BHATE & RAJE CONSTRUCTION ,PUNE vs. DCIT CIRCLE -1 , PUNE

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ITA 2970/PUN/2025Status: DisposedITAT Pune27 May 2026AY 2014-156 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the penalty under Section 271AA was not maintainable as the AO did not specify which documents were not maintained by the assessee and the TPO had already accepted the transactions as Arm's Length. Similarly, the penalty under Section 271G was also held to be not maintainable, with the Tribunal finding no merit in the Revenue's appeal against the deletion of this penalty by the CIT(A).

What were the facts?

The assessee company entered into specified domestic transactions with associated enterprises. The Transfer Pricing Officer (TPO) accepted these transactions as being at Arm's Length. However, the Assessing Officer (AO) initiated penalty proceedings under Sections 271AA and 271G of the Income Tax Act.

What were the issues?

Whether penalties under Section 271AA and 271G are leviable when the primary transactions are accepted as Arm's Length and the specific documents allegedly not maintained are not identified. The applicability of omitted provisions related to Specified Domestic Transactions was also considered.

Which sections of the Income-tax Act were involved?

Section 271AA,Section 271G,Section 92D,Section 92CA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE

Before: SHRI Dr. DIPAK P. RIPOTE & SHRI VINAY BHAMORE

For Appellant: Shri Nikhil S. Pathak
For Respondent: Shri Prakash L. Pathade, CIT-DR

PER Dr. DIPAK P. RIPOTE, A.M : These two appeals are filed by both the Assessee and Revenue against the order of the Learned Commissioner of Income Tax (Appeals), Pune-13 [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’) for AY 2014-15 on 24-11-2025, emanating from the penalty orders 271AA, dated 29-06-2018 and 271G, dt. 29-06-2018. Since the facts are common, both these appeals were heard together and decided by the common order.

2.

Submission of Ld.AR: Ld.AR filed a paper book. Ld.AR submitted that TPO has accepted that the Specified Domestic Transactions were at Arm’s Length. Ld.AR for the penalty u/s. 271AA of the Act, submitted that no specific documents have been referred by the AO in the penalty order which were allegedly not

ITA Nos. 2970/PUN/2025 & 377/PUN/2026

maintained by the assessee. Assessee has maintained all the documents. The TPO verified the documents and then arrived at a conclusion that transactions were at Arm’s Length. Ld.AR took us through the order u/s. 92CA(3) of the Act passed by the TPO, wherein no Arm’s Length adjustment has been proposed. Ld.AR then read the penalty order u/s. 271AA and submitted that no specific allegation by the AO. Therefore, Ld.AR submitted that penalty may be deleted.

2.1. Regarding penalty u/s. 271G penalty, Ld.AR submitted that assessee had submitted document as per Rule 10D. Therefore, Ld.AR supported the order of the Ld.CIT(A), wherein penalty u/s. 271G has been deleted.

2.2. Ld.AR also submitted that the provisions related to specific domestic transactions have been omitted by the Finance Act, 2017. Ld.AR submitted that once the provisions have been omitted, no action can be taken. Ld.AR relied on the decision of the Hon’ble Karnataka High Court in the case of PCIT vs. Texport Overseas (P.) Ltd., [2020] 114 taxmann.com 568. Ld.AR also relied on the decision of the ITAT, Pune in the case of ITO vs. Vikram Tea Processing (P.) Ltd., [2025] 178 taxmann.com 691 (Pune-Trib.).

2.3. For the penalty u/s. 271AA of the Act, Ld.AR relied on the decision of the Hon’ble Delhi High Court in the case of PCIT vs. MS L&T SUGG JV CC27 [2023] 157 taxmann.com 548 (Delhi) and DCIT vs. Priya Blue industries (P.) Ltd., [2025] 171 taxmann.com 177 (Ahmedabad – Trib.), ITAT, Chennai in the case of ACIT vs Pentasoft Technologies Ltd. [2012] 134 ITD 567 (Chennai), dt. 25/11/2011.

3.

Submission of Ld.DR: The Ld.DR relied on the order of the AO and the Ld.CIT(A).

4.

