JSW ENERGY LTD,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (TRANSFER PRICING) 2(3)(1), MUMBAI

Per Pramod Kumar VP 1. By way of this appeal, the assessee appellant has challenged the correctness of the order dated 30th January 2019 passed by the learned CIT(A), in the matter of penalty under section 271G of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2014-15. Grievance of the assessee, in substance and as set out as the first ground of appeal

2. The relevant material facts are as follows. The assessee before us is a public company engaged in the business of generation of power, and operation and maintenance of the power plants, as also other allied activities. During the course of its assessment proceedings, the Assessing Officer made a reference under section 92CA(1), for determination of the arm‟s length price of the international transactions and specified domestic transaction entered into by the assessee with its associated enterprises (AEs), to the Deputy Commissioner of Income Tax, Assessment year 2014-15 Page 2 of 17 Transfer Pricing 2(3)(1), Mumbai (hereinafter referred to as the Transfer Pricing Officer’). Based on the determination of the arm‟s length price of the determination of arm‟s length price by the DCIT, arm‟s length price adjustments were made in respect of interest received on loans given to the AEs, amounting to Rs 11,88,79,423, in respect of interest on overdue receivable from AEs, amounting to Rs 3,05,278, and in respect of power conversion charges, amounting to Rs 52,95,000, were made by the Assessing Officer. The matter, however, did not rest there. The Transfer Pricing Officer also noted that there was a lapse on the part of the assessee inasmuch the assessee did not comply with, well within the stipulated time of 30 days of receipt of the notice, the requisition made by the TPO for furnishing information maintained under rule 10D. It was noted that the requisitioned information was not furnished within the prescribed period, despite the service of notice issued by the TPO under section 92CA(2) as well as 92D(3), on the assessee. The explanation given by the assessee for the delay in filing of information did not impress the Assessing Officer. He rejected these reasons as „unacceptable‟. It was in this backdrop that the proceedings under section 271G were initiated as the penalty for “failure to furnish information or document under section 92D”, for this delay in filing the information requisitioned by the Transfer Pricing Officer. The Transfer Pricing Officer noted that a notice under section 92CA(2) was issued to the assessee on 23.11.2016. The information so requisitioned had as many as twenty points, including, apart from records maintained under rules 10D(1) and 10D(3), certain records, such as „mechanism (along with supporting documents) by which the price of each transaction was set by you with your associated enterprises‟ to „copy of assessment order for the AY 2013-14, if any, and copy of appeal orders, DRP orders (if any) for AY 2011-12 and 2012-13”. There is no dispute that there was partial compliance to this requisition as evident from the observations of the TPO, in the impugned penalty order, to the effect that “the assessee, vide letter dated 5.12.2016, filed the details such as …………… However, other details called for, including…….. were not submitted”. Once again, notice under section 92CA(2) dated 22.12.2016 was issued to the assessee calling upon the assessee to furnish the following: (i) A copy of the complete Annual Report of the assessee along with Audited financial statements, Form No.3CEB, Form No.3CD and Return of Income along with computation of income for the year ended 31.03.2014. (ii) Copy of the Transfer Pricing Study Report/Documentation prescribed under Rule 10D(1) or Rule 10D(2A) in the case of an assessee having eligible specified domestic transaction referred to in Rule 10THB]. (iii) Copies of all agreements entered into by you with your Associated Enterprises till date. Once again, the assessee sought an adjournment on 4th January 2017. As noted by the 3. TPO, the adjournment was declined, and, even till 13th February 2017, the assessee did not furnish the requisitioned information. On 13th February 2017, the TPO, for the first time issued a notice under section 92D(3), which was partly complied with. The relevant observations in the penalty order are as follows: 6.3 Further, the TPO issued notice u/s 92D(3) of Act on 13.02.2017 requesting the assessee to submit the above-mentioned information/documents as was called for by the notice issued u/s 92CA(2) dated 22.12.2016. In response to the same, vide letter dated 24.02.2017, the assessee filed the Copy of form no 3CEB, financials of the assessee for AY 2014-15, order of CIT(A) for A.Y. 2011-12 but did not submit Assessment year 2014-15 Page 3 of 17 the Transfer pricing study report and other documents prescribed under Rule 10D(1) of Income Tax Rules 1962, in respect of the transactions entered into by the assessee with its AEs. As for the balance information, the assessee prayed for, vide letter dated 24th February 4. 2017, “to grant us (i.e. the assessee) an adjournment”. However, no adjournment was granted by the Transfer Pricing Officer. As evident from the impugned penalty order, the requisite transfer pricing study was filed on 7th July 2017, and there has been full compliance with the requisitions made by the TPO subsequently. Elaborate submissions were made to explain the delay in submission of details and on the circumstances in which the delay took place. The assessee‟s explanation for the inordinate delay in filing of the information mainly was that there was a change of the Chief Financial Officer, and once the new CFO was appointed and was able to take complete charge of things, the due compliances were made. It was thus explained that there was a reasonable cause for the delay. This explanation, as also other submissions made by the assessee, did not, however, impress the Transfer Pricing Officer. He rejected the submissions of the assessee and observed as follows: 8.4 The contentions raised by the assessee are not acceptable for the following reasons:- a) The TPO issued notices U/s 92CA(2) of the Act dated 23.11.2016 & 22.12.2016 and also the notice U/s 92D(3) of the Act dated 13.02.2017. This shows that TPO has given sufficient time and opportunity to the assessee to Study Report (TPSR) and other furnish Transfer Pricing documents/information required to be maintained under the provision of Rule 10D in respect of the international and specified domestic transactions entered into by the assessee with its AEs. In the present case, notice u/s 92D(3) of the Act was issued to the assessee on 13.02.2017, but the assessee did not furnish a single document/information required to be maintained under sub Rule (a) to (m) of Rule 10D(1) within 30 days (which can be extended by 30 days with the permission TPO, no adjournment granted by PO in this case). b) Further the assessee has not given any concrete evidence, for its contention that the person concerned looking into the matter was on leave. Also the assessee stated that the company was in the process of appointing of the Chief Financial Officer and this resulted in some inordinate transitional delay. In support to this the assessee submitted certified true copy of board resolution dated 23.01.2017 and 13.06.017. From the copy of resolution dated 23.01.2017, it is evident that Mr. Jyoti Kumar Agarwal was appointed as Chief Financial Officer. However, notice under section 92D(3) was issued on 13.02.2017 . From this it is clear that there was a Chief Financial Officer present in the Company when notice u/s 92D(3) was issued and he/she could have complied with the notice. Without prejudice to the above, it needs to be noted that the TPS and other documents/information as per Rule 10D(1) are supposed to be with the assessee while filing Form 3CEB (in this case on or before 30th Nov. 2014) and those can be furnished before the TPO within 30 days, just by copying one set, which does not require any application of mind and can be submitted without a CFO also, However, in this case, the assessee did not furnish a single document/information required to be maintained under sub Rule (a) to (m) of Rule 10D(1) within 30 days. c) Further the assessee contented that TP Study (for specified domestic transactions) was already submitted vide letter dated 7th July 2017. In this regard it is pertinent to mention that this filing of TPS of Specified domestic transactions by the assessee was not within the time of 30 days after receipt of notice under section 92D(3) as prescribed under section 92D(3).

