POWERWEAVE SOFTWARE SERVICES PRIVATE LIMITED,MUMBAI vs. DY COMMISSIONER OF INCOME TAX CIRCLE 8 2 1 MUMBAI, MUMBAI

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ITA 3742/MUM/2026Status: DisposedITAT Mumbai19 October 2026AY 2021-226 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty under Section 271AA(1) is leviable for failure to keep and maintain information, failure to report a transaction, or furnishing incorrect information. In this case, the assessee had duly maintained all primary information and documentation in its TPSR and furnished it to the TPO. The omission was limited to not separately reporting the 6% retained amount in Form 3CEB, despite it being fully benchmarked and explained in the TPSR. The Tribunal noted that there was no finding by the lower authorities that the assessee failed to maintain necessary transfer pricing documentation or concealed any information. It was also accepted that the transactions were at arm's length and no revenue loss was caused. Therefore, the Tribunal concluded that levying penalty under Section 271AA(1) for a technical or inadvertent omission in Form 3CEB was not justified. The Tribunal set aside the order of the CIT(A) and deleted the penalty of Rs. 7,88,893. The issue regarding the opportunity of being heard was not expressly decided upon by the Tribunal in its final reasoning.

What were the facts?

The assessee, Powerweave Software Services Private Limited, filed its return of income for Assessment Year 2021-22. During assessment, the Assessing Officer (AO) referred the case to the Transfer Pricing Officer (TPO). The TPO observed international transactions with an Associated Enterprise (AE), Powerweave LLC, USA. These included sale of services amounting to INR 61,79,66,861 and receipt of marketing services amounting to INR 3,94,44,693. The TPO noted that while the sale of services was reported in Form 3CEB, the marketing services amount retained by the AE was not separately reported in Form 3CEB, though it was benchmarked in the Transfer Pricing Study Report (TPSR). The TPO accepted the arm's length price without adjustments. The AO initiated penalty proceedings under Section 271AA(1) for non-reporting in Form 3CEB and levied a penalty of Rs. 7,88,893. The CIT(A) upheld the penalty. The assessee appealed to the ITAT.

What were the issues?

1. Whether the penalty levied under Section 271AA(1) of the Income-tax Act, 1961 (the Act) for alleged violation of Section 92D of the Act is justified, considering the assessee maintained and furnished all relevant information in the Transfer Pricing Study Report (TPSR)? (Question of law and fact, turns on Section 271AA(1) and Section 92D). Assessee's contentions: The assessee argued that all information was maintained and disclosed in the TPSR, which was furnished to the TPO. The TPO accepted the arm's length price without adjustments. The assessee contended that the omission to separately report the 6% retained amount in Form 3CEB was an inadvertent or technical error, as the transaction was fully disclosed and benchmarked in the TPSR. The assessee also argued that there was a reasonable cause for not reporting the amount as it was not paid by the assessee. Furthermore, the assessee claimed the penalty notice was void ab initio for not specifying the charge and that the CIT(A) passed the order without providing an adequate opportunity of being heard, violating principles of natural justice. Revenue's contentions: The revenue, through the CIT(A)'s order, contended that reporting in Form 3CEB is a statutory requirement independent of the TPSR, and non-reporting of a substantial amount is not a clerical error.

Which sections of the Income-tax Act were involved?

Section 271AA(1),Section 92D,Section 250,Section 143(3),Section 144B,Section 92CA(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI GIRISH AGRAWAL

For Respondent: Shri Ajay Soneji, Sr. DR
Pronounced: 19.10.2026

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: C BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA 3742/MUM/2026 (िनधा�रण वष�/Assessment Year: 2021-22) Powerweave Software Services Dy Commissioner Of Income Tax Private Limited Circle – 8(2)(1), Mumbai Eleven Building, Plot No 27, Room No 624, 6th Floor, Road No 11, Near Tunga Hotel Aayakar Bhavan, M K Road Vs. Andheri East, Mumbai-400020, Maharashtra Mumbai-400093, Maharashtra अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of Assessee: AABCP9690D

Shri Jitendra Singh, Shri Rajesh अपीलाथ� �ारा/Appellant represented by: Gaikwad and Ms. Shivali Mhatre, Advocates ��थ� �ारा/Respondent represented by: Shri Ajay Soneji, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 27.07.2026 घोषणा की तारीख / Date of pronouncement: 19.10.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by assessee is directed against order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, vide order No. ITBA/NFAC/S/250/2025- 26/1084851303(1) dated 16.01.2026 passed against the penalty order by National e-Assessment Centre u/s. 271AA(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), dated 18.06.2024 for Assessment Year 2021-22.

