2025 (2) TMI 1514 - AT - Income Tax

Transfer pricing documentation: penalty not sustainable where AO failed to specify the missing documents and TPO recorded compliance.

Whether penalty for failure to maintain transfer pricing documents can be sustained where the AO did not identify which Rule 10D categories were missing: ... Penalty u/s. 271AA - non-maintaining documents as specified in section 92D r.w.r. 10D - CIT(A) deleted penalty levy - categories of documents and information to be maintained under Section 92D and Rule 10D - HELD THAT:- Documents to be kept and maintained in respect of international transactions fall into thirteen different categories as mentioned in Rule 10D. When the AO is initiating penalty proceeding u/s. 271AA of the Act for non- maintenance of documents and information, he is duty bond to point out as to which particular document(s) as specified in Rule 10D was not maintained by the assessee. The specific default of the assessee in non-maintenance of document/information has not been brought on record by the AO in the assessment order. A copy of the penalty notices issued by the AO has been brought on record by the assessee in the paper book filed. It is found therefrom that the specific default of non-maintenance of any particular document/information was also not mentioned in the penalty notices dated 31.03.2022 and dated 30.08.2022 issued by the AO. In the penalty order u/s.271AA of the Act dated 22.09.2022 as well, no specific default is found mentioned. The issue of international transactions is normally examined by the TPO and it will be relevant to examine whether any default in respect of maintenance of information/documents was noticed by him. AO had referred the matter to the TPO to examine the international transactions and to find out whether these transactions were undertaken at ALP. TPO had proposed adjustments in respect of receipt of services and corporate guarantee provided by the AE but no adjustment in these respect was recommended in the hands of the assessee as this would have resulted in reducing the income of the assessee. As no default was noticed by the TPO regarding non-maintenance of any documents/information under section 92D read with Rule 10D of the IT Rules and neither the TPO had recommended for initiation of any penalty proceeding u/s. 271AA of the Act. Order of the AO imposing penalty u/s. 271AA of the Act for non-maintenance of the information/documents prescribed u/s. 92D Rule 10D was not justified. As decided in CIT vs Leroy Somer & Controls India (P) Ltd [2013 (9) TMI 761 - DELHI HIGH COURT] had held that before levying penalty u/s. 271AA of the Act, the Revenue must first mention the documents or information which was required to be maintained, but not maintained or not furnished by the assessee and then proceed with penalty proceedings. As AO did not point out any specific default in maintenance of information/documents in respect of international transactions made by the assessee. On the other hand, the TPO had given a clean chit to the assessee in his report by stating that the assessee had furnished the details as called for. Thus, we do not find any infirmity in the order of the CIT(A) deleting the penalty levied u/s. 271A - Decided in favour of assessee. Issues: (i) Whether the penalty under Section 271AA of the Income Tax Act, 1961 for non-maintenance of documents prescribed by Section 92D read with Rule 10D of the Income-tax Rules, 1962 could be sustained where the Assessing Officer did not specify which particular documents were not maintained and the Transfer Pricing Officer had recorded that the assessee furnished the required details.Analysis: The penalty provision penalises failure to keep and maintain specified information and documents; Rule 10D enumerates thirteen categories of documents. The AO initiated penalty proceedings without identifying any specific clause(s) of Rule 10D that were not complied with, merely recording a general failure to maintain documents. The TPO, after issuing notices and receiving submissions, recorded that the assessee furnished the required details and found the principal international transaction (sale of vessels) to be at arm's length; no default in maintenance of documents was noted by the TPO and no recommendation for penalty was made. Jurisprudence of coordinate benches and relevant High Court authority require the Revenue to point out the particular documents or information missing before imposing penalty under provisions analogous to Section 271AA; where AO fails to specify the documents not maintained, penalty cannot be sustained. Applying these principles to the facts, the AO's order and penalty notices were non-specific and the TPO's findings negated any asserted default.Conclusion: The penalty under Section 271AA of the Income Tax Act, 1961 is not sustainable and the deletion of penalty by the Commissioner of Income-Tax (Appeals) is upheld; decision in favour of the assessee.