Transfer Pricing – No Penalty U/s. 271G for failure to respond to ‘omnibus’ notice

ITA No. 1330/Del/2011

(Assessment Year:- 2005- 06)

Date of hearing – 29-09-2011

Date of pronouncement – 30-09-2011

ORDER- A N Pahuja: This appeal filed on 15.3.2011 by the Revenue against an order dated 31-01-2011 of the ld. CIT(Appeals)- XX, New Delhi, for the Assessment Year 2005-06, raises the following grounds:-

“1. The order of the learned CIT(A) is erroneous and contrary to facts and law.

2 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the penalty of ~22,20,100/- levied by the Assessing Officer u/s 271G of the Income-tax Act.

2.1 The learned CIT(A) has ignored the finding recorded by the Assessing Officer and the fact that the assessee did not maintain the necessary documents prescribed under Rule 10D read with section 92D(3) ofthe Income-tax Act.

3 The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time of or before hearing of the appeal.”

2. Adverting to ground nos. 2 & 2.1 in the appeal, facts in brief, as per relevant orders are that return declaring income of 3,85,66,522/- filed on 31^st October, 2005 by the assessee, manufacturing alternators, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 25^th October, 2006 . The assessment in this case was completed with the dis-allowance of 2,50,000/- on account of cash discount. Through a reference was made to Transfer Pricing Officer [TPO] u/s 92CA of the Act, no adverse inference was drawn. However, on the recommendation of TPO, the Assessing Officer[AO in short] initiated penalty proceedings u/s 271G of the Act for delay in submission of some documentation. In response to a show cause notice dated 22^nd June, 2009 before levy of penalty, the assessee replied that TPO had already reviewed the transfer pricing documentation maintained by the assessee and concluded that no adverse inference need be drawn. However, the AO did not accept the submissions of the assessee and imposed a penalty of 22,20,100/- @2% of the value of international transactions, amounting to 11,10,04,980/-.

3. On appeal, the learned CIT(A) cancelled the penalty in the following terms:-

“A perusal of the order of the TPO indicates very clearly that he had no grievance or objections in regard to furnishing of any information or document as required by sub-section (3) of section 92D. As a matter of fact he has accepted the Transfer Pricing Report of the assessee company.

The provisions of section 271G read as under:

“271G. If any person who has entered in to an international transaction fails to furnished any such information or document as required by sub-section (3) of section 92D, the Assessing Officer or the CIT(A) may direct that such person shall pay, by way of penalty, a sum equal to two per

cent of the value of the international transaction for each such failure.”

The Assessing Officer has not explained the grievance as to the filing of documents. The TPO has not mentioned any grievance in his order in regard to filing of documents. The action of the Assessing Officer in levying penalty is uncalled for. Reference is invited to the decision of Cargil India Private Ltd. 300 ITR (AT) 223 (Del.). The Hon’ble Bench has stated that the Assessing Officer can not levy penalty a bland statement without explaining the default in detail.

Finding

After considering the above facts the action ofthe Assessing Officer in levying the penalty of Rs.22,20,100/- is uncalled for and is not in accordance with the facts and law and above all it is contrary to what the TPO has stated in his order.

Hence, the penalty imposed u/s 271G is deleted.”