VISEN INDUSTRIES LIMITED ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (TRANSFER PRICING )-4(3)(1), MUMBAI

The assessee is a domestic company engaged in the business of manufacturing industrial chemicals. The assessee filed the return of income for AY 2016-17 on 29.09.2016 declaring a total income of Rs. 20,82,70,110/-. The assessee's case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transaction with its Associated Enterprises (AE) a reference was made to the Transfer Pricing Officer (TPO). The TPO issued notices on 30.10.2018 and 20.12.2018 calling on the assessee to furnish the relevant details with regard to the international transactions entered into by the assessee. The assessee could not respond to the said notices since the key person i.e the Chief Financial Controller had resigned and the said notices went unattended inadvertently. The TPO issued show-cause notices subsequently on 25.03.2019, 23.09.2019 and 08.10.2019 to which the assessee responded. The TPO passed an order under section 92CA(3) dated 28.10.2019 making a TP Adjustment towards commission on corporate guarantee extended by the assessee to its AE. The Assessing Officer (AO) passed the final assessment order incorporating the TP Adjustment and also making a disallowance under section 40(a)(ia) of the Act. The TPO initiated penalty proceeding under section 271G of the Act before passing the order under section 92CA(3) of the Act for the reason that the assessee has not responded to the show cause notices issued by the TPO. Accordingly the TPO vide order dated 30.09.2019 levied a penalty at 2% of the total international transaction and specified domestic transaction amounting to Rs 2,07,19,852/-. Aggrieved Visen Industries Ltd.

4 In this regard, section 271G reads as under: "Penalty for failure to furnish information or document under section 92D.

5 Thus, as per the section 271G, penalty is to be levied in the case of the assessee if it fails to furnish information or documents as required by section 92D(3) of the Act. Further, as per section 273B of the Act, no penalty shall be imposable on the assessee for its failure if the assessee proves that there was reasonable cause for the said failure. However, the assessee has not submitted any reason for failure to furnish the information as sought by the TPO u/s 92D(3) of the IT Act within a period of 60 days.

6 The penalty provisions u/s.271G of the Act will be triggered the moment there is non-compliance with the procedural requirements. Further, the subsequent compliance after expiry of the statutory period of 60 days prescribed under the law does not automatically absolve the assessee from the penalty proceedings. If this argument of assessee has to be accepted, then the provisions of section 271G will become redundant.

7 The assessee further mentioned that TPO has made ad hoc transfer pricing adjustment in respect of corporate guarantee. However, contention of the assessee is factually not correct. The assessee has charged corporate guarantee @ 1% in respect of international transactions with the AES. TPO in the transfer pricing order dated 28.10.2019 has considered comparable market rate for corporate guarantee commission @1.5% and accordingly has made adjustment to the ALP in respect of Corporate Guarantee by 0.5% as the assessee has already charged guarantee commission @ 1%, amounting to Rs. 1,34,40,410/-. Therefore, contention of the assessee is rejected. Visen Industries Ltd.

8 Thus, in view of facts of the case, since the assessee had not furnished all the information/documents sought by the TPO vide his notice dated 20.12.2018 and also there was not a reasonable cause for failure to comply with the said notice, penalty of Rs.2.07.19,852/- u/s 271 G of the IT Act levied by the TPO is confirmed.

The ld. AR submitted that the assessee though did not respond to the first two notices issued by the TPO subsequently responded to the notices and filed all the relevant details before the TPO. The ld. AR further submitted that in the order passed under section 92CA(3) that TPO has considered all the relevant document and has made the TP Adjustment towards corporate guarantee. The ld. AR also submitted that the reason for non-submission of details in response to the first two notices have not been appreciated by the TPO before levying penalty under section 271G of the Act. The ld. AR prayed that as per provisions of section 273B, no penalty shall be imposed if there is a reasonable cause for the failure to submit the details and in the assessee's case there is no intentional non-compliance. Accordingly, the ld. AR prayed that the penalty levied be deleted.

The ld. DR on the other hand supported the order of the lower authorities.

We heard the parties and perused the material on record. While considering the issue of penalty under section 271G of the Act, it is relevant to look at the provisions of section 273B of the Act which contains provisions to state that the penalty cannot be imposed under certain circumstances. The provisions of Section 273B read as under – Penalty not to be imposed in certain cases. 273B. Notwithstanding anything contained in the provisions of clause (b) of sub- section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section Visen Industries Ltd.

From the plain reading of the above section it is clear that the penalty under section 271G cannot be levied if the assessee is able to prove that there was a reasonable clause for failure to comply on the part of the assessee. In the context of the penalty provisions including the provisions of Section 271G, the word "reasonable cause" would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or lack of bona fide. In assessee's case it is submitted that the CFO of the assessee has resigned and in his absence the notices issued by the TPO went unattended. It is relevant to note here that the assessee has responded to the subsequent notices by providing the necessary details and that TPO has considered the said details while passing the order under section 92CA(3) of the Act. Therefore there is merit in the submission that there is no willful non-compliance on the part of the assessee. From the perusal of the penalty order under section 271G, we notice that the TPO has levied the penalty for the reason that the assessee has not responded to the notice within 60 days as prescribed under section 92D. In our considered view, when the TPO has passed the order after considering the details submitted in response to subsequent notice then it would mean that the subsequent compliance by the assessee has been considered by the TPO and that the same would amount to good compliance where no penalty can be levied under section 271G of the Act. Further section 271G which provides for levy of penalty for failure Visen Industries Ltd.

In result, appeal of the assessee is allowed.

The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,