Penalty u/s. 271AA not leviable without specifying documents not furnished by assessee

DCIT Vs Priya Blue Industries Pvt. Ltd. (ITAT Ahmedabad)

ITAT Ahmedabad held that penalty u/s.271AA of the Income Tax Act cannot be levied without specifying the required documents failed to be maintained/furnished by the assessee. Thus, appeal of the revenue dismissed.

Facts- he Respondent/assessee is a Private Limited Company engaged in the business of Ship Breaking, Recycling and Sale of Scrapes. Since there were Transfer Pricing issues in respect of International Transactions or Specified Domestic Transaction or both, the case was referred to Transfer Pricing Officer [TPO] u/s.92CA(1) of the Act. TPO after making detailed enquiry u/s.92CA(2) of the Act, passed the Transfer Pricing Order u/s.92CA(3) of the Act making an upward adjustment of Rs.1,54,77,374/-. As the assessee has not chosen to challenge the TPO’s order before Dispute Resolution Panel, therefore AO passed the final assessment order u/s. 143(3) w.s. 92CA(3) r.w.s. 153A of the Act.

TPO observed that the assessee had filed requisite details, therefore not recommended initiation of penalty proceedings u/s. 271AA of the Act. However, AO levied penalty u/s.271AA of Rs.5,36,25,808/- on the alleged ground that assessee failed to maintain documents specified u/s.92D read with Rule 10D of the IT Rules.  CIT(A) deleted the penalties. Being aggrieved, the present appeal is filed by the revenue.

Conclusion- Held that penalty u/s.271AA cannot be levied without specifying the required documents failed to be maintained/furnished by the assessee. Thus the issue is no more res-integra. Further it is noticed that penalty order was passed in perfunctory manner without giving requisite show-cause notice and without affording proper opportunity of hearing to the assessee. Moreover, the Assessing Officer had merely show caused the assessee to file details/documents maintained as per rule 10D of Income-tax Rules, without specifying any particular clause itself. Thus there is no merit in levying penalty u/s.271AA of the Act, holding that the assessee have not maintained proper documents. Even otherwise, international transaction entered upon by the assessee with its AE had been held to be at arm’s length by the Ld TPO. In the above circumstances, penalty order is not sustainable in law. Thus we do not find any infirmity in the common order passed by the Ld CIT[A] deleting the penalty levied u/s.271AA of the Act for the Asst. Years 2012-13 to 2019-20. Therefore the Grounds raised by the Revenue is devoid of merits and liable to be rejected.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

These group of eight appeals are filed by the Revenue as against the common order dated 28.12.2023 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad arising out of the Penalty orders passed under section 271AA of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2012-13 to 2019-20. Since common issue is involved in all the above appeals, for the sake of convenience the same are disposed of by this common order.

2. We take ITA 324/Ahd/2024 relating to Asst. Year 2019-20 as the lead case. The brief facts of the case are that the Respondent/assessee is a Private Limited Company engaged in the business of Ship Breaking, Recycling and Sale of Scrapes. For the Asst. Year 2019-20, the assessee filed its original Return of Income on 25.12.2020 declaring total income of Rs.4,99,08,500/-. The same was processed u/s. 143[1] of the Act accepting the returned income.

2.1. It is thereafter a search action u/s.132 of the Act was conducted in Priya Blue Group of Companies on 19.11.2019, in which the business premises of the assessee was also covered. Consequently, in response to 153A notice, the assessee filed its Return of Income as admitted in the original return. Since there were Transfer Pricing issues in respect of International Transactions or Specified Domestic Transaction or both, the case was referred to Transfer Pricing Officer [hereinafter referred as TPO] u/s.92CA(1) of the Act. The Ld TPO after making detailed enquiry u/s.92CA(2) of the Act, passed the Transfer Pricing Order u/s.92CA(3) of the Act making an upward adjustment of Rs.1,54,77,374/- namely

[a] onbench marking of provision of services rendered to Associate Enterprise of Rs.67,96,987/- and

[b] Corporate Guarantee given to AE of 86,80,387/-.

