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Facts
The assessee, M/s. Limagrain India Pvt. Ltd., filed its return declaring a loss for AY 2017-18 and entered into international transactions. Following transfer pricing adjustments and subsequent DRP directions, the AO levied a penalty of Rs. 1,96,56,215/- under Section 271G for alleged failure to furnish documentation, which the CIT(A) partly restricted to 2% of the actual adjustment amount. The assessee appealed the penalty order to the Tribunal.
Held
The Tribunal observed that the quantum issue of transfer pricing adjustment, which forms the basis of the penalty, was already remanded to the AO/TPO in the assessee's own case. Since there is a fundamental factual dispute regarding the furnishing of documentation, the penalty proceedings under Section 271G cannot be finalized. The Tribunal set aside the CIT(A)'s order and remanded the penalty matter to the AO/TPO for fresh adjudication, considering additional evidence and the final outcome of the quantum proceedings.
Key Issues
Whether penalty under Section 271G for alleged failure to furnish transfer pricing documentation can be sustained when the underlying quantum adjustment itself has been remanded for reconsideration. Whether the assessee complied with documentation requirements under Section 92D read with Rule 10D.
Sections Cited
271G, 139(1), 143(3), 144C(13), 144B, 92D, Rule 10D, Rule 29
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. Limagrain India Pvt. Ltd. (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-10, Hyderabad (“Ld. CIT(A)”), dated 26.02.2025 for the A.Y. 2017-18.
2. The assessee has raised the following grounds of appeal :
“1. By Sustaining penalty of Rs. 14,84,433/- under Section 271G of the Income-tax Act, 1961.
By not independently evaluating the merits of the penalty order, and instead placing undue reliance on the findings in the TPO and DRP orders.
Levying penalty without establishing that the assessee failed to furnish information/documentation as required under Section 92D of the Act read with Rule 10D and without demonstrating any wilful default or contumacious conduct. Therefore, the impugned penalty order and CIT(A) order ought to be quashed. The grounds of appeal
are independent of, and without prejudice to one another: The Appellant craves leave to add, amend, alter, or withdraw any ground of appeal stated here-in-above, either before or at the time of hearing of this appeal.”
3. The brief facts of the case are that, the assessee is a company engaged in the business of research, production, and sale of hybrid seeds of various field crops. For the assessment year 2017–18, the assessee filed its return of income under section 139(1) of the Income Tax Act, 1961 (“the Act”) on 30.11.2017, declaring a loss of Rs.37,90,21,971/-. During the year under consideration, the assessee entered into international transactions aggregating to Rs.98,28,10,757/- under 22 different service categories. Based on the transfer pricing proceedings, the learned Transfer Pricing Officer (“Ld. TPO”) proposed an adjustment of Rs.7,77,89,935/- in respect of 5 service categories. Post directions issued by the Dispute Resolution Panel (“Ld. DRP”) dated 30.12.2021, the final adjustment was restricted to Rs.7,36,56,010/- in respect of 4 services, and the assessment was completed by Ld. AO on 19.01.2022 under section 143(3) r.w.s. 144C(13) and 144B of the Act, determining the assessed loss at Rs.30,53,65,961/-.
4. Subsequently, the Ld. AO initiated penalty proceedings and levied penalty of Rs.1,96,56,215/- under section 271G of the Act, being 2% of the entire value of international transactions of Rs.98,28,10,757/- vide its order dated 17.03.2022.
5. Aggrieved with the penalty order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) partly allowed the appeal, holding that penalty under section 271G should be levied only in respect of the international transactions that were actually subjected to transfer pricing adjustment. Accordingly, the penalty was restricted to 2% of the final adjustment made by the Ld. AO.
Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal. The Learned Authorised Representative (“Ld. AR”) submitted that the only ground of appeal of the assessee is against the levy of penalty under section 271G of the Act. It was contended that the assessee had furnished all relevant documentation as required under section 92D of the Act r.w. Rule 10D of the Income Tax Rules, 1962 (“the Rules”) and in response to the notices issued by the Ld. TPO. The Ld. AR submitted that no specific deficiency or failure was pointed out by the Ld. TPO with respect to the documentation submitted. The Ld. AR invited our attention to pages 32 to 41 of the Ld. CIT(A)’s order, where detailed submissions made by the assessee have been reproduced, including the responses to the Ld. TPO’s questionnaire and documentary compliance. It was submitted that without pointing out any specific non-compliance, the penalty was mechanically levied by Ld. AO/TPO.
