2019 (11) TMI 1136 - AT - Income Tax

Tribunal quashes penalty order under Income-tax Act for jurisdictional error

The Tribunal quashed the penalty order imposed under Section 271G of the Income-tax Act due to jurisdictional error, as the default occurred before the ... Levy a penalty u/s 271G - default of non-submission of documents within stipulated period as required under section 92D(3) prior to the amendment in section 271G of the Act by Finance (No.2) Act, 2014 effective from October 1, 2014 - HELD THAT:- Penalty u/s 271G is leviable for omission or commission of the wrongful act in accordance with the law applicable on the date of such commission or omission. So, we are of the considered view that on the date of non-compliance of the notice as required under section 92D (3) i.e. October 23, 2013, only AO was having the power to levy the penalty u/s 271G and not the TPO. So, the penalty levied by the TPO vide order dated 27.04.2015 and confirmed by the CIT (A) by passing the impugned order is not sustainable in the eyes of law. Even on merits, the penalty levied by the ld. TPO and sustained by the ld. CIT (A), is not sustainable because undisputedly assessee has submitted documents on the basis of which ld. TPO has proposed the adjustment and no prejudice whatsoever is caused to the Revenue. Hon’ble Apex Court in the case of Hindustan Steel Ltd. vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] held that, “when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed the statue, the competent authority may not impose the penalty.” Though there is a delay on the part of the assessee to file the requisite documents but ultimately documents have been filed and assessment has been framed and moreover no malafide on the part of the assessee not to comply with the provisions contained under section 92D (3) has come on record and as such, penalty levied in this case is not sustainable on merits also. Penalty levied by the TPO and confirmed by the CIT (A) is not sustainable on account of jurisdictional error, hence penalty order is quashed - Decided in favour of assessee. Issues Involved:1. Confirmation of penalty under Section 271G of the Income-tax Act.2. Consideration of reasonable cause for non-compliance under Section 273B.3. Submission of requisite documents and technical default.4. Limitation period under Section 275.5. Jurisdiction and applicability of amendments in Finance Act 2014 regarding Section 271G.Issue-wise Detailed Analysis:1. Confirmation of Penalty under Section 271G:The taxpayer challenged the penalty of INR 17,347,910 imposed by the Additional Commissioner of Income-tax, Transfer Pricing Officer (TPO), for non-compliance with Section 92D(3) of the Act. The penalty was affirmed by the Commissioner of Income-tax (Appeals) [CIT(A)], and the taxpayer sought to set aside this order.2. Consideration of Reasonable Cause for Non-compliance under Section 273B:The taxpayer argued that the CIT(A) disregarded the reasonable cause for failure to comply with Section 92D(3) and did not appreciate the provisions of Section 273B, which provides for non-imposition of penalty if there is a reasonable cause.3. Submission of Requisite Documents and Technical Default:The taxpayer contended that it had duly submitted the required documents and information to support the arm's length pricing (ALP) of international transactions before the completion of the Transfer Pricing assessment. Therefore, any default was merely technical, and no penalty should be levied under Section 271G.4. Limitation Period under Section 275:The taxpayer argued that the CIT(A) erred in disregarding the limitation period provided under Section 275 for orders covered by Chapter XXI of the Act. The taxpayer also contended that the issuance of a show-cause notice for initiating proceedings under Section 271G does not imply the initiation of such proceedings.5. Jurisdiction and Applicability of Amendments in Finance Act 2014:The taxpayer argued that the TPO's power to pass orders under Section 271G was provided by the Finance Act 2014, effective from October 1, 2014, and would not apply to failures to comply with Section 92D(3) before this amendment. The taxpayer relied on the Delhi High Court's decision in Ericsson India Private Ltd. vs. Addl. CIT, which held that the TPO was not empowered to levy penalties for defaults occurring before the amendment.Tribunal's Findings:The Tribunal noted that the TPO initiated penalty proceedings for non-compliance with a notice issued on September 16, 2013, and the taxpayer eventually submitted the required documents on September 10, 2014. The penalty order was passed on April 27, 2015, for a default committed before the amendment in Section 271G by the Finance Act 2014, effective from October 1, 2014.The Tribunal referred to the Delhi High Court's decision in Ericsson India Pvt. Ltd., which held that the TPO was not empowered to levy penalties for defaults occurring before the amendment. The Tribunal concluded that the penalty order was without jurisdiction because the default occurred before the TPO was granted the power to levy penalties under Section 271G.Conclusion:The Tribunal quashed the penalty order on the grounds of jurisdictional error and allowed the taxpayer's appeal. The Tribunal also noted that the taxpayer had ultimately submitted the required documents, and no malafide intent was established. Therefore, the penalty was not sustainable on merits as well. The order was pronounced in open court on November 18, 2019.