Loading judgment…
Facts
The assessee was levied a penalty of Rs. 1,00,53,395/- under Section 271G for alleged failure to furnish documents/information under Section 92D(3) for international transactions for AY 2015-16. The CIT(A) deleted the penalty, finding that the TPO did not specify deficiencies and violated natural justice by issuing short notices. The Revenue appealed this deletion.
Held
The Tribunal upheld the CIT(A)'s decision to delete the penalty. It noted that the Bombay High Court had quashed and set aside the underlying assessment order under Section 143(3) read with Section 144C(13) for the same assessment year, thereby rendering the penalty proceedings under Section 271G unsustainable.
Key Issues
Whether a penalty under Section 271G for failure to furnish documents/information can be sustained when the underlying assessment order itself has been quashed by the High Court, and if natural justice was violated by the TPO.
Sections Cited
271G, 92D, 92CA, 143(3), 144C(13), 197
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
The appeal filed by the Revenue is directed against the order dated 23.02.2024 of the Ld. Commissioner of Income Tax (Appeals), Pune-13 [“CIT(A)”] whereby he deleted the penalty of Rs.1,00,53,395/- levied by the Ld. Transfer Pricing Officer, Pune-2 (“TPO”) u/s 271G of the Income Tax Act, 1961 (the “Act”) pertaining to Assessment Year (“AY”) 2015-16.
Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacturing components such as Chain Links and Chains which are used in assembling of heavy machinery such as excavators, bull dozers, crawler tractors etc. The administrative office and factory of the assessee is situated in Village Kagal, Dist.-Kolhapur. For AY 2015-16, the assessee furnished its return of income on 30.09.2015 declaring total loss at Rs.11,69,32,126/- along with the Transfer Pricing Audit Report in Form 3CEB, Tax Audit Report in Form 3CACD and Form 29B. For the relevant AY, the assessee declared international transactions /specified domestic transactions (as reported in Form 3CEB) totaling to Rs.50,26,69,753/-. The case was selected for scrutiny. The Ld. Assessing Officer (“AO”) referred the case to the Ld. TPO to determine the arms length price of international transactions /specified domestic transactions entered into by the assessee with its associated enterprises for the relevant AY 2015-16. The Ld. TPO issued notice dated 27.12.2017 asking the assessee to furnish the details requested therein followed by a second notice issued on 01.08.2018, to which the assessee duly responded by appearing before the Ld. TPO and making oral/written submissions thereof. Thereafter, the Ld. TPO issued another letter on 09.10.2018 for initiation of penalty proceedings u/s 271G of the Act which was without penalty notice enclosed therein. The assessee vide its letter dated 12.10.2018 requested the Ld. TPO to fix the hearing on 20.10.2018. In the meantime, the Ld. TPO issued a show cause notice on 15.10.2018 asking the assessee to furnish the details before the 22.10.2018. The assessee vide its letter dated 18.10.2018 requested the Ld. TPO for non-levy of penalty giving its contentions/reasoning for the same and also furnished all the details asked by the Ld. TPO. Further, the assessee filed additional information on 22.10.2018. The Ld. TPO passed penalty order u/s 271G r.w.s. 92D of the Act on 18.10.2018 levying penalty of Rs.1,00,53,395/- (2% of total value of international transactions /specified domestic transactions of Rs.50,26,69,753/-) observing that the assessee failed to furnish documents and information as required under the provisions of section 92D(3) of the Act and failed to show any reasonable cause for such failure.
