ASSISTANT COMMISSIONER OF INCOME TAX, MUMBAI vs. ESSAR POWER GUJRAT LIMITED, MUMBAI

Whether, on the facts and in the circumstances of the case and in law, the CIT A further erred in holding that the penalty under Section 271G became infructuous and would not survive solely because the quantum Transfer Pricing adjustment was deleted thereby failing to appreciate that Section 271G is a penalty for documentation default which operates independently of the outcome of the Transfer Pricing assessment proceedings. 3. Whether on the facts and in the circumstances of the case and in law, the CIT A erred in deleting the penalty without considering the mandatory requirement under Section 2738 of the Act to prove a reasonable cause for the failure to furnish the documents under Section 92D which the assessee had failed to demonstrate. 2. On receipt of memorandum of appeal of revenue, the assessee has filed its cross-objection raising following grounds: 1. The CIT(A) has erred in not holding that the penalty order passed by the Transfer Pricing Officer is without jurisdiction, illegal and bad in law. 2. The CIT(A) has erred in not appreciating that the case of the assessee do not fall within the parameters of section 271G of the Act.

The CIT(A) has erred in not holding that M/s. Global Suppliers FZE, UAE is not an associated enterprise of the assessee.

The CIT(A) has erred in not holding that there was a reasonable cause as per section 273B of the Act for not furnishing documents as called for by the Transfer Pricing Officer. 3. Rival submissions of both the parties have been heard and record perused. At the outset of hearing, the learned Authorised Representative (ld. AR) of the assessee submits that the addition, which was the basis for levying the penalty, was deleted by the learned CIT(A) in the quantum assessment vide its order dated 14.04.2025, which has been confirmed by the Tribunal in ITA No. 4353/Mum/2025, order dated 19.01.2026. Once the addition in the quantum assessment has been deleted, the penalty levied on the basis of such addition/adjustment will not survive. The learned AR of the assessee further submits that similar penalty for A.Y. 2009-10 was levied by the Assessing Officer (AO), and on appeal before the learned CIT(A), the penalty was deleted. Therefore, the grounds of appeal raised by the Revenue are covered in favour of the assessee and against the Revenue. The learned AR of the assessee submits that deletion of the addition in the quantum assessment was confirmed by the Tribunal in a consolidated order dated 19.01.2026 for A.Ys. 2009-10 and 2012-13. Further, the order of the learned CIT(A) deleting the similar penalty for A.Y. 2009-10 was confirmed by the Tribunal in ITA No. 6914/Mum/2025, order dated 26.05.2026. The learned AR of the assessee filed copies of the penalty orders under Section 271G for A.Ys. 2009-10 and 2012-13, the orders of the learned CIT(A) for A.Ys. 2009-10 and 2012-13, and the decision of the Tribunal in the penalty proceedings under Section 271G for A.Y. 2009-10. While explaining the facts the ld AR of the assessee submits that Global Services (GS) was not related party of the assessee company during the year under consideration, hence the transaction with GS is not covered by the Transfer Pricing Regulation. As there is no failure on the part of the assessee in furnishing any such information or documents as required by sub-section (3) of section 92D for levying penalty under section 271G. 4. On the other hand, the learned Commissioner of Income Tax- Departmental Representative (CIT-DR) for the Revenue, supported the orders of the lower authorities.

We have considered the rival contentions of both the parties and have gone through the orders of the lower authorities carefully. We have also compared the order of penalty under Section 271G for A.Y. 2009-10 with the order of penalty under Section 271G for A.Y. 2012-13. We find that, on a similar set of facts, similar penalty was levied by the AO, which was deleted by the learned CIT(A) in A.Y. 2009-10. The Tribunal confirmed the order of the learned CIT(A) in ITA No. 6914/Mum/2025. The relevant part of the order of the Tribunal is extracted below: “We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that there is no much dispute on the facts. We find that assessee is in the business of generation of electricity. The assessee filed its return of income for A.Y. 2009-10 declaring income of Rs. 1.14 crore. The case was selected for scrutiny. Initially, the return was processed under Section 143(1). Subsequently, case was reopened under Section 147. Case was reopened on the basis of information received from DRI, Mumbai with regard to over-invoicing of goods purchased by assessee-group (Essar Group) of Companies through Global Supplies FZE UAE from various equipment manufacturer located in different countries. The AO in the reasons recorded noted that DRI investigated the matter and back-to-back invoices of goods purchased by Essar Group Companies from suppliers were matched with invoices raised on Global Suppliers FZE by the original equipment manufacturer the matching was done to extent back-to-back invoices with DRI, which reveals over-valuation of goods supplied by Global Suppliers to Essar Group. The extent of over-valuation was not in consonance with value addition made by Global Supplies FZE UAE. During re-assessment proceeding the AO made reference for computation of Arm’s Length Price (ALP) to TPO. The TPO passed order and suggested upward adjustment @ 27% of Rs.273.13Crore, thereby suggested addition/adjustment of Rs.73.74 Crore. The TPO held that ALP of purchases from Global Supplies FZE is of Rs. 199.39 Crore. On the basis of report of TPO, the AO made reduced Capital Work in Progress (CWIP) by and amount of Rs.73.74 Crore. Aggrieved by the additions in the assessment order the assessee filed before ld.CIT(A), wherein the additions made by AO were deleted. On further appeal before Tribunal, the order of ld. CIT(A) was upheld. We find that in the mean while the AO levied penalty vide order dated 30.04.2019 under section 271G of Rs. 5.46 Crore that is @ 2.00% of alleged international transaction of Rs. 277.13 Crore of assessee with Global Suppliers FZE UAE. The ld. CIT(A) deleted the penalty by taking view that in appeal quantum assessment, the CIT(A)-12 Mumbai in his order dated 14.04.2025 has deleted the addition on the issue, hence penalty would not survive. We find that once the foundation of the penalty proceedings is wiped out and thus there was no ground for making addition in the return of income of the assessee. Hence, the initiation of penalty proceedings will not survive. We find that ld. CIT(A) while passing the impugned order applied the similar ratio, hence, we affirm the order of ld. CIT(A), with our additional observation. Considering the facts, that we have accepted the primary submissions of the ld. AR of the assessee, hence, consideration of other legal and factual pleas has become academic. In the result, the ground of appeal raise by revenue is dismissed.” 6. Considering the decision of the Tribunal on a similar set of facts in confirming the order of deleting the similar for AY 2009-10 and following the principle of consistency, we do not find any merit in the grounds of appeal raised by the Revenue. 7. In the result, the appeal of the Revenue is dismissed. 8. Considering the fact that we have dismissed the appeal of the Revenue, therefore, specific adjudication on the various grounds raised in the CO by the assessee has become academic. 9. In the final result, appeal of Revenue is dismissed and C.O. filed by assessee is also dismissed as infructuous. Order was pronounced in open court on 07/10/2026. Sd/- Sd/- JAGADISH PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER