Google India has been slapped with a fine of INR 760 million (US$13.8 million) by the country's income-tax authorities.
The tax office said the search giant's Indian arm had misled the department, underdeclared its income, violated accounting rules and attempted to show wrong revenues, according to The Economic Times on Wednesday.
These moves were in a bid to avoid being subject to transfer pricing adjustments in international transactions, said the office.
Google India has appealed against the penalty order which pertains to the asessment year of 2008-2009.
"If the order is upheld, the total advertisement revenue of Google India will be taxed in India," a person familiar with the case, told the Indian news site.
Alleged tax evasion and reporting of incorrect figures
The case centers around Google India's crediting of INR 1.19 billion (US$21 million) to Google Ireland toward distribution fees, which it allegedly did not deduct tax at source as required by the tax treaty between India and Ireland, the authority noted.
"The entire activity of [Google's] AdWords Program and the revenue earned thereon has happened in India with both the advertisers as well as people making use of the advertisements situated in India," the order read. "To this extent, the income of Google Ireland was held to be accrued as well as arisen in India itself."
The tax office had tracked Google's operations in other markets through various sources and media reports, and informed Indian authorities on the nature of transactions between India and Ireland, which aimed at avoiding taxes.
India's tax department maintained since Google India regularly concluded contracts using the name of Google Ireland, and secured orders in India for the Ireland arm, it established itself as a dependent agency, and a "permanent establishment of Google Ireland in India".
They also found its "distribution fees" to Google Ireland "excessive and unreasonable".
A Google India spokesperson however denied the claims, telling the Indian news site, "Google places great importance on following local law and we comply with applicable tax rules in all countries where we operate. We cannot comment further on this."
The news comes a day after Google was accused of tax evasion by U.K. lawmakers, and was grilled and put under intense scrutiny from the Public Accounts parliamentary committee.