Aggrieved, the assessee carried the matter before the Ld. CIT(A) who for the reasons stated in para 2.3 to 2.6 of his appellate order deleted the penalty of Rs.1,00,53,395/- levied by the Ld. TPO u/s 271G of the Act. The relevant findings and observations of the Ld. CIT(A) is reproduced below : “2.3 I have carefully considered the facts of the case and submission filed by the appellant. The appeal is against the Penalty order u/s 271G imposed by JCIT (TP)-2, Pune. Initially appellant's case for AY 2015-16 was referred for determination of the arms length price by the concerned AO, Kolhapur to ACIT (TP)-2(2), Pune. The TPO issued notice u/s 92CA(2) r.w.s. 92D(3) on the assessee on 27.12.2017 and asked the appellant to furnish the details before 19.01.2018. The appellant filed a letter with TPO on 19.01.2018 requesting some time to submit the details. Accordingly, the appellant filed the details including the "Transfer pricing study report" vide letter dated 22.02.2018. The then TPO has not pointed out any shortcomings in the Transfer pricing documentation as per rule 10D r.w.s. section 92D. Perusal of Transfer pricing study report shows that the appellant has adopted CUP as most appropriate method for all the transactions with the AEs. Following are the details given by the appellant in its TP study report on page 26 and 39.
Sr. No. Type of Amount Rs. Criteria Transaction 1 Purchase of Raw 98,347,749 Current Market prices Material as per quotations and approved by customs Department while importing the goods. 2 Sale of Financial 161,275,038 Quotations of third Goods parties obtained while determining the prices. 3 Purchase of Capital 2,491,597 Arm’s Length Valuation Asset as accepted by Customs department. 4 Availing of technical 16,745,596 Agreement with AE. service for installation 5 Interest of ECB Loan 148,892,566 Master Circular of Reserve Bank of India on External Commercial Borrowings and Trade Credits. Specified Domestic Transaction 6 Receipt of 1,617,984 As per agreement Professional Fees 7 Purchase of Capital 58,109,906 Quotations of third Asset parties obtained while determining the prices. 8 Salary & 9,577,349 As per Agreement and Commission paid to the extent permissible 5,611,968 under section 197 of the companies Act. Total 5026697530 2.4 Later on the case got assigned to JCIT (TP)-2, Pune on 30.07.2018. Due to change in the incumbency, the new TPO issued a fresh notice of opportunity u/s 92CA(2) on 01.08.2018 posting the hearing on 10.08.20218. There is no record of any other notice by the new TPO identifying the shortcomings in the Transfer-prieing documentation for two months. After two months, the TPO has issued two letters, one letter dtd 09.10.2018 and another notice u/s 271G dtd 09.10.2018. The letter dtd 09.10.2018 in the opening paragraphs has not taken any cognisance of the details filed by the appellant on 22.02.2018. It has stated that proper compliance of notice u/s 92D(3) has not been done. However the TPO has not exactly, pinpointed the deficiencies. It is also seen that the statutory notice dtd 09.10.2018 was not sent to the appellant and it was issued again on 15.10.2018 scheduling the hearing to 18.10.2016. The appellant vide letter dtd 12.10.2018 had sought time till 20.10.2018 to furnish the details it is also noticed that the administrative office and factory of the appellant is situated in Village Kagal, Dist. Kolhapur and the office of the Transfer Pricing Officer is situated in Pune which is far away from the workplace of the appellant. I agree with the appellant's contention that Transfer Pricing Officer hurriedly passed an order u/s 271G on 18/10/2018. The statutory notice was issued only on 15.10.2018 and seeking compliance by 18.10.2018 is a gross violation of principle of natural justice, that too in case of an appellant located outside Pune. Penalty has been imposed within three days of issue of statutory notice and without offering adequate opportunity. It is also seen that the transfer pricing order has been passed on 30.10.2018 and the TPO had adequate time to complete the penalty proceedings.
