2020 (3) TMI 603 - AT - Income Tax

Penalty u/s 271G - non maintenance of documents which the assessee is required to maintain under the statutory provisions, the Transfer Pricing Officer found it difficult to determine, the arm s length price of the transactions with the AE - HELD THAT - Assessee has maintained primary books of account / documents in respect of its business activity. The fact that the documents relating to transaction with the AE have also been maintained by the assessee is evident from the transfer pricing study report, wherein, the transaction with the AE has been benchmarked under TNMM. This shows that the assessee has maintained documents / books of account as required under the statute. It is also evident, in the course of proceedings before the Transfer Pricing Officer, the assessee has made substantial compliance by furnishing transfer pricing study report as well as many other documents. What the assessee has failed to furnish is, the segmental profitability of the AE and non AE transactions. The inability to furnish the aforesaid details was also well explained by the assessee before the Transfer Pricing Officer and learned Commissioner (Appeals) by demonstrating the practical difficulty in maintaining those details considering the nature of business carried on. Though, the Transfer Pricing Officer has alleged that non furnishing of segmental profitability makes it difficult for him to correctly ascertain the arm s length price, however, ultimately the Transfer Pricing Officer has accepted the transaction with the AE to be at arm's length. If the Transfer Pricing Officer was not satisfied with the benchmarking of the assessee under TNMM, nothing prevented him from rejecting assessee benchmarking and determining the arm s length price of the transaction with the AE independently by applying any one of the prescribed methods. The blame for failure on the part of the Transfer Pricing Officer to determine the arm s length price cannot be fastened with the assessee. Hon ble Gujarat High Court in case of D. Navinchandra Exports Pvt. Ltd. 2018 (7) TMI 2099 - GUJARAT HIGH COURT has also uphold the deletion of penalty imposed under section 271G - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271G of the Income Tax Act, 1961.

Analysis:
1. Background: The case involved an appeal by the Revenue against the deletion of a penalty imposed under section 271G of the Income Tax Act, 1961. The penalty was imposed due to alleged non-maintenance of specified documents by the assessee.

2. Transfer Pricing Study: The assessee, engaged in diamond business, benchmarked international transactions with Associated Enterprises (AEs) using the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer requested segmental results, which the assessee found difficult to provide due to the nature of the business.

3. Penalty Imposition: The Transfer Pricing Officer imposed a penalty for alleged non-maintenance of documents, despite accepting the arm's length price declared by the assessee. The Commissioner (Appeals) deleted the penalty, noting the practical difficulties faced by diamond traders in maintaining segmental profitability details.

4. Arguments: The Departmental Representative argued that the penalty was justified due to the lack of documents. The Authorized Representative contended that the assessee maintained necessary documents and the Transfer Pricing Officer accepted the arm's length price.

5. Judgment: The Tribunal considered the submissions and observed that the assessee maintained primary books of account and provided substantial compliance during proceedings. The Tribunal noted that the Transfer Pricing Officer accepted the benchmarking done by the assessee under TNMM, despite the lack of segmental profitability details.

6. Precedents: The Tribunal cited similar cases where penalties under section 271G were deleted due to the assessee's compliance with maintaining required information. The Tribunal upheld the decision of the Commissioner (Appeals) in deleting the penalty, citing precedents and statutory provisions.

7. Conclusion: The Tribunal dismissed the appeal, affirming the deletion of the penalty under section 271G of the Income Tax Act, 1961. The decision was based on the assessee's maintenance of necessary documents and the Transfer Pricing Officer's acceptance of the arm's length price, despite the lack of segmental profitability details.

Judgment: The appeal was dismissed, and the order was pronounced on 13.03.2020 by the Appellate Tribunal ITAT Mumbai, with Shri Pramod Kumar and Shri Saktijit Dey as the presiding members.