Tribunal overturns penalty under Income Tax Act citing Transfer Pricing Officer's acceptance. Precedents support deletion.

The Tribunal allowed the appeal, setting aside the penalty imposed under section 271G of the Income Tax Act. The Tribunal held that once the Transfer Pricing Officer accepted the Arm's Length Price under the Transactional Net Margin Method, the penalty for failure to furnish documentation was unjustified. The Tribunal directed the deletion of the penalty, citing precedents where penalties were deleted under similar circumstances. The order was pronounced in open court on 12.03.2021.

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Issues Involved:
1. Confirmation of penalty under section 271G of the Income Tax Act.
2. Failure to furnish required documentation for determining Arm's Length Price (ALP).
3. Non-furnishing of audited segmental accounts of AE (Associated Enterprises) and non-AE transactions.
4. Non-furnishing of relevant details for benchmarking under Comparable Uncontrolled Price (CUP) method.
5. Non-furnishing of information or documents under Rule 10D(1) and 10D(3).

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271G:
The primary issue raised by the assessee was against the confirmation of a penalty amounting to Rs. 1,25,62,633/- by the Commissioner of Income Tax (Appeals) [CIT(A)], which was initially levied by the Assessing Officer (AO) under section 271G of the Income Tax Act. The penalty was imposed due to the assessee's failure to furnish the required documentation for determining the Arm's Length Price (ALP) of international transactions.

2. Failure to Furnish Required Documentation for Determining ALP:
The Transfer Pricing Officer (TPO) initiated penalty proceedings under section 271G for the assessee's failure to provide the necessary documentation. The TPO held that the assessee's failure to furnish the required documents prevented the Revenue from determining the ALP. Despite the TPO's acceptance of the ALP as per the assessee's version, the penalty was levied due to the lack of documentation.

3. Non-furnishing of Audited Segmental Accounts of AE and Non-AE Transactions:
The CIT(A) upheld the penalty, noting that the assessee did not furnish audited segmental accounts for AE and non-AE transactions. The CIT(A) stated that the purpose of segmental results is to determine the profit or loss from transactions with AEs and non-AEs separately. The assessee's contention that it did not have sales transactions with AEs and thus was not required to maintain segmental accounts was deemed misconstrued by the CIT(A).

4. Non-furnishing of Relevant Details for Benchmarking under CUP Method:
The CIT(A) noted that the assessee used the Transactional Net Margin Method (TNMM) at the entity level to benchmark transactions, which was found to be inappropriate. The CIT(A) held that the assessee failed to furnish satisfactory details for the application of TNMM and violated Rule 10B(1)(e). The TPO concluded that the assessee deliberately applied TNMM to prevent benchmarking under the CUP method by not furnishing relevant details.

5. Non-furnishing of Information or Documents under Rule 10D(1) and 10D(3):
The CIT(A) observed that the assessee failed to furnish information under Rule 10D(1) and supporting documentation under Rule 10D(3). The assessee's argument that the failure to comply with specific clauses of Rule 10D(1) was due to industry practices and peculiarities was rejected. The CIT(A) concluded that the assessee violated documentation requirements under Rule 10D(1) and Rule 10D(3), thus justifying the penalty.

Conclusion:
The Tribunal found merit in the assessee's argument that once the TPO accepted the benchmarking of international transactions under TNMM as being at Arm's Length, the imposition of penalty under section 271G was not justified. The Tribunal noted that the TPO could have independently determined the ALP using any prescribed method if the benchmarking was not satisfactory. The Tribunal cited several decisions where penalties under similar circumstances were deleted. Consequently, the Tribunal set aside the order of the CIT(A) and directed the TPO to delete the penalty.

Order:
The appeal filed by the assessee was allowed, and the penalty under section 271G was ordered to be deleted. The Tribunal pronounced the order in the open court on 12.03.2021.

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