2.5 The present case is not the case where the documents were not filed at all. Section 271G of the Income-tax Act, 1961, prescribes penalty in case a person fails to furnish information or document required by sub-section (3) of section 92D to the Assessing Officer or the Commissioner (Appeals). Thus, for imposing penalty the Revenue must first mention the document and information, which was required to be furnished but was not furnished by the assessee. However in this case as discussed above, neither the letter dtd 09.10.2018 nor the statutory notice dtd 15.10.2018 has mentioned the exact deficiencies. The deficiencies are known only in the penalty order u/s 271G. The TPO has not asked for specific information/data in a statutory notice u/s 92D(3). The AR has brought my attention to various decisions which have held that there has to be specific requisition u/s 92D(3) for furnishing of information. Only when such requisition is not complied with penalty can be levied u/s 271G. In the Instant case TPO had not issued specific requisition u/s 92D(3) for furnishing of specific particulars, then no question of its remaining uncomplied with arose. Accordingly penalty cannot be imposed u/s 271G. Reliance is placed upon following case laws: 1. CIT-II vs Leroy Somer & Controls(India) (P) Itd (2014) 360 ITR 532( Delhi High Court) 2. ACIT vs Nikko Resources Ltd - ITAT D Bench Ahmedabad (2013) 36 CH 0285 3. P&G Hygiene and Health Care Limited vs DCIT-ITAT Mumbai Bench (2020) 59 CCH 0311. 2.6 Following such judicial precedents, it is held that the TPO has not asked for specific information/oa in a statu.ory notice u/s 92D(3). As specific defeat is not pointed out in the submissions of documents, penalty u/s 271G cannot be levied. The TPO has also not given adequate opportunity for presenting the case to the appellant with the results appeal is allowed.”
The Revenue is aggrieved by the order of the Ld. CIT(A) and is in appeal before the Tribunal by raising the following grounds of appeal :-
1. On facts and circumstances of the case and in law, the Id.CIT(A) erred in deleting the penalty of Rs.1,00,53,395/-levied by AO u/s 271G of the Act.
2. On facts and circumstances of the case and in law the Id.CIT(A) erred in not appreciating the fact that, in the TP study report, the assessee is showing the method as other method for almost all transactions. However, no details of CUP or other method have been submitted during the assessment proceedings before the TPO and even during the penalty proceedings, the assessee had sought some more time. The subsection (3) of section 92D empowers the TPO to call for any information or document in respect of SDT as has been prescribed u/s 92D(1) r.w. rule 10D.
3. On facts and circumstances of the case and in law the Id.CIT(A) erred in not appreciating the fact that, the assessee had not submitted the details of CUP and actual working of ALP. And it had claimed that it had benchmarked the purchase of raw material transaction by obtaining current market prices as per quotations and approved by customs Department while importing the goods. However, no such data was submitted in TP study report or during the proceedings. Further, no quotations of third parties obtained while determining the process etc. has been submitted.
4. On facts and circumstances of the case and in law the Id.CIT(A) erred in not appreciating the fact that, all the data to be maintained as per Rule 10D was supposed to be with the assessee before filing of form 3CEB as the benchmarking of the international transactions/SDTs, methods of benchmarking etc. had to be given in the form 3СЕВ.
5. The appellant craves leave to add, alter, amend and modify any of the above or all grounds raised at the time of proceedings before the Hon'ble Tribunal which may please be granted.”
The Ld. DR strongly supported the order of the Ld. TPO and submitted that the Ld. CIT(A) was completely unjustified in deleting the penalty in the light of the fact that the assessee had failed to submit the required details/data in support of its claim during the assessment as well as penalty proceedings before the Ld. TPO inspite of several opportunities granted by the Ld. TPO.
On the other hand, referring to the findings of the Ld. CIT(A) in para 2.4 to 2.6 of his appellate order (reproduced above) the Ld. AR submitted that the show cause notice was issued by the Ld. TPO on 15.10.2018 seeking compliance by 18.10.2018. The assessee has sought time till 20.10.2018 to furnish the requisite details. However, the Ld. TPO passed the penalty order on 18.10.2018 before the assessee could furnish its reply that was due to be filed on or before 22.10.2018. He, therefore submitted that there was gross violation of natural justice by the Ld. TPO. The Ld. AR further submitted that the assessment order u/s 143(3) r.w.s. 144C(13) of the Act dated 31.10.2019 has been quashed and set aside by the Hon’ble Bombay High Court vide order dated 12.09.2023 in Writ Petition No. 2387 Of 2020 filed by the assessee challenging the validity of the assessment order. Therefore the impugned penalty proceedings and the penalty order u/s 271G of the Act does not survive now.