2.

The grounds of appeal raised by assessee read as under: 1. The Ld. National Faceless Appeal Centre, Delhi hereinafter referred to as the 'Ld. NFAC/Ld. CIT(A)' erred in passing the order dated 16.01.2026 under section 250 of the Income Tax Act hereinafter referred to as 'Act' upholding the action of the Ld. Deputy Commissioner of Income Tax, Circle 8(2)(1), Mumbai hereinafter referred to as 'Ld. AO' in levying penalty of Rs. 7,88,893/- under section 271AA(1) of the Act for alleged violation of provision of section 92D of the Act without appreciating the facts and circumstances of the case in proper perspective. Thus, the order dated 16.01.2026 passed by Ld. CIT(A) is bad in law and the same may be quashed on the following amongst other grounds which are urged without prejudice to one another: - 2. Notice issued under section 271AA(1) dated 11.12.2023 is void ab initio. The Ld. CIT(A) fell in error of law in upholding the action of Ld. AO in issuing the penalty notice dated 11.12.2023 under section 271AA(1) of the Act without mentioning the particular charge / limb of section 271AA(1) violated by the Appellant. Thus, the notice issued under section 271AA(1) is vague and merely on suspicion and surmise. Thus, the impugned penalty order dated 18.06.2024 passed under section 271AA(1) of the Act in pursuance to the above invalid notice is bad in law and the same may be quashed. 3. Levy of penalty under section 271AA(1) of the Act for alleged violation of provision of section 92D of the Act is unjustified - Rs. 7,88,893/-. The Ld. CIT(A) further fell in error in upholding the action of Ld. AO in levying penalty amounting to Rs. 7,88,893/- for alleged violation of provision of section 92D of the Act without appreciating that the Appellant had maintained and furnished all the relevant information as required under section 92D(1) of the Act to the TPO during the course of transfer pricing proceedings. The TPO relying on the information furnished by the Appellant had accepted the claim of the Appellant and has not made any adjustment in TP order passed for the impugned assessment year. The Appellant, therefore, prays that levy of penalty amounting to Rs. 7,88,893/- under section 271AA(1) is without any basis and the same may be deleted. The Ld. CIT(A) failed to appreciate that the Appellant had received the net amounts from its AE after retaining 6% from the transaction value for providing marketing services to the Appellant. The Appellant had billed its AE only 94% for the back office support services rendered to its customers through its AE and the same was correctly reported in the TP Report. The amounts retained by the AE is not paid by the Appellant as it was directly received by the AE from the customers. Thus, the allegation that the Appellant had not reported the transaction in TP Documents is without appreciating the facts and circumstances of the case in proper perspective. Hence, the levy of penalty amounting to Rs. 7,88,893/- under section 271AA(1) is without any basis and the same may be deleted. The Ld. CIT(A) further failed to appreciate that both the transaction formed part of the same composite arrangement with the AE and the same was duly benchmarked and explained in the Transfer Pricing Study Report, which was furnished during assessment proceedings. The Appellant therefore prays that levy of penalty under section 271AA(1) in its case is not justified and the same may be deleted.

The Ld. CIT(A) further failed to appreciate that penalty under section 271AA(1) of the Act can be levied only when there is a failure to keep and maintain information, failure to report a transaction, or furnishing of incorrect information, as contemplated under section 92D of the Act. In the Appellant's case, all primary information and documentation relating to the international transactions, including the alleged transaction of marketing services amounting to Rs. 3,94,44,693/-, were duly maintained and disclosed in the Transfer Pricing Study Report placed on record. Therefore, the basic condition for levy of penalty under section 271AA(1) of the Act does not arise. Hence the penalty is liable to be deleted. 4. Without prejudice to the above grounds, the Ld. CIT(A) failed to appreciate that there was a reasonable cause in not reporting the amounts retained by the AE in the TP report as it was not paid by the Appellant. Hence, levy on penalty under section 271AA(1) of the Act is against the settled provisions of law and the same may be deleted. 5. The Ld. CIT(A) has passed order without providing the Appellant an appropriate opportunity of being heard is bad in law. The Ld. CIT(A) further erred in passing the impugned order dated 16.01.2026 under section 250 of the Act without providing the Appellant an appropriate opportunity of being heard either in physical mode or through video conferencing. Thus, the impugned appellate order is passed in gross violation of principles of natural justice and the same may be quashed and set aside."