2.2. As the assessee has not chosen to challenge the TPO’s order before Dispute Resolution Panel, therefore the Assessing Officer passed the final assessment order u/s. 143(3) w.s. 92CA(3) r.w.s. 153A of the Act determining the income as Rs.22,06,39,716/- by disallowing

[c] Unexplained rental expenses of&nbsp&nbsp5,00,000/=

[d] Unaccounted profit &nbspRs.11,29,61,022/=

[e] Suppression of sale – Gas turbine 3,41,34,100/=.

2.3. Ld TPO, while passing the order u/s 92CA(3) has accepted the underlying transactions to be at Arms Length Pricing [ALP] and therefore not made any adjustment in relation to the transactions. Further Ld TPO observed that the assessee had filed requisite details (in Para 2 of his order), therefore not recommended initiation of penalty proceedings u/s. 271AA of the However the Ld AO levied penalty u/s.271AA of Rs.5,36,25,808/- on the alleged ground that assessee failed to maintain documents specified u/s.92D read with Rule 10D of the IT Rules. Details of penalty levied u/s. 271AA of the Act by the Ld AO for all the eight assessment years are as follows:

4. Aggrieved against penalty orders the assessee filed appeals before Ld CIT[A] who deleted the penalties by passing detailed order after considering decisions of various Benches of the Tribunal as follows:

“… 5.2. It is observed that the AO has levied penalty under Section 271AA of the Act for Rs.5,36,25,808/- being 2% of international transactions made by appellant. On perusal of such TP order, it is observed that appellant had carried out vessel purchase transactions with Best Oasis Limited, AE of appellant (which is reported in Form 3CEB) for Rs.268,12,90,414/- and AO has levied penalty under Section 271AA of the Act for Rs.5,36,25,808/- on these purchase transactions on the ground that appellant has failed to maintain the documents specified in Section 92D r.w.r. 10D. Similar penalty has been levied for all the remaining years. The appellant has raised similar line of arguments which are dealt with in subsequent paras.

… … … …

5.4 Itis observed that the TPO has passed order under Section 92CA of the Act wherein he has made two TP adjustments as referred supra which are unconnected with purchase transactions of vessel made with AE. The TPO has not doubted such purchase price nor made any upward adjustments relating to purchase transactions with AE which means that such transactions are recorded at arms-length price. It is observed that such transactions are also mentioned in Form 3CEB filed prior to date of search. It is further observed that in present Assessment Year order under Section 143(3) of the Act was also passed on 05/03/2015 wherein also the AO has not doubted such purchase It is relevant to refer to decision of Hon’ble Chandigarh ITAT in the case of DCIT vs Be bo Technologies Pvt. Pvt. Limited, 40 Taxman 160 wherein it is held as under:

… ….

5.5 On perusal of the Transfer Pricing Order, it is apparent that –

(i) the TPO has not made any adjustments relating to vessel purchase transaction with AE

(ii) there is no whisper in entire transfer pricing order that appellant has failed to maintain documents specified in Section 92D r.w.r 10D relating to such purchase transactions, and

(iii) the TPO has nowhere mentioned that which documents as envisaged in Section 92D are not maintained by appellant which leads to levy of penalty u/s 271AA of the Act

(iv) Even TPO has nowhere mentioned that there is non- compliance on the part of appellant for submitting such details as are relevant for determining arms-length price relating to purchase transactions which might have lead to levy of penalty u/s 271G of the Act.

(v) On perusal of TP order (relevant extracts already reproduced in appellant’s submission herein above), it is apparent that TPO himself at para 2 has stated that appellant has submitted all the requisite details as were called by him during TP proceeding.

5.6 In view of above facts, appellant has contended that if it would not have maintained any documents, which are relevant for determining arms-length price as required in Section 92D or documents sosubmitted by appellant do not justify purchase value, the TPO ought to have made certain TP adjustments which in present case has not been made. On perusal of Section 271AA of the Act, it is apparent that such penalty can be levied, if Assessee fails to keep and maintain documents/information as required in Section 92D but before levying such penalty, AO is duty bound to provide reasoning for levy of such penalty which is 2% of international transaction and AO ought to have brought on record details as to which document/information were not supplied by appellant which can justify levy of penalty in absence of such cogent reasoning, penalty under Section 271AA cannot be levied.