Assessment year 2014-15 Page 4 of 17 d) The, assessee relied upon Annapurna Business Solutions vs Assistant Commissioner of Income-tax, Circle 6(1) [17 taxmann.com 125 (Hyderabad - Trib.) 2012] which states that if documents and information prescribed under Rule 10D are voluminous then it would only be in rare cases that all the clauses of aforesaid sub-rules would be attracted. Further, supporting documents, official publications, agreements, reports, market research studies, technical publications of Government or other institute of national or international repute, and all the documents mentioned in Rule 10D(3) may not be necessary in case of every Assessee. This contention is also not acceptable as in this case, as stated above, not a single document required to be maintained under Rule 10D was furnished by the assessee within 30 days on receipt of the notice under section 92CA(2) as well as 92D(3). e) Further, the contention of the assessee that penalty under section 271G could only be initiated only for specific failure to furnish information or document as required under section 92D(3) of the Act is factually incorrect as the assessee has failed to furnish any of the documents required to be maintained under the rule 10D within the time allotted under section 92D(3). Therefore the case laws relating to the specific failure as cited by the assessee are not relevant in this case. f) Assessee further stated that he filed the balance information required to be maintained under Rule 10D vide submission dated 14 August 2017, 23 August 2017, 8 September 2017, 21 September 2017, 28 September 2017 and 16 October 2017, which is well within the time prescribed under section 92D(3) of the Act. The said contention of the assessee is not relevant and factually incorrect as the assessee has failed to furnish any of the documents required to be maintained under the rule 10D within the time allotted under section 92D(3). Further, in this case, the issue is not of furnishing the documents or information but of furnishing the same within the prescribed time as stipulated in the Act. g) The contention of the assessee that the TP order passed for AY 2014-15 does not state that the penalty proceedings under section 271G should be initiated separately is not factually correct as in the present case, TPO has stated in para 2 of the order under section 92CA(3) that notice u/s 271G r.w.s. 274 of the Act dated 12.06.2017 was issued to the assessee to show cause why an order imposing penalty should not be made u/s 271G of the Act. Without prejudice to the above, it is not requirement of law to state in the TP order that the penalty proceedings under section 271G should be initiated separately. Penalty proceedings under section 271G can be initiated even before passing the order u/s. 92CA(3) if there is failure on part of the assessee to furnish any such information or document as required by sub-section (3) of section 92D of the Act. h) The contention of the assessee that TPO accepted Transfer Pricing Report of the assessee is not acceptable. In this regard it is stated that on a plain reading of provisions of Sec 271G of the Act, it may be seen that there is no mention or linkage to the adjustment made by the TPO/ALP determined by the TO or acceptance of Transfer Pricing Study Report as one of the basis for levy of Penalty under this Section. Section 271G has to be seen independently of the final adjustment made by the TPO in the ALP of the transactions with AE. It is important to mention that in case an ALP adjustment was made in the case of the assessee then the penalty provisions us. 271(1) (c) would have been separately considered by the Assessing Officer, which is mutually exclusive from the levy of Penalty under Section 271G of the Act in this case. Both these penalty provisions are mutually exclusive and not overlapping. The fact that making an ALP adjustment is not a condition precedent for levy of penalty under section 271G is apparent from the provisions of this section which is reproduced below for ready reference:

Assessment year 2014-15 Page 5 of 17 "If any person who has entered into an international transaction or specified domestic transaction fails to furnish any such document or information 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 be liable to a penalty a sum equal to two per cent value of the international transactions for each such failure" Without prejudice to the above, in this case TPO has not accepted TPSR (Transfer Pricing Study Report) as it is and made adjustment in Arm's Length Price as stated in Para 5 above. i) Assessee also has stated that they have maintained the proper documentation as prescribed by the Income Tax Act. It is pertinent to mention here that in this case maintenance of documents is not the issue but furnishing the same within prescribed time is the issue. 8.5 In this case, notice under section 92CA(2) was issued on 23.11.2016 and 19.12.2016 to furnish information/documents required to be maintained under Rule 10D(1). Further, the TPO issued the notice u/s 92D(3) of the Act on 13.02.17. However, the assessee furnished TPS and some of the information/documents as required by section 92D only on 07.07.2017. From the above, it is explicitly clear that the assessee had failed, without reasonable cause, to furnish the information/documents as required in section 92D within the specified time limit of 30 days as stated in section 92D(3) of Act. It is also pertinent to mention here that the assessee partly complied on 07.07.2017 that is, after more than 220 days from the issuance of the first notice. 8.6 On the issue of levy of penalty u/s 271G for non furnishing of documents/information as required u/s 92D, it is pertinent to have a look at the intention of the legislature for introducing section 271G. The relevant portion of memorandum of budget 2001 is reproduced below "With a view to ensuring that multinational enterprises comply with the requirements of the new sections, it is also proposed to amend section 271 and insert new sections 271AA, 271BA and 271G in the Income-tax Act, so as to provide for the penalty to be levied in cases of non-compliance with the procedural requirements and in cases of understatement of profits through fraud or wilful negligence. It is clear from the above that the intention of the legislature for levying penalty u/s 271G is for non-compliance with the procedural requirements. In this case, also as stated above, the assessee has failed to furnish, without reasonable cause, the documents/information as required by section 92D within the stipulated time and this is nothing but non-compliance to statutory notices with procedural requirements. 8.7 Therefore, in view of the above facts and circumstances of the case, I am of the considered opinion that the assessee has, without any reasonable cause, failed to furnish the information/document as required under section 92D(3), within the specified time limit of 30 days as stated in section 92D(3) of Act in respect to the International transactions and specified domestic transactions entered into with its AEs, and accordingly, I am satisfied that it is a fit case to levy penalty u/s. 271G r.w.s. 274 of the Act.

