2020 (12) TMI 1365 - AT - Income Tax

Penalty imposed u/s 271AA and 271BA - adjustment to the arm's length price of the international transaction, the TPO has observed that the assessee has not complied with the provisions of section 92D and 92E - HELD THAT - Transfer pricing provisions would not be applicable. Consequently, the assessee is not required to comply with the provisions contained u/s 92D and 92E. Though, the assessee was unsuccessfully on the aforesaid stand before the AO, TPO as well as the DRP, however, the Tribunal while considering assessee s contention 2019 (1) TMI 1999 - ITAT MUMBAI has restored the issue to the DRP for re considering assessee s claim that there was no international transaction of revenue nature between the assessee and the AE in the relevant financial year. Thus, in our considered opinion, when assessee s contention regarding not having any international transaction with the AE is still unresolved and is pending before the DRP, it would not be logical and proper to proceed in the matter of imposition of penalty u/s 271AA and 271BA - The requirement of complying with the provisions of section 92D and 92E of the Act only arises in the event of assessee having any international transaction with the AE. Since, the aforesaid preliminary claim is now pending for decision before the DRP, we are inclined to set aside the impugned orders of Commissioner (Appeals) and restore the issue relating to imposition of penalty under section 271AA and 271BA to the AO - AO, if warranted, may initiate proceedings under the aforesaid provisions on the basis of outcome of the decision of the DRP in the quantum proceedings. Grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues:
Challenging penalty under section 271AA and 271BA for AY 2011-12.

Analysis:
The appeals were filed challenging the penalty imposed under section 271AA and 271BA of the Income Tax Act, 1961 for the assessment year 2011-12. The assessee, a resident company providing financial consultancy services, had entered into international transactions with its Associated Enterprises (AE) amounting to ?18,70,20,000. The Assessing Officer observed non-submission of the statutory audit report related to these transactions. Consequently, a transfer pricing adjustment of ?9,08,60,000 was proposed by the Transfer Pricing Officer. The Assessing Officer added this adjustment in the draft assessment order, leading to penalty proceedings under sections 271AA and 271BA. The penalty of ?18,17,200 and ?1,00,000 was imposed under the respective sections, which the assessee contested unsuccessfully before the Commissioner (Appeals).

The Authorized Representative contended that the assessee consistently maintained that no international transactions occurred with the AE during the relevant year, making transfer pricing provisions inapplicable. The Tribunal had previously remanded the issue to the DRP for fresh adjudication in a separate proceeding. Therefore, the representative argued that the penalty issues should also be remanded back to the Assessing Officer based on the Tribunal's decision.

The Departmental Representative, while relying on the Commissioner (Appeals) observations, agreed that the penalty issues could be remanded to the Assessing Officer for reconsideration.

After considering the submissions and reviewing the facts, it was noted that the genesis of the penalty was based on an assumption by the Assessing Officer and the Transfer Pricing Officer regarding international transactions with the AE. However, the assessee consistently denied engaging in such transactions, which was pending before the DRP for further review. As compliance with sections 92D and 92E is contingent on the existence of international transactions, the Tribunal set aside the Commissioner (Appeals) orders and remanded the penalty issue to the Assessing Officer. The decision on penalty would depend on the outcome of the DRP's decision in the quantum proceedings. Therefore, the grounds raised by the assessee were allowed for statistical purposes, and the appeals were allowed accordingly.

In conclusion, the penalty imposed under sections 271AA and 271BA for the assessment year 2011-12 was challenged by the assessee, citing the absence of international transactions with the AE. The Tribunal remanded the penalty issue back to the Assessing Officer pending the DRP's decision on the existence of such transactions, emphasizing the necessity of international transactions for compliance with sections 92D and 92E.