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2011 (10) TMI 482 - AT - Income TaxPenalty u/s 271AA - Transfer Pricing - no adjustment to ALP - penalty initiated on ground that that assessee had not maintained documents as required under Rule 10D of Income-tax Rules, 1962 - Held that - On perusal of documents and records submitted by assessee we observe that assessee had substantially complied with the requirement of Rule 10D. If there was any failure on any particular item, the TPO and the AO were bound to point it out specifically before levying of penalty. By forming a general opinion that the assessee had not maintained required documents as required under Rule 10D, penalty could not have been levied. Assessee had furnished required documents and information. Inadequacy of any document for meeting requirement of Rule 10D has not been pointed out by any of the authorities below. Further, based on such documentation, the TPO had himself come to a conclusion that there was no requirement of any revision of value of the international transactions. CIT(A) rightly deleted the penalty - Decided in favor of assessee.
Issues Involved:
1. Deletion of penalty under Section 271AA of the Income-tax Act, 1961. 2. Requirement for obtaining comments or remand report from the Transfer Pricing Officer (TPO). Issue-wise Detailed Analysis: 1. Deletion of Penalty under Section 271AA of the Income-tax Act, 1961: The primary issue in this appeal is the deletion of a penalty amounting to Rs. 1,88,11,365/- levied on the assessee under Section 271AA of the Income-tax Act, 1961. The Revenue contended that the CIT(Appeals) erred in deleting the penalty without giving an opportunity to the TPO to comment on the matter or obtaining a remand report. The facts reveal that the assessee, engaged in power generation, had international transactions with an associated enterprise, Marubeni Corporation, Tokyo, holding 26% of the shares in the assessee. During the assessment proceedings, the TPO was referred to determine the Arms Length Price (ALP) for the transactions reported in Form No.3CEB. The TPO, after examining the transactions, concluded that no adjustment was necessary but noted that the assessee had not maintained documents as required under Rule 10D of the Income-tax Rules, 1962. Consequently, the TPO recommended the initiation of penalty under Section 271AA. The Assessing Officer (A.O.) issued a notice to the assessee to show cause why the penalty should not be levied. The assessee argued that the TPO had concluded no adjustment was necessary based on the documents submitted, and the approvals from Government bodies supported the ALP. Despite this, the A.O. levied a penalty of 2% on the total value of international transactions, amounting to Rs. 94,05,68,268/-. On appeal, the CIT(Appeals) found that the TPO did not point out any specific failure of the assessee to maintain particular documents required under Rule 10D. The CIT(Appeals) opined that the documents maintained by the assessee were sufficient to justify the value of the international transactions, and without specific findings, the penalty could not be justified. Therefore, the penalty was deleted. 2. Requirement for Obtaining Comments or Remand Report from the TPO: The Revenue argued that the CIT(Appeals) should have obtained comments or a remand report from the TPO before deciding in favor of the assessee. However, the Tribunal found that the primary reason for the penalty was the TPO's general comment on the non-maintenance of documents as per Rule 10D, without specifying any particular document that was not maintained. The Tribunal noted that the assessee had provided detailed responses and documents, including a FAR analysis, which substantially complied with Rule 10D requirements. The TPO's own conclusion that no adjustment was necessary to the value of international transactions, based on the documents submitted by the assessee, further supported the deletion of the penalty. The Tribunal emphasized that without pointing out specific inadequacies in the documentation, a general opinion could not justify the penalty. In conclusion, the Tribunal upheld the CIT(Appeals) decision to delete the penalty, as the assessee had substantially complied with the documentation requirements, and the TPO had not identified any specific failures. The appeal filed by the Revenue was dismissed.
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