Assessment year 2014-15 Page 6 of 17

Assessment year 2014-15 Page 7 of 17 The above notice was to be complied with within 30 days under section 92D(3) and further on an application, it can be extended by 30 days in accordance with the proviso to said section.

6. In the instant case there is no doubt that the notice is not complied with. Thus initiation is correct and assessee has been establish reasonable cause within meaning under section 273B of Income Tax Act 1961.

7. The objections of the appellant are: A. Over all, within the proceedings, the company acted in good faith and all details were provided to Transfer Pricing Officer (Para 12 of written submission) B. At the specific point of time of default company was in process of appointing new CFO which is words of appellant " resulted in some inordinate transitional delays - including delay in appointment of the authorized personnel of the Company. As a result of this, the appellant was facing hardship in collation of the requisite information." (Para 12 of written submission). C. The Transfer Pricing study report (for specified domestic transaction) was submitted to Transfer Pricing Officer on 07.07.2017 (para 14 of written submission). D. There was no application of mind on part of Transfer Pricing Officer (para 20 of written submission). E. It is not recorded in the assessment order that penalty proceedings under section 271G is separately initiated (Para 22 of written submission).

8. The Transfer Pricing Officer in order of penalty mention regarding compliance as under: 6.3 Further, the TPO issued notice u/s 92D(3) of Act on 13.02.2017 requesting the assessee to submit the above mentioned information/documents as was called for by the notice issued u/s 92CA(2) dated 22.12.2016. In response to the same, vide letter dated 24.02.2017, the assessee filed the Copy of form no 3CEB, financials of the assessee for A.Y. 2U14-15, order of CIT(A) for A.Y. 2011-12 but did not submit the Transfer Pricing study report and other documents prescribed under Rule 10D(1) of Income Tax Rules 1962, in respect of the transactions entered into by the assessee with its AEs. Therefore penalty proceedings was initiated on 12.06.2017. Reply to notice under section 274 r.w. 271G was given on 15.03.2018, in between transfer pricing order under section 92CA(3) was passed.

9. The objections before me is similar to what is stated before Transfer Pricing Officer. The view of Transfer Pricing Officer on the specific reason attributed for the default is reproduced below: (b) Further the assessee has not given any concrete evidence for its contention that the person concerned looking into matter was on leave. Also the assessee stated that the company was in the process of appointing of the Chief Financial Officer Assessment year 2014-15 Page 8 of 17 and this resulted in some inordinate transitional delay. In support to this the assessee submitted certified true copy of board resolution dated 23.1.2017 and 13.06.2017. From the copy of resolution dated 23.01.2017, it is evident that Mr. Jyoti Kumar Agarwal was appointed as Chief Financial Officer. However, notice under section 92D(3) was issued on 13.02.2017. From this it is clear that there was a chief Financial Officer present in the Company when notice u/s. 92D(3) was issued and h/she could have complied with the notice. Without prejudice to the above, it needs to be noted that the TPSR and other documents/information as per Rule 10D(1) are supposed to be with the assessee while filing Form 32EB (in this case on or before 30th Nov, 2014) and those can be furnished before the TPO within 30 days, just by copying one set, which does not require any application of mind and can be submitted without a CFO also. However, in this case, the assessee did not furnish a single document/information required to be maintained under sub Rule (a) to (m) of Rule 10D(1) within 30 days.