7. In the alternative, the Ld. AR submitted that the quantum issue in respect of the transfer pricing adjustment for the year under consideration had already been remanded to the file of the Ld. AO/TPO by the coordinate Bench of the Tribunal in assessee’s own case vide dated 19.01.2024. Accordingly, it was contended that the penalty proceedings under section 271G should also be remanded, as the penalty is intrinsically linked to the quantum outcome.
8. Per contra, the Learned Departmental Representative (“Ld. DR”) relied on the order of the Ld. AO and Ld. CIT(A) and submitted that both authorities had categorically recorded that the assessee failed to produce the requisite documentation under section 92D of the Act read with Rule 10D of the Rules. Attention was drawn to page no.63 of the Ld. CIT(A)’s order and para no. 5 of the penalty order of Ld. AO, where such failure is specifically noted. The Ld. DR submitted that in absence of satisfactory explanation or evidence from the assessee, there was no error in levying penalty under section 271G of the Act and no further relief was warranted. However, with regard to the alternate argument of the assessee regarding remanding the issue to the file of Ld. AO /TPO, the Ld. DR did not make any objection.
9. We have considered the rival submissions and perused the material on record. It is noted that the penalty under section 271G of the Act has been levied at the rate of 2% on the entire value of international transactions of Rs.98,28,10,757/-, even though the Ld.
TPO proposed adjustments only on 5 service lines, which were later restricted by the Ld. DRP to 4 services aggregating to Rs.7,36,56,010/-. However, the Ld. CIT(A) restricted the penalty to only that part of the transactions which were subject to adjustment. Further, we have gone through the para no.11 of the order of the Tribunal in assessee’s own case for AY 2017–18 in dated 19.01.2024, which is to the following effect :
“ 11. We have peacefully heard the learned representatives at length, considered their rival submissions and perused the orders of lower authorities. After a careful consideration, we find that the TPO has determined ALP of impugned transactions at Rs. Nil and the same is accepted by DRP and AO. The foundational reason of taking a decision to determine ALP at Rs. Nil as culled out from order of TPO is such that the TPO was not even satisfied that the assessee had actually received services for which payments were made. The TPO has strongly noted that in absence of proof of receiving services, it is not possible to carry out benchmarking exercise and determine ALP. Ld. AR for assessee also acknowledges that there was a short period of just 5 days allowed by TPO and moreover that period was a difficult time of Covid due to which the assessee could not file all documents. The assessee has also filed additional evidences in terms of Rule 29 as noted above. Further, the assessee has also reported in first para of the application filed under Rule 29 that the evidences now filed are critical and robust to substantiate the assessee’s stand. Ld. DR has also submitted that he has no objection if the evidences are considered at appropriate level. During hearing, with the assistance of Ld. AR for assessee we have seen that the evidences are substantial. Looking into the circumstances preventing the assessee from filing these evidences before TPO coupled with the fact that the present appeal before us is the first appeal against assessment-order passed by AO, we are persuaded to admit these evidences. However, these evidences go to the root of the matter and require an in depth examination and analysis at lower level. Further, if the lower authorities, based on evidences, take a view that the assessee had actually received services, there would be further necessity to determine the amount of ALP. Therefore, in the situation, we feel it most appropriate to refer this matter back to the file of AO/TPO who shall re-fix the case and give necessary opportunities to assessee to make all submissions including these additional evidences. Needless to mention that the assessee shall be free to make all submissions as think fit apart from these additional evidences to substantiate its stand. Thus, these grounds are remanded to AO/TPO.”
On perusal of above, we found that, the Tribunal has remanded the quantum issue to the file of the Ld. AO/TPO for reconsideration after taking into account the additional evidence furnished before the Tribunal. In such circumstances, when the foundation of the penalty i.e. the transfer pricing adjustment, is itself under reconsideration, we are of the view that the penalty proceedings under section 271G of the Act cannot attain finality at this stage.
Further, we also observe that the assessee has consistently argued that all relevant documentation was furnished before the Ld. TPO, whereas the revenue authorities have asserted that the same was not done. Thus, there exists a fundamental factual dispute that can be resolved only upon reconsideration of the evidentiary record in light of the quantum remand.
In view of the foregoing, we set aside the impugned order of the Ld. CIT(A) and restore the matter back to the file of the Ld. AO/TPO with direction to re-adjudicate the penalty under section 271G of the Act afresh, after considering the additional evidences submitted by the assessee before the Tribunal in the quantum proceedings, the documentation already furnished by the assessee during the course of proceedings before the Ld. TPO and the final outcome of the quantum proceedings.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 8th August, 2025.