2022 (2) TMI 1060 - AT - Income Tax

Penalty levied u/s 271G - A ssessee has failed to maintain the information as per Rule 10D (1) (d), (g), (h) and (m) of Income Tax Rules - reaso-nable cause under section 273B - assessee had made substantial compliance, failing to note that under TNMM adopted by the assessee, the profit of the international transaction has to be furnished, whereas the assessee has only furnished the entity level margins which consists of overall profits on AE and significant non-AE transactions - CIT (A) deleted the above penalty. He held that the Transfer Pricing Officer was not prevented and was not forced to accept the ALP methodology adopted by the assessee. He has not made use of the details submitted by the assessee, which were lot wise details of exported cut and polished diamonds - HELD THAT - As requisite detail asked during the Assessment Year 2011-12 were not required for earlier years and no adjustment was made. Therefore, the details asked for by the learned Transfer Pricing Officer may be relevant for determination of Arm s Length price. But was asked for the first time, not question by ld TPO in past TP Assessments, therefore, assessee has a belief that such information is not required as well as not available, therefore , the assessee has reasonable cause under section 273B of the Act for not maintaining the same. For failure as envisaged subject to penalty u/s 271G, if such failure is because of reasonable cause, no penalty can be levied. Thus, we find no infirmity in the order of the learned CIT (A) in deleting the penalty. The various judicial precedents stated before us are also to the same effect. There is a reasonable cause for failure on the part of the assessee, which saves assessee from levy of penalty under, section 271G of the Act. In the Result, we dismiss the appeal of the learned Assessing Officer. - Decided in favour of assessee.

Summary

Issues:
1. Penalty under section 271G of The Income-Tax Act, 1961 deleted by CIT (A).
2. Applicability of transfer pricing provisions challenged by the assessee.

Analysis:
1. The appeal was filed by the Asst. Commissioner of income-tax against the order of CIT (A) deleting the penalty levied under section 271G. The Assessing Officer contended that the assessee did not comply with TNMM requirements and failed to provide necessary details for benchmarking international transactions. The CIT (A) deleted the penalty considering the peculiar facts of the diamond industry and lack of specific information available. The Tribunal upheld the CIT (A)'s decision, stating that the Transfer Pricing Officer did not utilize the details submitted by the assessee and failed to consider available documents for determining the Arm's Length Price (ALP). The Tribunal found a reasonable cause for the assessee's failure, saving them from the penalty under section 271G.

2. The assessee challenged the applicability of transfer pricing provisions, arguing that there were no entities controlled by them and thus no international transactions with associated enterprises. The Transfer Pricing Officer requested detailed information for benchmarking, which the assessee found impractical due to the nature of their trade. The Tribunal noted that the assessee's inability to provide specific details was reasonable, as the requested information was not previously required in similar cases. The Tribunal dismissed the appeal of the Assessing Officer and the cross objection of the assessee became infructuous.

This judgment highlights the importance of maintaining necessary documentation for transfer pricing compliance and the significance of demonstrating a reasonable cause for failure to comply with statutory requirements. The Tribunal's decision emphasizes the need for tax authorities to consider industry-specific challenges and available information before levying penalties under tax laws.