2019 (10) TMI 1622 - AT - Income Tax

60-day deadline for furnishing documents under s.92D(3) starts on receipt of notice; s.271G penalty deleted

ITAT upheld the appellate order, holding the 60-day period for furnishing documents under s.92D(3) runs from receipt of the notice issued under s.92D(3). ... Penalty as imposed u/s 271G - failing to furnish documents required under section 92D(3) - period of sixty days should be counted from the date of receipt of notice u/s. 92D(3) or notice u/s. 92CA(2) - HELD THAT:- CIT(A) has calculated the 60 days from the date of notice issued u/s 92D. CIT(A) also noted that if the 60 days are reckoned from the date of issue of notice u/s 92CA of the Act then the provision of section 92D(iii) would become redundant and otious. CIT(A) has relied on a series of decisions as has been reproduced hereinabove in the reproduction of operative part of Ld. CIT(A)’s order considering the provision of the section 92CA(iii), 92D(iii). We are in agreement with the CIT(A) that period of 60 days are to be reckoned from the date of issue of notice u/s 92D(iii) of the Act. No transfer pricing adjustment - On the second issue raised by the AR that there is no transfer pricing adjustment made by the TPO and therefore the levy of penalty @ 2% on total value of international transaction can not be imposed. We observe that CIT(A) has rightly appreciated the fact that the section 271G of the Act has been inserted on the statute book to curb the tax avoidance and therefore when there is no TP adjustment made by the TPO there is no tax evasion and consequently the penalty was rightly deleted on this count also. Reasonable cause - change of consultant as a reasonable cause u/s. 273B of the Act for delay of the submission of details - We are quite convinced with the contentions of the A.R. that even if the period of 60 days is considered from the date of notices issued u/s 92CA(iii) even then the assessee can not be attributed the delay in filing the details beyond 60 days as there existed a reasonable cause for the same which has been comprehensively explained and dealt with by the Ld. CIT(A). We note that there has been a change in the tax consultant of the assessee and change in employees and various other statutory compliances in November, 2015 and the delay has been explained to be beyond the control of the assessee. CIT(A) has rightly appreciated the delay to be on account of reasons which were duly explained and justified by the assessee. Accordingly, we uphold the order of Ld. CIT(A) on this account also. ISSUES PRESENTED AND CONSIDERED 1. Whether the sixty-day period for furnishing information/documents for transfer pricing purposes (relevant to penalty under section 271G) is to be computed from the date of notice issued under section 92CA(2) or from the date of notice issued under section 92D(3). 2. Whether penalty under section 271G can be levied where the Transfer Pricing Officer (TPO) has made no transfer pricing adjustment and the assessee's reported arm's length price has been accepted (i.e., whether absence of TP adjustment negates tax evasion or justifies deletion of penalty). 3. Whether delay in furnishing information/documents called for under transfer pricing notices constitutes a 'reasonable cause' under section 273B sufficient to excuse non-compliance and mandate deletion of penalty under section 271G (with specific facts: change of tax consultant, change of employees, concurrent statutory compliances). ISSUE-WISE DETAILED ANALYSIS Issue 1: Computation of the sixty-day period - whether from section 92CA(2) notice or section 92D(3) notice Legal framework: Section 92CA(1)/(2)/(3) governs reference of matters to the TPO and issuance of notices for basic/general information; section 92D(3) calls for specific information/documents; rule 10D and related rules prescribe documentation maintenance; section 271G and section 92D(3) interplay for penalty for failure to furnish information within prescribed time. Precedent treatment: The Tribunal/CIT(A) relied on multiple authorities interpreting the statutory scheme to require initial notice under section 92CA(2) for basic information and, only if further specifics are required, a subsequent notice under section 92D(3); cited decisions support computation of the 60-day period from notice under section 92D(3). Interpretation and reasoning: The Court reasoned that the legislative scheme envisages a two-stage exercise: (i) notice under section 92CA(2) to obtain general/basic information; (ii) if TPO is not satisfied, a specific requisition under section 92D(3). Counting the sixty days from the earlier section 92CA(2) notice would render section 92D(3) superfluous and frustrate the sequential purpose of the statutory provisions. The statutory safety valve allowing AO/CIT(A) to extend the 30-day period (and further 60 days) aligns with computing the period from the specific 92D(3) requisition. Ratio vs. Obiter: Ratio - period for furnishing the required information for the purpose of penalty under section 