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2013 (8) TMI 997 - AT - Income TaxPenalty levied u/s 271AA - international transaction entered upon by the assessee with its associate concern - Held that - We are in conformity with the findings of CIT (Appeals) that the order levying penalty under section 271AA of the Act was passed in perfunctory manner without giving requisite show cause notice and without affording proper opportunity to the assessee. Further there is no merit in the levy of penalty under section 271AA of the Act even on the merits of the case as the Inspector deputed to inspect the record of the assessee had given a report that the assessee had maintained requisite documents. No reliance can be placed on the second report of the Inspector as the same was not confronted to the assessee. Even otherwise there is no merit in the levy of penalty under section 271AA of the Act for the default of not maintaining details as per clause (a), (h) and (l) of Form No.10D, which were not maintainable by the assessee. The international transaction entered upon by the assessee with its associate concern has been held to be at arms length and as such there is no merit in the levy of penalty under section 271AA of the Act - Decided in favour of assessee.
Issues Involved:
1. Deletion of penalty levied under section 271AA of the Income Tax Act, 1961. 2. Adequacy of the opportunity given to the assessee to furnish requisite information. 3. Compliance with the mandatory timelines prescribed under section 92D(3) of the Income Tax Act. 4. Validity of the penalty order in light of procedural irregularities. Issue-Wise Detailed Analysis: 1. Deletion of Penalty Levied Under Section 271AA of the Income Tax Act, 1961: The primary issue in the appeal was the deletion of the penalty amounting to Rs. 8,06,932/- levied under section 271AA of the Income Tax Act. The assessee was engaged in software testing for its associate enterprise based in the USA and had international transactions amounting to Rs. 4,03,06,611/-. The Assessing Officer (AO) imposed the penalty for the alleged failure to maintain and furnish documents as required under Rule 10D of the Income Tax Rules. 2. Adequacy of the Opportunity Given to the Assessee to Furnish Requisite Information: The AO issued a show cause notice on 7.11.2008, requiring the assessee to produce the documents within five days, contrary to the 30-day period prescribed under section 92D(3) of the Act. The CIT (Appeals) observed that the AO did not provide the mandatory 30 days or the possible extension of another 30 days, thereby violating the statutory requirement. The CIT (Appeals) held that the assessee was not given a reasonable opportunity to be heard before the imposition of the penalty. 3. Compliance with the Mandatory Timelines Prescribed Under Section 92D(3) of the Income Tax Act: The CIT (Appeals) noted that the penalty order was dated 21.11.2008 but was dispatched on 12.12.2008. Additionally, the officer who signed the penalty order was not posted there on the date mentioned, indicating procedural irregularities. The CIT (Appeals) concluded that the penalty was imposed without adhering to the mandatory timelines, suggesting a prejudged decision. 4. Validity of the Penalty Order in Light of Procedural Irregularities: The CIT (Appeals) found several procedural lapses, including the failure to provide the statutory period for furnishing documents and the absence of a proper show cause notice. The AO's reliance on an Inspector's report, which was not confronted to the assessee, further weakened the penalty's validity. The Tribunal upheld the CIT (Appeals)'s decision, noting that the penalty was imposed in a perfunctory manner without proper opportunity and that the transaction was at arm's length, negating the basis for the penalty. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT (Appeals)'s order to delete the penalty under section 271AA of the Income Tax Act. The decision emphasized the importance of adhering to statutory timelines and providing adequate opportunity to the assessee, highlighting procedural fairness in tax proceedings.
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