5.7 On perusal of assessment order passed under section 143(3) r.w. s. 144C of the Act, it is apparent that except initiating penalty under section 271AA in the last line of assessment order, there is nodiscussion as to why such penalty has been initiated by the AO or which were the documents/information as required in Section 92D which was not furnished by appellant during transfer pricing proceedings. In the present case, the TPO has not initiated any such penalty but the Assessing Officer has initiated the penalty as well as levied the penalty without bringing on record material information which can justify such penalty. Even on perusal of penalty under Section 271AA of the Act, the AO himself has mentioned that appellant has reported purchase transactions with AE in Form 3CEB, such details were also furnished in response to notice under Section 142(1) of the Act. However, on perusal of such penalty order, there is complete lack of satisfaction on part of Assessing Officer to record which were material documents/information which were not provided to the TPO for such purchase transactions. The AO has merely mentioned that appellant has failed to maintain documents specified in Section 92D r.w.r 10D but is completely silent on material aspects as to what were such documents which appellant has not furnished. In present case, the AO has levied penalty under Section 271AA of the Act on international transaction reported in Form 3CEB which were never subject to any upward/downward adjustment in TP Order hence such penalty cannot be sustained in view of judicial pronouncements discussed in subsequent paras.

5.8 It is relevant to refer to decision of the Hon’ble Delhi ITAT in the case of ACIT vs BSC C & C JN in ITA No. 1401/Del/2016, dated 14/02/2019 wherein it has been held as under.-

“… In this particular case, the A.O after taking into account the evidences and submissions made by the assessee during the assessment proceedings had accepted the returned income declared by the assessee. It means that the details submitted by the assessee during assessment proceedings were found sufficient and adequate to complete the assessment proceedings and lead to acceptance of the returned income under section 143(3) of the Act. I have also taken into account judicial rulings cited by the appellant during the appellate proceedings. I have also taken into account the fact that in the penalty orders passed by the AO, there is nothing to suggest as to which particular information or document was not submitted by the assessee and what impact did it created which adversely affected in finalizing the assessment proceedings, In view of the facts and circumstances of the case, I don’t find it a fit case for levying of penalty u/s 271AA of the Act. Accordingly, penalty levied u/s 271AA is deleted. Appellant’s ground of appeal is allowed.”

… … …

5.2. Admittedly, Ld.AO accepted and took on record prescribed documents, that are submitted by assessee which forms part of paper book filed before us, more particularly placed at page 2- 152. Further, having regard to these documents Ld.AO, accepted international transaction entered into assessee with its AE to be at arm’s length price, and no adjustment whatsoever has been made. Ld.AO has not expressed any difficulty in examining correctness of price adopted by assessee in respect of international transaction with AE Thus in our considered opinion there is no justification for imposition of penalty under section 271 AA of the Act We, therefore do not find any infirmity in the order of Ld. CIT(A) and the same is upheld”

………………….

5.8.2. The decision of the Hon’ble ITAT Chennai in the case Income-Tax Officer (OSD), Company Circle V (2), Chennai V. Generating Co. (P.) Ltd. 2011 (10) TMI 482-ITAT Chennai IT Appeal No. 774 (Mds.) of 2007:-

“Penalty u/s 271AA Transfer Pricing” no adjustment to ALP – penalty initiated on ground that that assessee had not maintained documents as required under Rule 10D of Income-tax Rules, 1962 – Held that- On perusal of documents and records submitted by assessee we observe that assessee had substantially complied with the requirement of Rule 10D. If there was any failure on any particular item, the TPO and the AO were bound to point it out specifically before levying of penalty. By forming a general opinion that the assessee had not maintained required documents as required under Rule 10D, penalty could not have been levied. Assesse had furnished —required documents and information inadequacy of an v document for meeting requirement of Rule 100 has not been pointed out by any of the authorities below. Further, based on such documentation, the TPO had himself come to a conclusion In al there was no requirement of any revision of value of the international transactions CIT(A) rightly deleted the penalty Decided in favor of assessee.