271G is to be computed from the date of the notice issued under section 92D(3), not from the earlier section 92CA(2) notice. This holding is essential to the decision. Conclusion: The sixty-day period is to be reckoned from the date of the notice issued under section 92D(3). The TPO/AO's computation from the section 92CA(2) notice was contrary to the statutory scheme and therefore quashed on this point. Issue 2: Applicability of section 271G penalty where no TP adjustment is made by the TPO Legal framework: Section 271G prescribes penalty for failure to furnish information/documents in relation to international transactions as required under section 92D(3); underlying purpose of TP provisions and related penalties (introduced to curb tax avoidance) informs interpretation. Precedent treatment: The appellate authority relied upon judicial pronouncements holding that where there is no transfer pricing adjustment and the assessee's ALP is accepted, imposition of penalty under section 271G may be unjustified because the punitive purpose (curbing tax avoidance/evasion) is not served. Interpretation and reasoning: The Court accepted that section 271G was introduced to curb tax avoidance and that absence of any adjustment by the TPO indicates absence of tax evasion. Given that the TPO made no ALP adjustment after receiving submissions, the punitive rationale for imposing a percentage-based penalty on the value of international transactions is weakened. The Tribunal considered that penal sanction in such factual matrix would be disproportionate and unjustified. Ratio vs. Obiter: Ratio - where the TPO makes no transfer pricing adjustment and the transactions are accepted at the arm's length price determined by the assessee, imposition of penalty under section 271G is not justified. This was a central basis for deletion of penalty. Conclusion: Penalty under section 271G was rightly deleted on the ground that no TP adjustment was made and the assessee's transactions were accepted at ALP; thus, the element of tax evasion/avoidance underlying the penalty was absent. Issue 3: Whether reasonable cause under section 273B excuses delayed compliance with section 92D(3) requisition Legal framework: Section 273B exempts imposition of penalty if failure to furnish information/documents is proved to be due to reasonable cause; rule 10D(4) contemplates carry-forward of documentation where conditions (no significant change in nature/terms/assumptions) are met. Precedent treatment: Authorities relied upon by the Tribunal and CIT(A) recognize that bona fide reasons such as change of tax consultant, change in key personnel, concurrent statutory compliance pressures, and genuine inability to collate complex TP data can constitute reasonable cause for delay. Interpretation and reasoning: The Court examined the factual matrix: change of tax consultants between June-October 2015, new consultants requiring time to inspect records, change in employees/executives, and pressing statutory/compliance obligations in November 2015. Even assuming the limitation period began earlier, the Tribunal found these reasons sufficient to constitute reasonable cause under section 273B. The Court also rejected the reliance on rule 10D(4) by the assessee where material changes (e.g., significant change in interest rates and terms) negated entitlement to rely on earlier documentation - but this rejection did not undermine the reasonable cause finding. The Tribunal balanced the procedural requirement with practical impediments and found the assessee's inability to furnish within the time explainable and non-culpable. Ratio vs. Obiter: Ratio - on the facts, change of consultant and other operational/compliance pressures constituted reasonable cause under section 273B, justifying deletion of penalty under section 271G. This finding is dispositive in relation to the penalty in this appeal. Conclusion: The delay in furnishing TP documents was sufficiently explained by reasonable cause (change of consultants, change in personnel, competing statutory compliance), and therefore penalty under section 271G could be and was deleted on this ground as well. Cross-references and Combined Conclusion Cross-reference: Issues 1-3 are interrelated - correct computation of the limitation period (Issue 1) affects whether default occurred; absence of TP adjustment (Issue 2) speaks to the punitive objective of section 271G; and reasonable cause (Issue 3) provides independent statutory defense against penalty. The Tribunal upheld the appellate findings on all three counts. Final conclusion: The Tribunal upheld deletion of penalty under section 271G by holding (i) the sixty-day period must be counted from notice under section 92D(3), (ii) penalty unjustified where no TP adjustment was made and transactions were accepted at ALP, and (iii) factual circumstances (change of consultant, employee changes and concurrent compliance) constituted reasonable cause under section 273B, warranting deletion of the penalty. The appeal by Revenue was dismissed.