Penalty under section 271G quashed as section 92D(3) notice invalid and reasonable cause under section 273B proved

ITAT held that penalty under section 271G could not be sustained. The notice purportedly under section 92D(3) was vitiated for requisitioning information beyond the scope of section 92D(1)/Rule 10D, and no valid non-compliance with a lawful 92D(3) notice was established. Further, under section 273B the assessee demonstrated reasonable cause for delay-absence/transition of a CFO-which the tribunal accepted on facts, so the penalty was quashed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether penalty under section 271G can be imposed for non-compliance with a notice purportedly issued under section 92D(3) when that notice does not afford the mandatory minimum 30 days for compliance.

2. Whether a notice under section 92D(3) is vitiated when it requisitions documents and information beyond those prescribed under section 92D(1) read with Rule 10D (including unprescribed items such as audited financial statements, returns and agreements) and thereby converts the requisition into one properly under section 92CA(2)/(3).

3. Whether the assessee had a "reasonable cause" within the meaning of section 273B for delay in furnishing documents called under section 92D(3), such that penalty under section 271G should not be levied.

4. Whether imposition of penalty under section 271G is linked to acceptance/rejection of Transfer Pricing Study Report or to the making of ALP adjustments by the TPO, or whether section 271G operates independently of such adjustments.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of notice under section 92D(3): mandatory 30-day period

Legal framework: Section 92D(3) requires furnishing of prescribed information within 30 days of a notice, with a discretionary extension of further 30 days on application; a valid notice must therefore permit at least 30 days for compliance.

Precedent treatment: Coordinate-bench decisions (e.g., Cargill India) distinguish notices under section 92D(3) from notices under section 92CA(2)/(3) and emphasize that section 92D(3) cannot be used to call for unprescribed information; validity requires clarity and compliance with statutory time limits.

Interpretation and reasoning: The Tribunal held that a notice requiring compliance by 24.02.2017 when issued on 13.02.2017 gave less than the statutorily mandated 30 days and therefore was contrary to the scheme of section 92D(3). A notice that shortens the statutory period cannot serve as a valid trigger for penalty under section 271G. The Tribunal treated the time requirement as a condition precedent to the power to impose penalty.

Ratio vs. Obiter: Ratio - A notice under section 92D(3) that does not afford the minimum statutory time (30 days) is vitiated and cannot be the basis for penalty under section 271G. (This is core to the disposal.)

Conclusion: The impugned notice was invalid for not providing the mandatory period; consequently, penalty predicated on non-compliance with that notice could not be sustained.

Issue 2 - Scope of documents that can be called under section 92D(3) and distinction from section 92CA(2)/(3)

Legal framework: Section 92D(3) can require prescribed information as per section 92D(1) and Rule 10D; section 92CA(2) concerns production of "any evidence" relied upon for ALP computation; section 92CA(3) permits broader requisitions.

Precedent treatment: Earlier decisions criticize omnibus notices calling for both prescribed and unprescribed information under the garb of section 92D(3), holding that such notices lack application of mind and are invalid for the purpose of invoking section 271G.

Interpretation and reasoning: The Tribunal found the notice at issue requisitioned (i) audited financial statements, Form 3CEB/3CD, returns and computation, and (ii) all agreements with AEs-items not confined to Rule 10D. On the basis of precedent and statutory text, requisitioning unprescribed items under section 92D(3) renders the notice impermissible for penalty purposes; such matters should be sought under appropriate provisions (e.g., section 92CA(2)/(3)).

Ratio vs. Obiter: Ratio - A notice under section 92D(3) is vitiated if it seeks information beyond what section 92D(1)/Rule 10D prescribes; such conflation with section 92CA provisions undermines validity for invoking section 271G.

Conclusion: The notice was defective for calling extraneous/unprescribed documents; that defect independently negated the foundation for penalty under section 271G.

Issue 3 - Reasonable cause under section 273B for delayed furnishing of documents

Legal framework: Section 273B precludes imposition of penalty for failures under specified sections (including section 271G) if the person proves reasonable cause for the failure; the standard is fact-specific. Penalty proceedings are quasi-criminal; courts consider whether conduct was deliberate, contumacious or dishonest.

Precedent treatment: Supreme Court and Tribunal decisions require objective, fact-based assessment of explanations; reasonable cause need not meet ideal administrative standards but must be plausible in real-life context.

Interpretation and reasoning: The Tribunal accepted the assessee's explanation that transitional absence/change of the CFO caused delay; it observed that (i) in a large organization appointing and integrating a CFO can reasonably impede timely collation of detailed TPS documentation; (ii) balance of probabilities favored the assessee's explanation; and (iii) rejection based on idealized expectations was inappropriate in a quasi-criminal penalty inquiry. Even if other officers could have mechanically copied documents, human and organizational realities made the explanation acceptable as reasonable cause.

Ratio vs. Obiter: Ratio - Where factual circumstances (such as transitional change of key financial personnel) credibly explain delay and no dishonesty or contumacious conduct is established, such explanation may amount to reasonable cause under section 273B, barring penalty under section 271G.

Conclusion: On merits the assessee established reasonable cause; even independent of notice defects, this justified deletion of penalty under section 271G.

Issue 4 - Independence of section 271G from ALP adjustments or acceptance of Transfer Pricing Study Report

Legal framework: Section 271G penalizes failure to furnish information/document as required by section 92D(3); the provision's text makes no acceptance of TPSR or ALP adjustment a precondition to levy of penalty.

Precedent treatment: The Tribunal and TPO noted that penalty under section 271G is procedural and distinct from penalties for mis-pricing (e.g., section 271(1)(c)); the provisions operate independently.

Interpretation and reasoning: The Tribunal observed that the statutory language of section 271G links penalty to non-furnishing under section 92D(3) alone and is not conditioned upon the TPO's acceptance or adjustment of ALP. Thus absence of ALP adjustment is not a bar to invoking section 271G; conversely, acceptance of TPSR is not a defense to a penalty founded on failure to comply with a lawful requisition. However, since the impugned notice was invalid and reasonable cause existed, penalty could not be sustained in this case.

Ratio vs. Obiter: Ratio - Section 271G is independent of ALP adjustments; liability under 271G depends on valid notice under 92D(3) and failure without reasonable cause. (Application of this principle is central though in this case penalty was deleted on other grounds.)

Conclusion: The Tribunal clarified the legal independence of section 271G from ALP outcomes, but held penalty unsustainable here for reasons of invalid notice and reasonable cause.

Overall Conclusion

The Tribunal concluded that (i) the sole notice under section 92D(3) was vitiated for failing to give the statutory minimum time and for seeking unprescribed documents, (ii) the assessee furnished part compliance and sought extension and gave a plausible explanation (change of CFO) amounting to reasonable cause, and (iii) consequently, imposition of penalty under section 271G was unlawful and the penalty was deleted.

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