5.8.3. The decision of the Hon’ble ITAT Delhi Bench ‘E’ in the case of ACIT vs. M/s. Micromax Informatics Ltd, ITA No. 632/Del/2016 for A.Y.2011-12, wherein it was held as under:

5. Before us. Learned DR look us the findings and observation of The AO and supported the order of AO Reliance was also placed on the decision of Hon’ble Apex Court in the case of Mack Data Ltd reported in (2013)258 ITR 593 The Learned AR on the other hand submitted that penalty u/s 271AA was initiated and levied on the total international transactions of Rs 26,41,92,634/-, comprising of loan advanced to AE amounting to Rs 25 crores and interest charged by the assessee amounting to Rs 1,41,92.634/- on such loans He submitted that TPO in its order had computed the ALP of interest at Rs.2,47,59,085/- as against the interest on such loans of Rs.1,41,92,634/- declared by the assessee. However, after the direction of Hon’ble DRP, the adjustment was finally made by the AO to the extent of Rs.7,71,349/- which has been also deleted by the Tribunal vide order dated 20.02.2015. He therefore, submitted that finally no adjustment has been made in respect of Rs. 26,41,92,634/- on which penalty was levied by TPO and ALP is determined at the value declared by the assessee. He further submitted that AO has levied penalty u/s 271AA on the ground that assessee had failed to report The interactional Transactions and had initialed the penalty by invoking Clause (ii) and (m) of Section 271AA of the Act He submitted that provision of Section 271AA were substituted by Finance Act 2012 w.e.f 1st April 2012 wherein Clause (ii) & (in) were inserted and as per earlier provisions, penalty u/s 271AA could be levied only on the issue of failure to keep and maintain any such information/ document in support of international transactions and that there was no condition to impose penalty of failure of reporting international transaction in the return of income and/ or furnishing of incorrect information. He therefore, submitted that the condition of failure to report the transaction was inserted w.e.f 1st April 2012 and accordingly it cannot be imposed for A.Y. 2011-12. In support of the aforesaid contention, he relied on the decision of Kolkata Bench of Tribunal in the case of JCIT (OSD), Circle-8 (1), Kolkata Vs. M/S. Kunjal Synergies Pvt. Ltd. AND (Vice Versa)- 2019 (2) TMI 55 – ITAT Kolkata. He further submitted that Form 3CEB was furnished by the assessee during the course of assessment proceedings and TPO after due consideration of the documents information furnished by the assessee determined the adjustment which was subsequently deleted by the ITAT. He further pointing to the notice issued u/s 271AA dated 21.10.2014 submitted that no specific charge or allegation for which the penalty has been pointed by the AO. He submitted that in the absence of any specific allegation in the notice issued by the AO, penalty levied by AO is unsustainable for which he placed reliance on the decision of Hon’ble Apex Court in the case of CIT v. SSA’s Emerald Meadows He therefore, submitted that CIT(A) has rightly deleted the penalty

6. We have heard both the parties and perused all the relevant materials available on record. The issue in the present ground is with respect to levy of penalty u/s 271AA of the We find that CIT(A) while deleting the penalty has given a finding that assessee has kept and maintained the information about the international transactions, the discussion of which is also in the Transfer Pricing Report which was submitted to the TPO during the assessment proceedings. CIT(A) thus concluded that the assessee was maintaining the information and documents as prescribed under the law regarding international transactions and that assessee has not failed in reporting any international transactions. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A). We further find that the ratio of the decision of Hon’ble Apex Court relied before us by Revenue is not applicable to the facts of the present case. Considering the totality of the aforesaid facts and the submissions made by Learned AR, we find no reason to interfere with the order of CIT(A) and thus the grounds of Revenue are dismissed.”

5.8.4. The decision of the Hon’ble ITAT Delhi Bench ‘C’ in the case of Assistant Commissioner of Income-tax, Circle-12(1), New Delhi Global One India (P.) Ltd. [2012] 19 taxmann.com 249 (Delhi)

“Section 92D, read with sections 271AA and 271G, of the Income- tax Act, 1961 Transfer Pricing Maintenance & keeping of information and document of persons entering into an international transaction – Assessment year 2005-06 Whether only in event of failure of assessee to support its ALP by filing necessary evidence, question of requiring assessee to furnish prescribed information would arise – Held, yes – Whether there is no rationality in requiring information or documents from assessee first under section 92D(3) and thereafter, provide opportunity to assessee to support its ALP and, moreover, notice under section 92D(3) must require specific information or documents which assessee failed to furnish under section 92CA(2) but which according to TPO are necessary for determination of ALP of international transactions Held, yes During course of assessment proceedings, Assessing Officer noticed that assessee had entered into international transactions with its AE- Since value of such transactions exceeded Rs 15 crores Assessing Officer made a reference to transfer pricing officer (TPO) for determining arm’s length price (ALP) of international transactions Though TPO did not suggest any adjustment in his order, he suggested initiation of penalty proceedings under sections 271AA, 271G and 271BA on ground that assessee had not maintained prescribed TP documentation and did not furnish information requisitioned by TPO On basis of recommendation of TPO, Assessing Officer imposed penalty under sections 271AA and 271G upon assessee On appeal, Commissioner (Appeals) deleted penalty observing that documents maintained by assessee- company were furnished to TPO and even TPO was satisfied with documentation and that was why no adjustment was made to ALP of international transaction Whether since in penalty orders passed by Assessing Officer, there was nothing to suggest as to which particular information or document was not submitted by assessee nor exact nature of default had been brought out. Commissioner (Appeals) was justified in cancelling penalty levied by Assessing Officer – Held, yes [in favour of assessee]”

