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Facts
The assessee, Visen Industries Ltd., is an appeal against the order confirming a penalty of Rs. 2,07,19,852/- under Section 271G for failure to furnish information sought by the TPO. The assessee failed to respond to the initial notices due to the resignation of its CFO, though it later submitted the required details.
Held
The Tribunal held that the penalty under Section 271G is discretionary and requires considering the facts and circumstances, including the existence of a reasonable cause for failure. Since the assessee ultimately provided the information and the TPO considered it, and there was a reasonable cause (resignation of CFO), the penalty was not justified.
Key Issues
Whether penalty under Section 271G is leviable when there was a reasonable cause for non-compliance and subsequent compliance was made.
Sections Cited
271G, 92D, 273B, 92CA, 40(a)(ia)
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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI ANIKESH BANERJEE, JM &
(Assessment Year: 2016-17) Visen Industries Ltd. DCIT-(Transfer Pricing)-4(3)(1), 501, Stanford House, Junction of Kautilya Bhavan, BKC, S.V. Road & Juhu Lane, Vs. Bandra (E), Mumbai-400021. Andheri (West), Mumbai-400058. PAN: AAACV1768K Appellant) : Respondent) Appellant /Assessee by : Ms. Usha Gopalan, AR Revenue / Respondent by : Shri Mukesh Thakwani, Sr. DR Date of Hearing : 08.05.2025 : 22.05.2025 Date of Pronouncement O R D E R Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)-58, Mumbai [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 28.05.2024 for AY 2016-17. The assessee raised the following grounds of appeal:
“1) The honourable Commissioner of Income Tax (Appeals) is not justified in levying the maximum penalty of Rs.2,07,19,852/- u/s. 271G in respect of the addition on account of value of International and Domestic Transaction @ 2% of total transaction ignoring the fact that:
Visen Industries Ltd. a) The appellant has maintained and submitted all the prescribed documentation as per the Income Tax Act to substantiate Arms Length Price (ALP) in the respect of the International Transaction. b) The appellant has satisfactorily demonstrated the ALP and the TPO has accepted the same except adhoc adjustment.”
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. assessee filed further appeal before the CIT(A) who confirmed the penalty by holding that “5.3 During the course of appellate proceedings, the assessee mentioned that it had submitted the details sought by the TPO on 02.04.2019 and also TPO had made TP adjustment in respect of corporate guarantee only and it has not concealed any information in respect of international transactions. 5.4 In this regard, section 271G reads as under: "Penalty for failure to furnish information or document under section 92D. 271G. If any person who has entered into an international transaction or specified domestic transaction fails to furnish any such information or document as required by sub-section (3) of section 92D, the Assessing Officer or the Transfer Pricing Officer as referred to in section 92CA or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of the international transaction or specified domestic transaction for each such failure." 5.5 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. 5.6 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. 5.7 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.
5.8 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. Accordingly, the grounds of appeal are Dismissed.”
3. 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. 271D, section 271E, section 271F, section 271FA, section 271FAB, section 271FB, section 271G, section 271GA, section 271GB, section 271H, section 271-I, section 271J, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub- section (1) or sub-section (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub- section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.
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. to file the required information under section 92D states that the TPO may direct such person to pay penalty. Accordingly it is clear that the levy of penalty under section 271G is discretionary and not mandatory. Whether penalty should be imposed is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances as has been held by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [(1972) 83 ITR 26 (SC). The discretionary power under the penalty provisions is not arbitrary and has to be guided by well-established principles depending upon the facts and circumstances of each case. In the given case, the only non-compliance on the part of the assessee is with respect to not responding within the time limit of 60 days as prescribed under section 92D and that too due to the resignation of key personnel. In the overall facts and circumstances of the present case, we are of the view that this is a fit case where the TPO could have exercised the discretion not to impose penalty. Considering the that there is no willful and complete failure on the part of the assessee to respond to the notices and given that the TPO has completed the TP assessment after considering the details submitted subsequently by the assessee we are of the view that the levy of penalty under section 271G for failure to respond to the first 2 notices by the assessee is not justified. Therefore we direct the AO to delete the penalty levied.
In result, appeal of the assessee is allowed.