3.

Brief facts of the case are that assessee filed its return of income reporting the total income at Rs. 49,32,040/-. During the course of assessment proceedings, reference was made by ld. AO to Transfer Pricing Officer (TPO) under section 92CA(1). During transfer pricing proceedings, ld. TPO observed that assessee had entered into international transactions with its Associated Enterprise (AE), Powerweave LLC, USA. The transactions as tabulated in the TPO order are as under:

Nature of Most Sr. International Name of the AE Amount (INR) Appropriate no. Transaction Method Sale of services to Powerweave LLC 1 61,79,66,861 TNMM AE ('PW US') Receipt of marketing Powerweave LLC 2 3,94,44,693 - services ('PW US')

3.1. Ld. TPO noted that while the sale of services amounting to Rs. 61,79,66,861/- was reported in Form 3CEB, the amount of Rs. 3,94,44,693/- retained by PW US towards marketing services was not separately reported in Form 3CEB, although it was benchmarked in the Transfer Pricing Study Report (TPSR). Ld. TPO accepted the arm's length price of international transactions without making any adjustments. Consequently, ld. AO completed the assessment under section 143(3) read with section 144B accepting the returned income. However, ld. AO initiated penalty proceedings under section 271AA(1) for non-reporting of the marketing services transaction in Form 3CEB.

3.2. Subsequently, ld. AO passed penalty order under section 271AA(1) levying penalty of Rs. 7,88,893/- being 2% of the value of the unreported transaction amounting to Rs. 3,94,44,693/. Aggrieved, assessee went in appeal before ld. CIT(A) who confirmed the penalty holding that reporting in Form 3CEB is a statutory requirement, independent of documentation maintained in TPSR and that non-reporting of a substantial amount cannot be treated as a clerical error. Aggrieved, assessee is in appeal before the Tribunal.

4.

We have heard rival submissions and perused the material available on record. We note that assessee had entered into transactions with its US-based Associated Enterprise (AE) where back-office services were rendered to customers in the US through the AE. Assessee billed 94% of the value amounting to Rs. 61,79,66,861/- to the AE while the AE retained 6% amounting to Rs. 3,94,44,693/- towards marketing services. It is an undisputed fact that complete details regarding this transaction were duly maintained and disclosed in the Transfer Pricing Study Report furnished during transfer pricing proceedings before the ld. TPO. Ld. TPO examined the entire arrangement and accepted the arm's length price without making any adjustments.

4.1. We observe that penalty under section 271AA(1) is leviable for failure to keep and maintain information and documents as required under section 92D, failure to report a transaction or furnishing incorrect information or documents. In the present case, assessee duly maintained all primary information and documentation in its TPSR and furnished same before the authorities below. The omission was restricted to non-reporting of the 6% retained amount separately in Form 3CEB, despite the same being fully benchmarked and explained in the TPSR. There is no finding by authorities below that assessee failed to maintain necessary transfer pricing documentation or that any information was concealed from tax authorities. Furthermore, authorities below accepted that transactions were at arm's length and no revenue loss was caused. Considering the fact that complete disclosures were made in the TPSR and examined by ld. TPO, levy of penalty under section 271AA(1) for a technical or inadvertent omission in Form 3CEB is not justified. We accordingly set aside the order of ld. CIT(A) and delete the penalty of Rs. 7,88,893/- so imposed.

5.

In the result, appeal of the assessee is allowed.

Order is pronounced in the open court on 19 October, 2026

Sd/- Sd/- (Saktijit Dey) (Girish Agrawal) Vice President Accountant Member Dated: 19 October, 2026 MP, Sr.P.S.

Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER, ABHINAV ANANT Digitally signed by ABHINAV ANANT GAVANDE GAVANDE Date: 2026.10.28 13:17:21 +05'30' (Dy./Asstt.Registrar) ITAT, Mumbai

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