2019 (7) TMI 13 - AT - Income Tax

Penalty imposed u/s 271G - assessee has not maintained information/documents required under section 92D(1) r/w rule 10D - assessee applied TNMM for determining of ALP - AO required information/documents for determining of ALP as per CUP method - assessee not able to submit - TPO accepted benchmarking under TNMM - HELD THAT - The assessee has maintained books of account and other information to benchmark the international transaction with AE by applying TNMM and the transfer pricing study report containing such benchmarking was furnished before the TPO along with various other details. It is not a fact that the assessee has not maintained any information as required under section 92D(1) r/w rule 10D(1). The facts on record clearly indicate that the assessee indeed has maintained a number of information/documents as required under the statutory provisions.The assessee has also explained why it is not possible to furnish certain information sought by the TPO qua applicability of CUP method. Detailed written submission has been filed by the assessee before the TPO which has been properly evaluated by Commissioner (Appeals) and the difficulty in maintaining the information sought by the TPO has been well explained and analysed. It is also necessary to observe, ultimately TPO had accepted the benchmarking done by the assessee under TNMM and no variation/adjustment was made by him to the arm's length price. Assuming that the assessee has not maintained documents as required or was unable to support the benchmarking done by it under TNMM, nothing prevented the TPO in discarding the benchmarking done by the assessee and determining the arm's length price of the international transaction with the AE independently by applying any one of the prescribed method. When the statutory provisions confer enough power on the TPO to benchmark the international transaction as per the provisions of the Act, the allegation of the TPO that by non furnishing of documents by the assessee he was prevented from determining the arm's length price under CUP method is unacceptable. Therefore, when the TPO has accepted the benchmarking of the assessee, the imposition of penalty under section 271G is unsustainable. The decisions relied upon by the learned AR dealing with identical issue of imposition of penalty u/s 271G are squarely applicable to the facts of the present appeal. - Revenue s appeal is dismissed.

Summary

Issues Involved:
Challenge to deletion of penalty under section 271G of the Income-tax Act, 1961 for the assessment year 2012-13.

Analysis:

Issue 1: Imposition of Penalty under Section 271G
The Revenue challenged the deletion of penalty imposed under section 271G of the Income-tax Act, 1961 for the assessment year 2012-13. The Transfer Pricing Officer initiated penalty proceedings alleging that the assessee did not maintain the required information/documents under section 92D(1) r/w rule 10D for determining the arm's length price of international transactions. The Revenue contended that the assessee's failure to provide segment-wise details hindered the Transfer Pricing Officer from applying the Comparable Uncontrolled Price (CUP) method, leading to the acceptance of the Transactional Net Margin Method (TNMM) benchmarking by default. The Departmental Representative argued that the penalty was justified due to the alleged violation of statutory provisions.

Issue 2: Assessee's Defense and Compliance
The Assessee, an Indian company engaged in the diamond business, defended against the penalty imposition by highlighting substantial compliance with the Transfer Pricing Officer's queries. The Assessee maintained books of account and provided necessary details for TNMM benchmarking. Despite the inability to furnish segment-wise details for CUP method application, the Assessee explained the practical challenges in doing so due to the nature of their business. The Assessee argued that the Transfer Pricing Officer ultimately accepted the TNMM benchmarking, indicating compliance with the arm's length pricing requirements.

Judgment and Conclusion
Upon reviewing the submissions and evidence, the Tribunal found that the Assessee had maintained essential information/documents for benchmarking international transactions under TNMM. The Tribunal noted that the Transfer Pricing Officer accepted the TNMM benchmarking despite the Assessee's inability to provide segment-wise details for the CUP method. The Tribunal emphasized that the Assessee's compliance with maintaining required information was evident, and the Transfer Pricing Officer had the authority to independently determine the arm's length price if necessary. As the Transfer Pricing Officer accepted the Assessee's benchmarking under TNMM, the Tribunal deemed the penalty imposition under section 271G as unsustainable. The Tribunal dismissed the Revenue's appeal, upholding the deletion of the penalty under section 271G for the assessment year 2012-13.