2012 (10) TMI 205 - AT - Income Tax

Levy of Penalty u/s 271G - Question of determination of arm s length price - Penalty equal to 2% of the value of international transaction i.e. worth Rs. 43,16,682/ - has been imposed on the assessee - Held that - No Penalty can be imposed in a case where the assessee proves that there was reasonable cause for a particular failure - in favour of assessee. The penalty prescribed under section 271G is very severe. - When the penalty provision is very severe, it should be applied with great caution and only if circumstances sufficiently justify invoking the penal provision.

Summary

Issues:
Penalty under section 271G for failure to furnish information in international transaction.

Analysis:
The appeal pertains to a penalty imposed under section 271G of the Income-tax Act, 1961 for failure to furnish details of an international transaction within the specified time limit. The Transfer Pricing Officer (TPO) found that the assessee did not comply with the requirement to submit details within 30 days of the first notice, leading to the imposition of a penalty amounting to 2% of the value of the international transaction. The Assessing Officer upheld the penalty, amounting to Rs. 43,16,682. However, in the first appeal, the Commissioner of Income-tax (Appeals) noted that the delay in submission was due to genuine difficulties faced by the assessee's staff, who were not well-versed with transfer pricing procedures. The Commissioner also observed that despite the delay, the TPO did not make any adjustments to the arm's length price (ALP), indicating that the default did not impact the ALP analysis significantly.

The Commissioner of Income-tax (Appeals) found that the assessee had reasonable cause for the delay in filing the details and subsequently canceled the penalty. The Revenue, aggrieved by this decision, filed an appeal. The Tribunal considered the provisions of section 92D, which require maintaining information and documents for international transactions, and section 271G, which imposes a penalty for failure to furnish such information. The Tribunal noted that the law provides for a penalty of 2% of the value of the international transaction for each failure to comply, but also includes a safeguard in section 273B, which exempts penalty imposition if reasonable cause is proven.

In the present case, the Tribunal found that the delay in filing the details was due to genuine difficulties faced by the assessee, such as obtaining a crucial document from its holding company and lack of familiarity with transfer pricing laws among its employees. Considering these circumstances, the Tribunal agreed with the Commissioner of Income-tax (Appeals) that the penalty was unjustified. The Tribunal emphasized that the penalty under section 271G is severe and should be applied cautiously, especially when the default is technical in nature and there is reasonable cause for the delay. Therefore, the Tribunal upheld the decision to delete the penalty, dismissing the Revenue's appeal.