2014 (1) TMI 286 - AT - Income Tax

Levy of Penalty u/s 271G Penalty for failure to furnish information or document under section 92D or Penalty for failure to furnish report under section 92E - Held that - Failure to maintain documents and accounts being audited - The AO had not issued notice of the default committed by the assessee - it was unaware as which are the provision of the Act that he has not observed with regard to international transaction - Penalty order could have been quashed only on this basis - But FAA has discussed the merits of the case also - he has given a clear finding that for the failure of the assessee penalty u/s 271G should not have been levied - while initiating penalty proceedings u/s 271G AO satisfied himself to the effect that the assessee had failed to maintain documents and information as required u/s 92D(1) and it had failed to get its accounts audited as required u/s 92E - For the defaults AO should have initiated penalty proceedings u/s 271AA/271BA Thus the penalty levied u/s 271G of the Act set aside Decided against Revenue.

Summary

Issues:
1. Penalty under section 271G of the Income Tax Act.
2. Requirement of maintaining information under section 92D.
3. Validity of penalty imposed by the Assessing Officer.

Detailed Analysis:

1. Penalty under section 271G:
The case involved a penalty imposed under section 271G of the Income Tax Act. The Assessing Officer (AO) levied a penalty of Rs. 11.10 lakhs on the assessee-company for failure to maintain documents and information as required under section 92D(1) and for not getting its accounts audited as required under section 92E. The First Appeal Authority (FAA) held that before imposing a penalty under section 271G, there should be a specific notice under section 92D(3) specifying the information to be produced as prescribed by Rule 10D. The FAA referred to a previous case and emphasized the importance of issuing a show-cause notice before imposing such penalties. The FAA concluded that the penalty under section 271G should not have been levied in this case, as the AO had not followed the proper procedure and had not issued a notice of the alleged default committed by the assessee.

2. Requirement of maintaining information under section 92D:
Section 92D of the Income Tax Act prescribes the information and documents to be maintained by every assessee who has entered into an international transaction. It specifies the period for which this information is to be maintained and requires the production of prescribed information within 30 days of requisition by the AO or FAA. Failure to maintain the information as per section 92D(1) and (2) attracts a penalty under section 271AA, while failure to furnish information on demand leads to a penalty under section 271G. The case highlighted the importance of complying with these provisions and the necessity of proper hearing before imposing penalties.

3. Validity of penalty imposed by the Assessing Officer:
The Tribunal found that the penalty imposed by the AO under section 271G was not justified in this case. The AO had failed to issue a notice regarding the alleged default by the assessee, which was a fundamental requirement before imposing penalties. The FAA correctly observed that the penalty should have been initiated under sections 271AA or 271BA for the specific defaults related to maintaining information and getting accounts audited. The Tribunal upheld the FAA's decision to set aside the penalty under section 271G, emphasizing the importance of following proper procedures and providing the assessee with an opportunity to respond before levying penalties.

In conclusion, the Tribunal dismissed the appeal filed by the AO, affirming the FAA's decision to set aside the penalty imposed under section 271G due to procedural irregularities and incorrect application of penalty provisions.