2018 (6) TMI 1098 - AT - Income Tax

Penalty levied u/s 271AA and 271G - failure to keep and maintain information and documents as required under Sub Sections (1) and (2) of Section 92D and failure to furnish such information and documents - Contention of the assessee is that it had followed cost plus method in its transfer pricing study and therefore it was not required to maintain and produce data regarding comparables - Held that - Section 271AA and Section 271G of the Act were enacted only for the purpose of penalizing the defaults of the nature committed by the assessee. No doubt Section 273B mandates that penalty under Sections 271AA and 271G of the Act are not imposable if the assessee proves that there was a reasonable cause for failure. However, assessee before us in our opinion has not been able to show any reasonable cause for not complying with Rules nor for its failure to produce information called for by the ld. TPO. In the circumstances, we are of the opinion that levy of penalty under Sections 271AA as well as 271G of the Act were justified. We do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee

Summary

Issues Involved:
1. Failure to maintain required documents under Rule 10D of the Income Tax Rules, 1962.
2. Imposition of penalty under Sections 271AA and 271G of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Failure to maintain required documents under Rule 10D of the Income Tax Rules, 1962:

The assessee, engaged in manufacturing pistons and piston assemblies, filed its return of income declaring Nil income under normal provisions and ?7,03,68,754/- under Section 115JB. Due to international transactions with its Associated Enterprise (AE) abroad, the Assessing Officer (AO) referred the case to the Transfer Pricing Officer (TPO). The TPO found that the assessee had not maintained documents required under Rule 10D and reported this to the AO. The AO issued a notice to the assessee regarding the failure to maintain and furnish required documents as per Section 92D. The assessee argued that it had provided necessary particulars, including details of international transactions, relationship with the AE, nature of business, and Arm's Length Price (ALP) calculations using the Cost Plus Method (CPM). However, the AO found these documents insufficient and noted the failure to maintain and furnish data on uncontrolled transactions used for ALP analysis.

2. Imposition of penalty under Sections 271AA and 271G of the Income Tax Act, 1961:

The AO imposed a penalty of ?1,84,808/- each under Sections 271AA and 271G for the failure to maintain and furnish required documents. The assessee appealed to the Commissioner of Income Tax (Appeals), arguing substantial compliance with Rule 10D and that the default, if any, was minor. The Commissioner of Income Tax (Appeals) rejected these arguments, stating that substantial compliance must meet critical requirements for justifying the ALP. The Commissioner noted the assessee's failure to maintain and furnish required data as per Rule 10D and confirmed the penalties.

Before the Tribunal, the assessee contended that following the Cost Plus Method (CPM) did not necessitate maintaining records of external comparables and that substantial compliance with Rule 10D was adequate. The Departmental Representative supported the Commissioner’s order. The Tribunal examined the assessee's Form 3CEB, which indicated the use of the Comparable Uncontrolled Price (CUP) method and noted that the assessee had not provided data on internal comparables or prices for similar products sold to unrelated parties. The Tribunal highlighted the requirements under Section 92D and Rule 10D, emphasizing the necessity to maintain records of uncontrolled transactions and comparability analysis.

The Tribunal concluded that the assessee had not complied with these requirements and failed to provide the necessary documents within the stipulated time. The Tribunal upheld the penalties under Sections 271AA and 271G, stating that the assessee did not demonstrate any reasonable cause for the failure. Consequently, the appeals were dismissed, and the penalties confirmed.

Conclusion:

The Tribunal upheld the penalties under Sections 271AA and 271G due to the assessee's failure to maintain and furnish required documents as per Rule 10D and Section 92D. The assessee's arguments of substantial compliance and the non-necessity of external comparables under the Cost Plus Method were rejected, affirming the penalties imposed by the lower authorities.