Section 271G penalty fails where segmental details were not specifically called for and reasonable cause was shown under section 273B.

Penalty under section 271G could not be sustained where the transfer pricing notices did not specifically require segmental AE and non-AE details, so the alleged default was not clearly established. In any event, the Tribunal accepted that in diamond manufacturing, preparing segment-wise profit and loss accounts and tracing lot-wise transactions was practically difficult, and that substantial compliance and these practical constraints constituted reasonable cause under section 273B. The penalty was therefore deleted and the Revenue's challenge failed.

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Issues: (i) Whether penalty under section 271G of the Income-tax Act, 1961 could be sustained when the transfer pricing officer had not specifically called for the segmental details of AE and non-AE transactions; (ii) Whether, in the facts of the diamond manufacturing trade, non-furnishing of such segmental details was covered by reasonable cause so as to attract section 273B of the Income-tax Act, 1961.

Issue (i): Whether penalty under section 271G of the Income-tax Act, 1961 could be sustained when the transfer pricing officer had not specifically called for the segmental details of AE and non-AE transactions.

Analysis: The notices issued during the transfer pricing proceedings did not specifically require the assessee to furnish segmental details of AE and non-AE transactions. The only comparable reference was a later call for details of diamond purchases and sales with AE and non-AE parties, but the penalty order did not identify any clear default based on a specific requisition for segmental accounts. In the absence of a specific call for such information, the alleged failure could not be firmly fastened on the assessee.

Conclusion: The penalty could not be sustained on this ground and the finding was in favour of the assessee.

Issue (ii): Whether, in the facts of the diamond manufacturing trade, non-furnishing of such segmental details was covered by reasonable cause so as to attract section 273B of the Income-tax Act, 1961.

Analysis: The nature of the diamond industry made preparation of segment-wise profit and loss accounts and tracing of lot-wise transactions practically difficult. The Tribunal followed earlier co-ordinate bench reasoning approved by the jurisdictional High Court and held that such practical difficulties constituted reasonable cause. The assessee had substantially complied to the extent possible, and the failure, if any, was protected by section 273B.

Conclusion: The assessee had shown reasonable cause and the penalty was not exigible.

Final Conclusion: The deletion of the penalty was upheld and the revenue's challenge failed.

Ratio Decidendi: Penalty under section 271G cannot be sustained where the information was not specifically called for in clear terms and, in any event, the assessee establishes reasonable cause for non-furnishing of segmental details under section 273B.

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