come under increased scrutiny of the transfer pricing wing of the I-T department. It comes at a time when the government is struggling to meet its fiscal deficit targets due to slowing revenue collection, especially on corporate taxes.

Vodafone, the largest corporate investor in India, has repeatedly clashed with Indian authorities over taxes since it bought Hutchison Whampoa Ltd’s local mobile business in 2007.

Vodafone and Shell India have also challenged these orders before the dispute resolution panel of the Indian I-T department.