Substantial compliance and reasonable cause defeated section 271G penalty for missing transfer pricing segmental details.

Penalty under section 271G was held unsustainable where the assessee had substantially complied with transfer pricing documentation requirements and the shortfall in furnishing separate segmental accounts and profitability details was due to practical difficulty. The Tribunal accepted that the assessee had supplied particulars to the extent possible, and that the nature of the diamond trade and the business profile showed absolute compliance with the specific requisitions was not practicable. On that basis, reasonable cause under section 273B protected the assessee, and deletion of the penalty was upheld.

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Issues: Whether penalty under section 271G of the Income-tax Act, 1961 was justified for non-furnishing of transfer pricing details and segmental profitability information, or whether the assessee had shown substantial compliance and reasonable cause within the scope of section 273B.

Analysis: The dispute arose from the assessee's inability to furnish separate segmental accounts for AE and non-AE transactions, though it had supplied details to the extent practically possible in the course of transfer pricing proceedings. The Tribunal followed its decision in the assessee's own case for the earlier assessment year and noted that the business profile, profit levels, and nature of the diamond trade showed that absolute compliance with the specific documentary demand was not practically possible. On that basis, the Tribunal accepted that the assessee had substantially complied with the requisitions and that the failure was supported by reasonable cause, attracting the protection of section 273B.

Conclusion: The penalty under section 271G was not sustainable and the deletion of the penalty was upheld in favour of the assessee.

Ratio Decidendi: Where the assessee substantially complies with transfer pricing documentation requirements and the shortfall is explained by practical difficulty amounting to reasonable cause, penalty under section 271G cannot be sustained in view of section 273B.

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