Penalty u/s 271G vis a vis Non-maintenance of documents for specified domestic transaction of purchase and sale to associated enterprises

 

Recently, ITAT has given an important ruling with regard to the penalty u/s 271G vis a vis Non-maintenance of documents for specified domestic transaction of purchase and sale to associated enterprises.

The case detail is as under:

ITAT MUMBAI-ITO WARD 4 (1) (3) MUMBAI VERSUS AURA SPINWELL LIMITED.,No ITA No. 997/Mum/2024
Dated July 22, 2024

Let us have a short overview of the case:

The reference was made to the learned Transfer Pricing Officer, to examine the Arm’s Length Price of domestic transactions amounting to ₹ 216 crores. The transfer pricing officer , the ACIT TP 1(1)(1), Mumbai passed an order under Section 92CA(3) of the Act making an adjustment of ₹ 4,26,12,834/-. The draft order under Section 144C of the Act was passed on 19th December 2019, making the above adjustment in addition to the total income. The assessee filed an objection before the learned Dispute Resolution Panel-1, Mumbai. The directions were issued on 23rd March, 2021, where certain directions were given to learned Assessing Officer / Transfer Pricing Officer. Based on the above directions, the adjustments were revised to ₹ 4,16,58,367/-. The assessment order was passed under Section 143(3) read with section 144C (13) of the Act on 24th April, 2021, determining the total income of the assessee at ₹ 4,26,97,870

During the course of TP assessment, the learned transfer pricing officer asked the assessee on 22nd November, 2018, to furnish the transfer study report and annual accounts of the assessee. Further notice under Section 92D(3) was issued on 19th March, 2019. The assessee did not comply with the same. Accordingly, notice under Section 271G of the Act was issued which was replied by the assessee on 8th February, 2021. After considering the reply of the assessee, the learned Transfer Pricing Officer passed the penalty order under Section 271G of the Act on 1st March, 2021, levying penalty of ₹ 4,32,65,819/- being 2% of the value of transaction of SDT of ₹ 216,32,90,959/-.

The co-ordinate Bench in ITA No. 1147/Mum/2021, dated 27th September, 2022, following the decision of the Hon’ble Karnataka High Court in PCIT Vs. Texport Overseas (P.) Ltd. [2020] 114 taxmann.com 568 has held that transfer pricing provisions do not apply to the case of the assessee for the impugned assessment year in view of the omission of the above clause by the Finance Act, 2017, with effect from 1st April, 2017, having the resultant effect that such provisions never existed. As there is no requirement of or applicability of transfer pricing provisions to the specified domestic transactions of the assessee covered u/s 92BA (i) of the act , consequently there cannot be any requirement of maintenance of the document. Therefore, the assessee cannot be penalized under Section 271G of the Act. Accordingly, the learned CIT (A) has correctly deleted the penalty levied under Section 271G of the Act.
However, it may be right that mere deletion of adjustment of transfer pricing cannot automatically result in deletion of penalty for non-maintenance of documents, but in this case, there is no requirement of maintenance of such documents.

 

The Copy order is as under:

1721644691-Jul 9 2024 ITA No. 997 Mum 2024 Aura Spinwell Limited_SD