We have heard the Ld. Representatives of the parties and perused the records. The facts are not in dispute. The Revenue is aggrieved by the findings of the Ld. CIT(A) who in his appellate order observed that in the present case penalty u/s 271G of the Act cannot be levied because the Ld. TPO had not asked for specific information/data in statutory notice u/s 92D(3) and that it is not the case where the documents were not furnished at all by the assessee and that there was a reasonable cause for delay in furnishing the details/documents. On the other hand, the Ld. AR submitted that the assessee furnished all the requisite details/information before the Ld. TPO as and when called for and also furnished additional information on 22.10.2018 but the Ld. TPO proceeded to pass the penalty order on 18.10.2018 without considering its submission. We also observe that the delay in furnishing the requisite details was attributable to a “reasonable cause” as the said details were to be obtained from Kolhapur where the work place of the assessee is located which fact was duly brought to the notice of the Ld. TPO but was brushed away by him.
7.1 Having said the above, the Ld. Counsel for the assessee brought to our notice that the assessee had challenged the validity of the assessment order u/s 143(3) r.w.s. 144(13) of the Act before the Hon’ble Bombay High Court and the Hon’ble Bombay High Court has quashed and set aside the said assessment order. We notice that this fact was brought to the attention of the Ld. CIT(A) by the assessee vide its letter dated 13.07.2023 and 02.09.2023 (page 16 of the paper book) stating as under : “Further, we have to state that the appellant has challenged the validity of the assessment order passed by the learned Assessing Officer by way of Writ filed in the Bombay High Court. A copy of the entire petition is attached herewith. In view of the position that matter of the original assessment order is pending before the Hon'ble Bombay High Court, if the penalty is not dropped on the basis of above submissions, then we request you to kindly keep the appeal against levy of penalty in abeyance till the disposal of appeal by the learned Bombay High Court.”
7.2 Perusal of the Ld. CIT(A)’s order also reveals that the assessee, vide its submissions made before the Ld. CIT(A) during the appellate proceedings in response to the notice issued by him on 06.02.2024 duly stated this fact which is also recorded by the Ld. CIT(A) in para 2.2 of his appellate order, inter alia, as under : “Further, we have to state that the appellant has challenged the validity of the assessment order passed by the learned Assessing Officer by way of Writ filed in the Bombay High Court. As per order passed by Bombay High Court on 12 Sep. 2023 a direction passed by DRP on 16/09/2019 and consequent Assessment Order dated 31/10/2019 are quash & set aside. A copy of the High Court order is attached herewith. An opportunity of personal hearing may kindly be given to represent the case. Based on the above facts and legal position, your honor is requested to cancel the penalty and declare the order as bad in law.”
We have perused the order of the Hon’ble Bombay High Court in the case of Undercarriage and Tractor Parts (P.) Ltd. Vs. Dispute Resolution Panel in Writ Petition No. 2387 Of 2020 dated 12.09.2023 reported in (2023) 156 taxmann.com 79 (Bombay) wherein the assessee challenged the validity of the assessment order passed u/s 143(3) r.w.s. 144C(13) of the Act dated 31.10.2019 and the Hon’ble Bombay High Court quashed and set aside the directions issued by the Ld. DRP on 16.09.2019 and consequent assessment order dated 31.10.2019. However, the Ld. CIT(A) has failed to take cognizance of the said decision of the Hon’ble Bombay High Court while allowing the penalty appeal of the assessee. Before us, the Revenue has not brought on record any decision of the Higher Forum against the said decision of the Hon’ble Bombay High Court (supra).
For the reasons set out above and on the facts and in the circumstances of the case and in the light of the decision of the Hon’ble Bombay High Court (supra), in our considered view, the impugned penalty is not exigible. Consequently, we reject the appeal of the Revenue being devoid of any merits and substance.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 07th January, 2025.