5.8.5. The decision of the Hon’ble ITAT MUMBAI BENCH ‘L’ in the case of Assistant Commissioner of Income-tax. Range 8(3), Mumbal v. Smith & Newphew Healthcare (P.) Ltd. (2011] 16 taxmann.com 5 (Mumbai):-

“Section 92D, read with section 271A of the Income-tax Act. 1961- Transfer pricing Maintenance and keeping of information and document-Assessment year 2003-04-Assessee was a company engaged in business of manufacturing and distributing non- pharmaceutical healthcare products It had entered into an international transactions with its associated enterprises (AE) – During course of assessment proceedings, it was observed that assessee had total international transaction at Rs 6,78,86.119, but it did not maintain information and documents in respect of these transactions as required under sub-section (1) and sub- section (2) of section 920 Since assessee failed to maintain books of account for international transactions, penalty under section 271AA was levied by Assessing Officer-It was found from records that assessment order and order imposing penalty under section 271AA, did not specify what was failure on part of assessee under section 920 read with Rule 100 Secondly, in course of assessment proceedings assessee had furnished all details required by Assessing Officer and international transaction with AE had been accepted to be one confirming to arm’s length price and Assessing Officer had found ho difficulty in examining correctness of price adopted by assessee. Whether in view of above, it could be said that penalty imposed by Assessing Officer was without any basis and was to be cancelled-Held, yes [in favour of assessee]

5.9. It is also relevant to refer to decision of the Hon’ble Mumbai ITAT in the case of Cadbury Schweppes Overseas Ltd vide ITA No. 921/Mum/2014 wherein it is held as under-

4. We have considered the rival contentions of both the parties and perused the order of the authorities below There is no dispute That Lo TPO has not made any adjustment in respect of the international transaction of assessee with its AE this fact itself shows that the Ld. PTO and no further addition was proposed We have seen the order of TPO u/s 92CA(3) dated 28/10/2011 which does not mention that there was any failure on the part of assessee to maintain documents as required under Rule 10D. Though, the order contain the reference that assessee failed to submit the document and Transfer Pricing Report. In part-5 of its report Id. TPO referred that “in view of the fact that these replica transactions of Cadbury India Ltd., where ALP is determined of these very transaction. As such the ALP determined by assessee is not being disturbed. Further, we have seen that assessee filed Form 3CEB, Royally Agreements entered into with AE and (copy of which are available at page no 19 to 53 of PB). These documents were furnished by assessee along with assessee’s letter dated 16.11.2011 which was duly acknowledged. Further, the assessee furnished the agreement of assessee with its AE with regard to provisions for brand license and technical assistance and no-how vide assessee’s application dated 23.12.2011 The report under Form No. 3CEB is available al page no 6 to 12 of PB which was furnished to DDIT with letter dated 30.09.2008 for relevant AY. The report is duly certified by C.A that all the documents in respect of International Transaction have been maintained by assessee. The order in case of assessee u/s 92CA(3) was passed on 28 10 2011 and in case of Cadbury India Ltd was passed on 30.10 2011 As per our considered opinion, the order u/s 92CA(3) was made by TPO after due consideration of the documents, information furnished by the assessee. The Co-ordinate Bench of this Tribunal in ACIT vs. Smith & Nephew Healthcare Pvt. Ltd. (2016) 16 taxmann.com 5 (Mumbai) on almost similar facts held as under:

“the Assessee has to “keep and maintain” information and documents in respect of international transaction entered into with AE. Rule 10D(4) of the Rules envisages that the information and documents specified under sub-rules (1) and (2) should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F, which is due date for filing return of income u/s 139(1) of the Act. The Assessment order and the order imposing penalty u/s 271AA of the Act, does not specify what was the failure on the part of the Assessee under Sec 92D read with Rule 100 of the Rules The Assessee has in the course of assessment proceedings furnished all details required by the AO and the international transaction with the AE has been accepted to be one confirming to the Arm’s Length Price No addition whatsoever was made by the AG in the order of assessment in respect of the international transaction with AE Thus the AO has found no difficulty in examining the correctness of the price adopted by the Assessee in respect of International Transaction with the AE. In other words the AO was not handicapped in examining the price of the international transaction between the Assessee with its AE having regard to Arm’s Length Price. In such circumstances, we are of the view that there is no justification for imposition of penalty.”

Further, the Hon’ble Delhi High Court in CIT vs Leroy Somer & Controls India (P) Ltd (2013) 37 taxmann.com 407 (Delhi) held as under:

5. In view of the above legal preposition, we are of the opinion that assessee made the sufficient compliance for maintaining the record as required u/s 92D 1.w. Rule 10D. We also find from the order of Id. TPO that there was no recommendation for initiating any penalty proceeding u/s 271AA of the Act nor any finding that assessee failed to maintain the record prescribed under Rule 8D. With these observations, the appeal of the assessee is allowed. No order as to cost.

5.10 In view of above discussion, it is observed that AO has levied penalty under Section 271AA of the Act for 5,36,25,808/- without bringing on record details of documents as required under Section 92D of the Act which were not submitted before TPO and on transactions which were considered to be at arms- length by TPO. On perusal of TP Order, it is observed that appellant has made sufficient compliance for maintaining the records as required under Section 92D of the Act In fact, the TPO at para 2 of his order has mentioned that all the requisite details regarding vessels purchases were called for and appellant had submitted all such details

5.11 In view of above factual and legal matrix, there is no justification for levy of penalty under Section 271AA of the Act and consequently penalty levied by AO is deleted. Thus, the grounds of appeal no. 3 to 6 are allowed.”

5. Aggrieved against the appellate orders cancelling the penalty u/s.271AAof the Act, the Revenue is in appeal before us raising the following Grounds of Appeal [All other Asst. years identical Grounds, except change of figures for different Asst. Years] :

1) “In the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the penalty u/s. 271AA of Rs.90,91,650/- levied for non-maintaining documents as specified in section 92D r.w.r. 10D, without discussing the case on merits.

6. Ld Senior DR Shri Rignesh Das appearing for the Revenue supported the penalty orders passed by the Assessing Officer and requested to uphold the However he could not contravent the findings arrived by the Ld CIT[A], with relevant materials and provisions of law and rules.

7. Per contra Ld Senior Counsel Mr. Thushar Himani appearing for the assessee submitted that the Ld TPO has not made any TP adjustment with respect to underlying transactions which implies that he has accepted that the international transactions were executed at as per Arms Length Further Ld TPO has observed that in response to notices issued u/s.92CA(2) and 92D(3), the assessee had filed requisite details (Para 2 of TPO’s order, Pg.55 of P/B). Thus there is no whisper in TPO’s order that there is any failure on the part of the assessee as to maintaining documents specified u/s 92D r.w.r. 10D of the I.T. Rules. After considering entire material available on record, the Ld TPO did not recommend initiation of penalty proceedings u/s. 271AA or u/s. 271G of the Act. Further no addition was made by the AO in respect of international transactions while framing the assessment. Thus it is well settled law, since no TPO adjustment has been made in respect of underlying international transactions, penalty u/s 271AA cannot be levied. Reliance is placed on following decisions:

• DCIT v. Indian Additives Express High Way (2017) 88 taxmann.com 954 (Chennai);
• ACIT Smith & Newphew Healthcare P. Ltd. (2011) 16 taxmann.com 5 (Mumbai);
• DCIT Be bo Technologies Pvt. Ltd. (2014) 40 taxmann.com 168 (Chandigarh);

