2024 (7) TMI 1226 - AT - Income Tax

Penalty u/s 271G - non-maintenance of documents for specified domestic transaction of purchase and sale to associated enterprises - CIT(A) deleted addition - HELD THAT - The adjustment of transfer pricing was made with respect to the specified domestic transactions covered u/s 92BA(1) of the Act. The co-ordinate Bench in Texport Overseas (P.) Ltd 2019 (12) TMI 1312 - KARNATAKA HIGH COURT has held that transfer pricing provisions do not apply to the case of the assessee for the impugned assessment year in view of the omission of the above clause by the Finance Act, 2017, with effect from 1st April, 2017, having the resultant effect that such provisions never existed. As there is no requirement of or applicability of transfer pricing provisions to the specified domestic transactions of the assessee covered u/s 92BA (i) of the act , consequently there cannot be any requirement of maintenance of the document. Therefore, the assessee cannot be penalized under Section 271G of the Act. Accordingly, the learned CIT (A) has correctly deleted the penalty levied under Section 271G of the Act. Mere deletion of adjustment of transfer pricing cannot automatically result into deletion of penalty for non-maintenance of documents , but in this case, there is no requirement of maintenance of such documents. Therefore, assessee cannot be penalized, for maintaining documents, which is not required by law - Decided in favour of assessee.

Summary

Issues:
1. Whether the penalty under Section 271G of the Income-tax Act, 1961, was rightly deleted by the Commissioner of Income-tax (Appeals) for the assessment year 2016-17.
2. Whether the requirement of maintaining documents for specified domestic transactions applies to the assessee, considering the omission of Section 92BA(i) by the Finance Act, 2017.

Detailed Analysis:
Issue 1:
The appeal was filed by the Income Tax Officer against the appellate order passed by the Commissioner of Income-tax (Appeals) for the assessment year 2016-17, wherein the penalty under Section 271G of the Act was deleted. The grounds of appeal raised by the Assessing Officer questioned the justification of deleting the penalty when the assessee failed to provide mandatory information and supporting documentation as required by the Rules. The Assessing Officer argued that the Transfer Pricing Study Report submitted by the assessee was insufficient. The Tribunal considered the arguments and held that the penalty was rightly deleted as the transfer pricing provisions did not apply to the specified domestic transactions of the assessee due to the omission of Section 92BA(i) by the Finance Act, 2017. Therefore, the penalty under Section 271G was not applicable in this case, and the Commissioner of Income-tax (Appeals) decision was upheld.

Issue 2:
The case involved a company engaged in trading activities, and the Transfer Pricing Officer made adjustments to the income of the assessee based on domestic transactions. The assessee failed to furnish the transfer study report and annual accounts as requested, leading to the imposition of a penalty under Section 271G. However, the Commissioner of Income-tax (Appeals) deleted the penalty considering that the transfer pricing adjustment had been deleted on judicial grounds due to the omission of Section 92BA(i) by the Finance Act, 2017. The Tribunal noted that the omission of the clause meant that the transfer pricing provisions did not apply to the assessee's specified domestic transactions, eliminating the requirement for maintaining certain documents. As a result, the penalty under Section 271G was not justified, and the Commissioner of Income-tax (Appeals) decision was upheld. The Tribunal confirmed that the assessee could not be penalized for failing to maintain documents that were not required by law, leading to the dismissal of the Assessing Officer's appeal.

In conclusion, the Tribunal dismissed the appeal of the Assessing Officer, upholding the decision of the Commissioner of Income-tax (Appeals) to delete the penalty under Section 271G due to the inapplicability of transfer pricing provisions to the specified domestic transactions of the assessee following the omission of Section 92BA(i) by the Finance Act, 2017.