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2019 (9) TMI 1389 - AT - Income TaxPenalty u/s. 271G - assessee has entered into an international transactions with its AE and has failed to furnish documents or information as required u/s 92D(3) - main allegation of the revenue is that of non-furnishing of audited AE and non AE segmental as well as documents regarding choice of foreign entity as tested party - HELD THAT - As noted that from the letter issued by revenue dated 07.09.2015 i.e. notice under section 92CA(2) read with section 92D(3) requiring information to be furnished in connection with the TP proceedings that a general notice is issued by the AO. We noted that this issue has been considered in the case of CIT vs. Leory Somer Controls (India) (P) Ltd. 2013 (9) TMI 761 - DELHI HIGH COURT wherein it is held that when there is a general notice and no specific information of document which is required to be submitted by the assessee under section 92D(3) of the Act, is asked for, the penalty levied under section 271G cannot be sustained. We noted that the assessee in the present case has made substantive compliance of the provisions of rule 10D, it is sufficient. The Legislature was conscious of this fact and, therefore, had specifically stipulated in section 92D(3) that the AO or the Commissioner (Appeals) may require a person to furnish any information or document in respect thereof and on failure of the said person to furnish the documentation within the specified time, penalty under section 271G can be imposed. Thus, for imposing penalty the Revenue must first mention the document and information, which was required to be furnished but was not furnished by the assessee within the specified time. The documentation or information should be one specified in rule 10D, which has been formulated in terms of section 92D(1). Assessee has sufficiently complied with the requirement of Rule 10D(i) of the Rules and moreover the AO has not raised any specific issue which specific documents is not produced under section 92D(3), hence, we conclude that the assessee has furnished all the informations as asked for by the AO and unless and until a specific defect is pointed out in the submissions of documents, penalty under section 271G cannot be levied. We delete the penalty and allow the appeal of the assessee.
Issues Involved:
1. Levy of penalty under section 271G of the Income-tax Act. 2. Non-furnishing of audited segmental accounts for AE and non-AE transactions. 3. Non-furnishing of documents regarding choice of foreign entity as tested party. 4. Non-furnishing of documents on applicability of Transactional Net Margin Method (TNMM). Issue-wise Detailed Analysis: 1. Levy of Penalty under Section 271G: The primary issue in these appeals is the confirmation of the penalty levied by the Assessing Officer (AO) under section 271G of the Income-tax Act for the assessee's failure to furnish documents or information as required under section 92D(3) of the Act. The penalty was levied due to the assessee's alleged non-maintenance of sufficient documentation as prescribed under Rule 10D of the Income Tax Rules, 1962. The Tribunal found that the assessee had made substantive compliance with Rule 10D, providing extensive documentation and information to support its transfer pricing study report and international transactions with its Associated Enterprises (AE). 2. Non-Furnishing of Audited Segmental Accounts for AE and Non-AE Transactions: The AO and CIT(A) upheld the penalty on the grounds that the assessee did not furnish audited segmental accounts for AE and non-AE transactions. The Tribunal noted that the assessee had maintained and submitted various documents, including the transfer pricing study report, financial statements, and details of international transactions. The Tribunal emphasized that the requirement of Rule 10D was met by the assessee, and the AO did not specify which particular document was not furnished. 3. Non-Furnishing of Documents Regarding Choice of Foreign Entity as Tested Party: The penalty was also confirmed due to the non-furnishing of documents regarding the choice of the foreign entity as the tested party. The Tribunal observed that the assessee provided detailed documentation, including the rationale for selecting the foreign entity as the tested party and the benchmarking analysis using the Transactional Net Margin Method (TNMM). The Tribunal concluded that the assessee had complied with the documentation requirements under Rule 10D. 4. Non-Furnishing of Documents on Applicability of Transactional Net Margin Method (TNMM): The AO and CIT(A) also cited the non-furnishing of documents on the applicability of TNMM as a reason for the penalty. The Tribunal found that the assessee had provided comprehensive documentation supporting the selection of TNMM as the most appropriate method, including the analysis of functions performed, risks assumed, and assets employed. The Tribunal held that the assessee had sufficiently complied with the requirements of Rule 10D and that the AO did not point out any specific defect in the documentation provided. Conclusion: The Tribunal concluded that the assessee had made substantive compliance with the provisions of Rule 10D and that the AO had not raised any specific issue regarding the non-production of documents under section 92D(3). The Tribunal referred to the Delhi High Court's decision in CIT vs. Leroy Somer & Controls (India) (P) Ltd., which held that penalty under section 271G cannot be sustained when a general notice is issued without specifying the required documents. The Tribunal deleted the penalty for all assessment years under consideration and allowed the appeals of the assessee.
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