7.1. Further the AO’s final assessment order is vague, scanty and non-specific in as much as the AO has not at all pointed out what specific document, out of documents prescribed u/s.92D r.w.r. 10D which has not been maintained by the assessee. But in the Assessment Order, AO simply observed in Para 7 that “since, assessee has failed to maintain the requisite documents as specified in sec. 92D r.w.r. 10D, issue penalty notice w/s 271AA of the Act for non-complinace of sec. 92D r.w.r. 10D” (Pgs.103-108 @ 106 of Paper Book). Under such circumstances, penalty u/s 271AA of the Act cannot be levied. Reliance is placed on following decisions:

• DCIT Convergys Customer Management Group Inc. (2022) 143 taxmann.com 43 (Delhi);
• DCIT Bebo Technologies Pvt. Ltd. (2014) 40 taxmann.com 168 (Chandigarh);
• ITO v. PPN Power Generating Co. P. Ltd. (2012) 18 taxmann.com 127 (Chennai);
• ACIT Global One India P. Ltd. (2012) 19 taxmann.com 249 (Delhi Trib.);
• CIT Leroy Somer & Controls (India) Pvt. Ltd. (2013) 360 ITR 532 (Delhi);
• Tapi JWil JV ITO (2024) 158 taxmann.com 433 (Delhi Trib.);
• Apace Realty ITO (2022) 140 taxmann.com 257 (Mum):
• DCIT Francois Compressors India P. Ltd. (2021) 129 taxmann.com 260 (Pune):

7.2. Thus Ld Senior Counsel Thushar Himani appearing for the assessee submitted that in view of the above, no case is made out by the Ld AO for levy of penalty u/s 271AA of the Act. Under such circumstances, penalty has been rightly deleted by Ld CIT(A), the same does not require any interference and Revenue appeals are liable to be dismissed.

8. Heard rival submissions at length and also perused materials available on record including the Paper Books and Case Laws compilation filed by the assessee. Before dealing with issue of levy of penalty under Section 271AA of the Act, it is relevant to refer to provisions of the Act which reads as follows:

271AA (1) 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, –

(i) fails to keep and maintain any such information and document as required by sub-section (1) or sub-section (2) of section 920,

(ii) fails to report such transaction which he is required to do so, or

(iii) maintains or furnishes an incorrect information or document.

the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of each international transaction or specified domestic transaction entered into by such person.

(2) If any person fails to furnish the information and the document as required under sub-section (4) of section 92D, the prescribed income- tax authority referred to in the said sub-section may direct that such person shall pay, by way of penalty, a sum of five hundred thousand rupees.

8.1. On perusal of relevant facts, it is observed that Ld AO levied penalty under section 271AA of the Act for all the assessment years with regard to purchase of vessels made with AE. In the Penalty Order, Ld AO has simply observed in Para 6 that in view of provisions of section 271AA, assessee has committed the default within the meaning of section 271AA and therefore assessee shall pay by way of penalty, a sum equal to 2% of value of each international transactions or specified domestic transaction entered into by the assessee for the year under consideration. Thus, neither in the Assessment Order nor in Penalty Order, the Ld AO pointed out as to which of the documents prescribed u/s.92D r.w.r. 10D have not been maintained by the assessee.

8.2. It is seen that the Ld TPO has passed the order u/s. 92CA of the Act wherein he has made two TP adjustments [as referred in para 2.1.] which are unconnected with purchase transactions of vessels made with AE. Thus the Ld TPO has not doubted such purchase price nor made any upward adjustments relating to purchase transactions with AE, which means that such transactions are recorded at arms-length price. It is further seen that such transactions are also mentioned in Form 3CEB filed prior to date of search. It is further seen that in the Final assessment order dated 05-03-2015 was passed u/s.143(3) of the Act, wherein also the AO has not doubted such purchase value.

8.3. Onidentical facts Chandigarh Bench of ITAT in the case of DCIT vs Be bo Technologies Pvt. Pvt. Ltd, 40 Taxman 160 wherein deleted the levy of penalty u/s. 271AA of the Act as follows:-