Findings and analysis: We have heard both the parties and perused the records. We will first discuss the issue in ITA No. 2970/PUN/2025, relating to penalty u/s. 271AA of the Act.

ITA Nos. 2970/PUN/2025 & 377/PUN/2026

4.1. In this case, the assessee is a domestic company in which public are not substantially interested. During the year, assessee had entered into specified domestic transactions with Associated Enterprises (AE) aggregating to Rs. 58,70,78,326/-. Assessee had filed Form-3CEB and auditors report. The issue was referred to Transfer Pricing Officer (TPO). The TPO vide order dt. 31-07-2017, passed u/s. 92CA(3) of the Act held that transactions were at Arm’s Length.

4.2. However, AO/TPO had initiated penalty proceedings u/s. 271AA and 271G of the Act. Accordingly, the AO continued with penalty proceedings. The AO also obtained opinion of Addl.CIT(TP)-1, Pune, regarding the penalty u/s. 271AA and 271G of the Act. The Addl.CIT(TP)-1, Pune, replied vide letter dt. 22-05-2018. In the penalty order, the AO has not specified which were the documents, which were not maintained by the assessee. Even during the TP proceedings, the TPO has not alleged that the assessee has not maintained the documents as required u/s. 92D of the Act. It is also important to mention here that the TPO after verifying the documents arrived at a conclusion that transactions were at Arm’s Length. In these facts and circumstances, there is no merit in the penalty levied u/s. 271AA of the Act. Accordingly, we direct the AO to delete penalty u/s. 271AA of the Act. We find support from the order of the Hon’ble Delhi High Court, ITAT, Chennai and ITAT, Ahmedabad in the case of DCIT vs. Priya Blue industries (P.) Ltd., [2025] 171 taxmann.com 177 (Ahmedabad – Trib.), discussed in the following paras.

4.3. On identical issue, the Hon’ble Delhi High Court in the case of PCIT vs. MS L&T SUGG JV CC27 [2023] 157 taxmann.com 548 (Delhi) has observed as under: Quote“13.In sum, insofar as the addition made vis-à-vis the tunnel-boring machine is concerned, the conclusion drawn was that the transaction was at Arm’s Length Price. 14.The Assessing Officer (AO), however, based on the shareholding structure of the respondent/assessee, concluded that the assessee had not made disclosures, as required under section 92E of the Act. 15.The Tribunal, in our opinion, while examining the veracity of view taken both by the AO and the CIT(A), has adopted the correct approach.” Unquote.

ITA Nos. 2970/PUN/2025 & 377/PUN/2026

4.4. ITAT Chennai in the case of ACIT vs. Pentasoft Technologies Ltd. [2012] 134 ITD 567 (Chennai), vide Order dated 25/11/2011 has held as under : Quote, “ 13. Submission of the assessee is that it had maintained all records which were required under Rule 10D of the Rules. What comes out of the proceedings before the TPO and the Assessing Officer are that they had not come to any findings regarding the specific failure, if any, of the assessee. If we have a look at Rule 10D, various types of records are required to be maintained and these are enumerated under clauses (a) to (m) thereunder. If the Revenue alleges that there has been a failure of the assessee with regard to production of any of these records, it is required to point out specifically where such failure occurs. It cannot go by a general statement that assessee had not maintained information as envisaged under Rule 10D. The specific record which assessee was required to maintain and which was not maintained has to be pointed out. This has not been done. In other words, assessee's contention that it had all such records was not effectively rebutted by the Revenue at any point of time. In any case, assessee had followed Cost Plus Method, whereas A.O. had followed TNMM method, but, both the methods finally gave the same value for the international transactions. In other words, no change was considered necessary to the Arms Length Price. This being the case, even if there was a failure, it was only a benign one which had no effect whatsoever on the value of international transactions entered into by the assessee. In so far as the case of G.I. Systems Org. India (P.) Ltd. (supra), relied on by the learned D.R. is concerned, there assessee had not filed audit reports in prescribed Form No.3CEB for the international transaction entered into by it. As against this, here, para 1 of the order of TPO dated 16th March, 2006 (paper-book page 45) clearly shows that Form No.3CEB was filed by the assessee. Hence, we are of the opinion that the decision of Hyderabad Bench would not have any application in the given case. We find that Ld. CIT(Appeals) was justified in deleting the penalty levied under Section 271AA of the Act. No interference is called for.”,Unquote.