Assessment year 2014-15 Page 10 of 17 Information and documents to be kept and maintained under section 92D. 10D. (1) Every person who has entered into an international transaction or a specified domestic transaction shall keep and maintain the following information and documents, namely:— (a) a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises; (b) a profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions or specified domestic transactions, as the case may be, have been entered into by the assessee, and ownership linkages among them; (c) a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted; (d) the nature and terms (including prices) of international transactions or specified domestic transactions] entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction; (e) a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction or the specified domestic transaction; (f) a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions or the specified domestic transactions entered into by the assessee; (g) a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions or the specified domestic transactions] entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions or specified domestic transactions, as the case may be]; (h) a record of the analysis performed to evaluate the comparability of uncontrolled transactions with the relevant international transaction or specified domestic transaction; (i) a description of the methods considered for determining the arm's length price in relation to each international transaction or specified domestic transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case; (j) a record of the actual working carried out for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions; (k) the assumptions, policies and price negotiations, if any, which have critically affected the determination of the arm's length price; (l) details of the adjustments, if any, made to transfer prices to align them with arm's length prices determined under these rules and consequent adjustment made to the total income for tax purposes; Assessment year 2014-15 Page 11 of 17 (m) any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arm's length price. (2) Nothing contained in sub-rule (1), in so far as it relates to an international transaction, shall apply in a case where the aggregate value, as recorded in the books of account, of international transactions entered into by the assessee does not exceed one crore rupees : Provided that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transactions entered into by him has been computed in accordance with section 92. (2A) Nothing contained in sub-rule (1), in so far as it relates to an eligible specified domestic transaction referred to in rule 10THB, shall apply in a case of an eligible assessee mentioned in rule 10THA and— (a) the eligible assessee, referred to in clause (i) of rule 10THA, shall keep and maintain the following information and documents, namely:— (i) a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises; (ii) a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted; (iii) the nature and terms (including prices) of specified domestic transactions entered into with each associated enterprise and the quantum and value of each such transaction or class of such transaction; (iv) a record of proceedings, if any, before the regulatory commission and orders of such commission relating to the specified domestic transaction; (v) a record of the actual working carried out for determining the transfer price of the specified domestic transaction; (vi) the assumptions, policies and price negotiations, if any, which have critically affected the determination of the transfer price; and (vii) any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the transfer price; (b) the eligible assessee, referred to in clause (ii) of rule 10THA, shall keep and maintain the following information and documents, namely:— (i) a description of the ownership structure of the assessee co-operative society with details of shares or other ownership interest held therein by the members; (ii) description of members including their addresses and period of membership; (iii) the nature and terms (including prices) of specified domestic transactions entered into with each member and the quantum and value of each such transaction or class of such transaction; (iv) a record of the actual working carried out for determining the transfer price of the specified domestic transaction; (v) the assumptions, policies and price negotiations, if any, which have critically affected the determination of the transfer price; (vi) the documentation regarding price being routinely declared in transparent manner and being available in public domain; and Assessment year 2014-15 Page 12 of 17 (vii) any other information, data or document which may be relevant for determination of the transfer price. (3) The information specified in sub-rules (1) and (2A) shall be supported by authentic documents, which may include the following : (a) official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country; (b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute; (c) price publications including stock exchange and commodity market quotations; (d) published accounts and financial statements relating to the business affairs of the associated enterprises; (e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions or the specified domestic transactions, as the case may be; (f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise; (g) documents normally issued in connection with various transactions under the accounting practices followed. (4) The information and documents specified under sub-rules (1), (2) and (2A), should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F: Provided that where an international transaction or a specified domestic transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction or the specified domestic transaction, as the case may be, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under sub-rules (1), (2) and (2A) shall be maintained bringing out the impact of the change on the pricing of the international transaction or the specified domestic transaction. (5) The information and documents specified in sub-rules (1), (2) and (2A) shall be kept and maintained for a period of eight years from the end of the relevant assessment year.