“Section 92D, read with sections 271AA and 271G, of the Income- tax Act, 1961 Transfer Pricing Maintenance & keeping of information and document of persons entering into an international transaction – Assessment year 2005-06 Whether only in event of failure of assessee to support its ALP by filing necessary evidence, question of requiring assessee to furnish prescribed information would arise – Held, yes – Whether there is no rationality in requiring information or documents from assessee first under section 92D(3) and thereafter, provide opportunity to assessee to support its ALP and, moreover, notice under section 92D(3) must require specific information or documents which assessee failed to furnish under section 92CA(2) but which according to TPO are necessary for determination of ALP of international transactions Held, yes During course of assessment proceedings, Assessing Officer noticed that assessee had entered into international transactions with its AE- Since value of such transactions exceeded Rs 15 crores Assessing Officer made a reference to transfer pricing officer (TPO) for determining arm’s length price (ALP) of international transactions Though TPO did not suggest any adjustment in his order, he suggested initiation of penalty proceedings under sections 271AA, 271G and 271BA on ground that assessee had not maintained prescribed TP documentation and did not furnish information requisitioned by TPO On basis of recommendation of TPO, Assessing Officer imposed penalty under sections 271AA and 271G upon assessee On appeal, Commissioner (Appeals) deleted penalty observing that documents maintained by assessee-company were furnished to TPO and even TPO was satisfied with documentation and that was why no adjustment was made to ALP of international transaction. Whether since in penalty orders passed by Assessing Officer, there was nothing to suggest as to which particular information or document was not submitted by assessee nor exact nature of default had been brought out. Commissioner (Appeals) was justified in cancelling penalty levied by Assessing Officer – Held, yes [in favour of assessee]”

8.4. Hon’ble Delhi High Court in CIT vs Leroy Somer & Controls India (P) Ltd (2013) 37 taxmann.com 407 [authored by the present CJ Iand as then he was] held that before levying penalty u/s. 271AA of the Act the Revenue must first mention the documents or information which was required to be maintained, but Not maintained or not furnished by the assessee then proceed with penalty proceedings by observing as follows:

“… 14. Sub-rule (4) further states that the documents specified in sub- rules (1) and (2), as far as possible, be contemporaneous and should be latest by the specified date referred to in Section 92F(iv), i.e., due date in Explanation 2 below Section 139(1). Thus, indicating the documentation/information may be floating, transient and changeable. Constant assimilation may be required. Besides, data information can also vary. The tribunal has rightly concluded that with such a broad rule, which requires documentation and information voluminous and virtually unlimited, Section 271G has to be interpreted reasonably and in a rational manner. Information or documentation, which is assessee specific or specific to the associated enterprises, should be readily available, whereas other documentation or information relates to data bases or transactions entered into by third parties may require collation/collection from time to time. There cannot be any end or limit to the documentation or information relating to data bases or third parties. When there is general and substantive compliance of the provisions of Rule 10D, it is sufficient The Legislature was conscious of this fact and, therefore, had specifically stipulated in Section 92D(3) that the Assessing Officer or Commissioner (Appeals) may require a person to furnish any information or document in respect thereof and on failure of the said person to furnish the documentation within the specified time, penalty under Section 271G can be imposed. Thus, for imposing penalty the Revenue must first mention the document and information, which was required to be furnished but was not furnished by the assessee within the specified time. The documentation or information should be one specified in Rule 10D, which has been formulated in terms of Section 92D(1) of the Act. Looking from any quarter and angle, the appeal of the Revenue is misconceived, totally lacking in merits and is, therefore, dismissed.”

8.5. Other decisions relied by the assessee which are passed by different Co-ordinate Benches of the Tribunal are in the same line that penalty u/s.271AA cannot be levied without specifying the required documents failed to be maintained/furnished by the assessee. Thus the issue is no more res-integra.

9. Further it is noticed that penalty order was passed in perfunctory manner without giving requisite show-cause notice and without affording proper opportunity of hearing to the assessee. Moreover, the Assessing Officer had merely show caused the assessee to file details/documents maintained as per rule 10D of Income-tax Rules, without specifying any particular clause itself. Thus there is no merit in levying penalty u/s.271AA of the Act, holding that the assessee have not maintained proper documents. Even otherwise, international transaction entered upon by the assessee with its AE had been held to be at arm’s length by the Ld TPO. In the above circumstances, penalty order is not sustainable in law. Thus we do not find any infirmity in the common order passed by the Ld CIT[A] deleting the penalty levied u/s.271AA of the Act for the Asst. Years 2012-13 to 2019-20. Therefore the Grounds raised by the Revenue is devoid of merits and liable to be rejected.

10. In the result the appeals filed by the Revenue in ITA No. 317 to 324/Ahd/2024 are hereby dismissed.