Article explains Transfer Pricing Penalties which includes Penalty for under reporting and misreporting of income, Penalty for failure to keep and maintain information and documents in respect of international transaction or specified domestic transaction, Penalty for failure to furnish report under section 92E, Penalty for failure to furnish information or document under section 92D, Penalty for failure to furnish information or documents under Section 286 and Penalty for furnishing incorrect information in reports and certificates.
Section 271(1)(c) has been deleted by the Finance Act 2016 and in its place section 270A has been inserted which is applicable from 1 April 2017. It seeks to levy penalty on under reporting of income.
Section 270A inserted vide Finance Act 2016 prescribes penalty for under-reporting of income and misreporting of income. Section 270A (7) of the Act prescribes a penalty of 50% of the amount of tax payable on the under-reported income. Further, Section 270A(6)(d) provides that the under – reported income for the purpose of Section 270A shall not include the amount of under-reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the Assessee had a) maintained information and documents as prescribed under section 92D, b) declared the international transaction under Chapter X, and, c) disclosed all the material facts relating to the transaction.
Section 270A(8) of the Act provides that where under-reported income is in consequence of any misreporting thereof by any person, the penalty shall be equal to two hundred per cent of the amount of tax payable on under-reported income. Section 270A(9)(f) of the Act provides that the case of misreporting of income shall be failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
Section 271AA relates to penalty for failure to keep and maintain information and document in respect of international transactions or specified domestic transactions.
Section 271AA has been substituted by a new section with effect from 1-7-2012. It provides that without prejudice to the provisions of section 270A or section 271 or Section 271BA, if any person in respect of an international transaction or specified domestic transaction:
a) fails to maintain prescribed documents and information as required by sub-section (1) or sub-section (2) of section 92D;
b) fails to report any such transaction which is required to be reported; or
c) maintains or furnishes any incorrect information or documents
the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two percent of the value of each international transaction entered into by such person.
Further, Section 271AA(2) inserted vide Finance Act 2016 prescribes penalty for failure to furnish master file by prescribed date as INR 5,00,000.
Thus, whether or not an international transaction or specified domestic transaction is determined at arm’s length price, any person who has entered into such transaction, shall keep and maintain the information/document in respect of such transaction.
The penalty is invoked for failure to keep and maintain such information/documents or report the same. In other words, the person who has entered into international transaction or specified domestic transaction should both keep as well as maintain such information/documents as well as report the same. Any failure in respect of the same attracts a penalty of 2% of the value of each international transaction or specified domestic transaction entered into by him.
Section 271BA provides that if any person fails to furnish a report from an accountant as required by section 92E, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of one hundred thousand rupees.
Section 271G provides that if any person who has entered into an international transaction or specified domestic transaction fails to furnish any such information or document as required by sub-section (3) of section 92D, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two percent, of the value of the international transaction or specified domestic transaction for each such failure. The power to levy this penalty has also been extended now to the Transfer Pricing Officer.
Finance Act 2016 introduced Section 286 which requires parent entity or the alternative reporting entity, resident in India, to furnish a prescribed report on or before the due date for furnishing the return of income for the relevant accounting year.
Section 271GB of the Act provides for penalty for failure to furnish the documents prescribed under Section 286. The penalty prescribed under Section 271GB are as follows:
|Nature of penalty||Penalty (INR)|
|Failure to furnish the prescribed documents required to be maintained by the India parent entity of the international group:
a. Where period of failure is equal to or less than 1 month
b. Where period of failure is greater than 1 month
c. Continuing default after service of penalty order
|5,000 per day
15,000 per day
50,000 per day
|Furnishing of inaccurate particulars (subject to certain conditions)||5,00,000|
|Failure to produce the information and documents within 30 days (extendable by maximum 30 days)||
The Finance Act, 2017 has introduced penalty on accountants, merchant bankers and registered valuers for furnishing incorrect information in reports and certificates issued under any provisions of the Act, by inserting section 271J to the Act.
In order to ensure that the person furnishing report or certificate undertakes due diligence before making such certification, section 271J provides that if an accountant or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) may direct him to pay a sum of ten thousand rupees for each such report or certificate by way of penalty.