2011 (11) TMI 82 - AT - Income Tax

Tribunal cancels penalty under Section 271AA for non-compliance with Section 92D. Assessee upheld documentation obligations.

Assistant Commissioner of Income-tax, Range 8(3), Mumbai Versus Smith & Newphew Healthcare (P.) Ltd.

The Tribunal upheld the CIT(A)'s decision to delete the penalty imposed on the Assessee under Section 271AA for non-compliance with Section 92D provisions ... Penalty u/s. 271AA for non-compliance of provision of sec. 92D - Rule 10D - Maintenance, keeping of information and document by persons entering into an international transaction - Held that:- As rightly held by the CIT(A), the requirement of law is that the Assessee has to 'keep and maintain' information and documents in respect of international transaction entered into with AE. Rule 10D(4) of the Rules envisages that the information and documents specified under sub-rules (1) and (2) should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F, which is due date for filing return of income u/s.139(1) of the Act. The Assessment order and the order imposing penalty u/s.271AA of the Act, does not specify what was the failure on the part of the Assessee under Sec.92D read with Rule 10D of the Rules. The Assessee has in the course of assessment proceedings furnished all details required by the AO and the international transaction with the AE has been accepted to be one confirming to the Arm's Length Price. - there is no justification for imposition of penalty. - Decided in favor of assessee. Issues Involved:1. Deletion of penalty levied under Section 271AA for non-compliance with the provisions of Section 92D/92D(3) of the Income Tax Act, 1961.Detailed Analysis:1. Deletion of Penalty Levied under Section 271AA for Non-Compliance with Provisions of Section 92D/92D(3):The Revenue appealed against the order of CIT(A) which deleted the penalty of Rs. 13,57,720/- imposed on the Assessee under Section 271AA for non-compliance with the provisions of Section 92D. Section 271AA stipulates penalties for failure to keep and maintain information and documents in respect of international transactions. Specifically, it mandates that any person failing to maintain such information and documents as required by Section 92D shall pay a penalty of 2% of the value of each international transaction.The Assessee, a company involved in the manufacturing and distribution of non-pharmaceutical healthcare products, entered into international transactions with its Associate Enterprises (AE) during the relevant assessment year. Despite this, the Assessee did not file the required report in Form No.3CEB as mandated by Section 92E and was penalized under Section 271BA. During the assessment proceedings, the Assessee submitted a Transfer Pricing Report and other requested documentation regarding its international transactions.The Assessing Officer (AO) accepted the international transactions as being at Arm's Length Price without making any adjustments. However, the AO noted that the Assessee had not maintained the necessary information and documents as required by Section 92D and initiated penalty proceedings under Section 271AA.In response to the show cause notice for penalty, the Assessee argued that it had maintained all required documentation as per Rule 10D and produced them during the assessment proceedings. The AO, however, imposed the penalty, stating that the Assessee failed to maintain the prescribed information and documents.Upon appeal, the CIT(A) found that the Assessee had indeed maintained and provided all required documentation during the assessment. The CIT(A) noted that the AO had not specified what information or documents were missing and had accepted the Arm's Length Price of the transactions without any additions. Therefore, the CIT(A) concluded that the penalty was imposed without any substantial basis and cancelled it.The Revenue's appeal to the Tribunal was based on the AO's findings, while the Assessee's counsel supported the CIT(A)'s decision. After considering the arguments, the Tribunal upheld the CIT(A)'s order, emphasizing that the requirement under the law was to 'keep and maintain' the information and documents, which the Assessee had done. The Tribunal noted that the AO had not identified any specific failures and had accepted the Arm's Length Price of the transactions, indicating no hindrance in examining the correctness of the prices. Thus, the Tribunal found no justification for the penalty and dismissed the Revenue's appeal.Conclusion:The Tribunal confirmed the CIT(A)'s order, finding that the Assessee had complied with the requirement to maintain and provide necessary documentation, and dismissed the appeal by the Revenue.