2020 (10) TMI 615 - AT - Income Tax

Penalty u/s 271(1)(c) 271AA - No independent accountant's report in respect of all international transactions between associated enterprises or specified domestic transactions - contention of the assessee is that there is no international transaction, therefore, there was no need to maintain the TP documents - HELD THAT - Assessee mandatorily has to maintain documents of its own. Non-maintaining documents on account that there is no international transaction and merely relying on the supporting documents of Associated enterprise, cannot be termed as reasonable cause for not maintaining the documents on its own under Section 273B in respect to the international transactions as well as the specified domestic transactions as well. It is mandatory requirement to obtain an independent accountant s report/documents in respect of specified domestic transactions with Associated Enterprises as per Section 92D of the Act and this mandate cannot be diluted by the so called reasonable cause given under Section 273B - AO was right in imposing the penalty under Section 271AA of the Income Tax Act and the CIT(A) was not right in deleting the penalty. - Decided in favour of revenue.

Summary

Issues:
Appeal against order quashing/deleting penalties under sections 271(1)(c) & 271AA of the IT Act for Assessment Years 2006-07 & 2008-09.

Analysis:

Issue 1: Quashing/deleting penalties under sections 271(1)(c) & 271AA of the IT Act

In the case, the assessee, a non-resident company, filed appeals against penalties imposed under sections 271(1)(c) & 271AA of the IT Act for the Assessment Years 2006-07 & 2008-09. The Assessing Officer held that the assessee had fixed place PE, Service PE, and dependent PE in India, attributing profits to the PE. However, the Tribunal disagreed with the method used for profit attribution and ruled that PeopleSoft charges and IPLC charges were not taxable as Royalty under the Act and the DTAA. The Assessing Officer subsequently revised the income assessment. The issue of penalties arose when the Assessing Officer imposed a penalty under section 271AA, which was later deleted by the CIT(A). The Revenue argued that the assessee failed to maintain required documents under Section 92D, leading to the penalty imposition. The CIT(A) reasoned that since there were no international transactions, TP documents were unnecessary. However, the Tribunal held that under Section 92D, maintaining documents is mandatory regardless of the presence of international transactions. Therefore, the penalty under section 271AA was justified, and the CIT(A) erred in deleting it.

Issue 2: Compliance with Section 92D and penalty imposition

The crux of the issue revolved around the requirement to maintain TP documents under Section 92D of the IT Act. The Revenue contended that the assessee's failure to maintain separate TP documents constituted a violation of Section 92D. The assessee argued that since there were no international transactions, maintaining TP documents was unnecessary. However, the Tribunal emphasized that Section 92D mandates all taxpayers to maintain relevant documents, irrespective of the presence of international transactions. Relying on associated enterprise documents was deemed insufficient to justify non-compliance. The Tribunal held that the penalty under section 271AA was correctly imposed by the Assessing Officer, as non-maintenance of documents cannot be excused by the absence of international transactions. The CIT(A)'s decision to delete the penalty was overturned, affirming the necessity of complying with Section 92D for all transactions.

Final Decision:
The Tribunal allowed the Revenue's appeals against the deletion of penalties under sections 271(1)(c) & 271AA for the Assessment Years 2006-07 & 2008-09. The Tribunal emphasized the mandatory nature of maintaining TP documents under Section 92D, irrespective of the presence of international transactions. Non-compliance with this requirement warranted the penalty under section 271AA, as upheld by the Tribunal.