Thus, the ratio laid down in the case of Pentasoft Technologies Ltd. (supra) is squarely applicable to the facts of the present case. Accordingly We are of the considered opinion that the penalty levied u/s. 271AA of the Act is not maintainable.

5.

Hon’ble Karnataka High Court in the case of PCIT vs. Texport Overseas (P.) Ltd., [2020] 114 taxmann.com 568 has held as under: Quote“6. In fact, Coordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of Section 10B. In the matter of GENERAL FINANCE CO. vs. ACIT, which judgment has also been taken note of by the tribunal while re-pelling the contention raised by revenue with regard to retrospectivity of Section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of Section 92BI

ITA Nos. 2970/PUN/2025 & 377/PUN/2026

and reference made to the order of Transfer Pricing Officer- TOP under Section 92CA could be invalid and bad in law.”Unquote

5.1. Thus, the Hon’ble Karnataka High Court held that once the relevant provisions related to Specified Domestic Transactions were omitted by Finance Act, 2017, the provisions never existed. Applying the proposition of law laid down by the Hon’ble Karnataka High Court to the present case, there is no provision in the Act for AY. 2014-15 mandating assessee to maintain documents related to Specified Domestic Transactions. Therefore, the penalty u/s. 271AA of the Act is void ab initio. On the same ground, the penalty u/s. 271G of the Act is also void ab initio.

6.

Now, we will take up, ITA No. 377/PUN/2026 related to penalty u/s. 271G of the Act. In this case, the AO levied penalty u/s. 271G of the Act. The relevant para 5.3 of the penalty order is reproduced here as under: Quote“5.3. The arguments of the assessee-company are not acceptable merely on the ground that the addition on account of internation transaction or a specified domestic transaction has not been done while passing order u/s. 143(3) r.w.s. 92CA(4) of the Act. The case was selected for scrutiny and the assessee was liable to produce documents as required during the scrutiny proceedings so that the AO could make proper verification and reach at genuine point. However, the assessee could not follow the norms as provided in section 92D of the IT Act. Therefore the penalty u/s. 271G of the IT Act is hereby levied at 2% of the value of international transaction or a specified domestic transaction of Rs. 1,17,41,567 being 2% of the total value of specified domestic transaction i.e., Rs. 58,70,78,326/-.”Unquote

6.1. The Ld.CIT(A) allowed the assessee’s appeal and held that penalty u/s. 271G of the Act is not maintainable. Ld.CIT(A) specifically observed that assessee had maintained extensive documentation as required under Rule 10D of the Income Tax Rules. Ld.CIT(A) further observed that notices issued u/s. 92D(3) were vague and non-specific, failing to identify any missing information. He further observed that there is clear inconsistency in accepting the Arm’s Length Price and simultaneously, alleging non- compliance.

6.2. The present appeal is filed by the Revenue. Ld.DR has not brought on record any document to rebut the Ld.CIT(A)’s findings. Ld.DR merely supported the order u/s. 271G of the Act. In these facts and circumstances of the case, we are convinced that penalty levied u/s. 271G of the Act is not maintainable. Even otherwise, in earlier para, we have

ITA Nos. 2970/PUN/2025 & 377/PUN/2026

already observed that once the provision relating to Specified Domestic Transactions were omitted, there is no provision under the Act to levy penalty. In these facts and circumstances, Revenue’s appeal is dismissed.

7.

To sum-up, appeal of the assessee in ITA No. 2970/PUN/2025 is allowed and the Revenue’s appeal in ITA No. 377/PUN/2026 is dismissed in above terms.

Order pronounced in the open Court on 27th May, 2026

Sd/- Sd/- (VINAY BHAMORE) (Dr. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे/Pune; दिन ांक/Dated : 27-05-2026 TNMM

आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: अपील र्थी / The Appellant 1. प्रत्यर्थी / The Respondent 2. 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘C’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune

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