2025 (10) TMI 659 - AT - Income Tax

Penalty under section 271G deleted where assessing officer failed to identify specific missing Rule 10D documents

ITAT held that penalty under s.271G cannot be upheld where the assessing officer failed to identify which specific Rule 10D document(s) were not ... Penalty proceeding u/s 271G - non-furnishing of information and documents as required u/s 92D(3) but for not benchmarking the international as well as specified domestic transactions as per the provisions of the Act - HELD THAT:- Documents to be kept and maintained in respect of international transactions or specified domestic transactions fall into thirteen different categories as mentioned in Rule 10D. When the AO is initiating penalty proceeding u/s. 271G 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 TPO in the penalty order. Rather the penalty was imposed in the present case for not benchmarking the international as well as specified domestic transactions as per the provisions of the Act, which is not permissible under the provisions of section 271G of the Act. Therefore, no infirmity in the order of the ld. CIT(A) deleting the penalty levied u/s 271G of the Act. Appeal of the Revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 271G can be levied where the Assessing Officer/Transfer Pricing Officer (TPO) does not specify which information or documents required under Section 92D(3) were not furnished by the taxpayer. 2. Whether initiation/levy of penalty under Section 271G is permissible for alleged incorrect or unacceptable benchmarking (choice or application of transfer pricing method) as opposed to non-furnishing/non-maintenance of documents specified under Rule 10D. 3. Whether partial or untimely compliance with a notice under Section 92D(3) (including alleged short notice period) affects the validity of penalty under Section 271G. 4. Treatment of precedents relied upon concerning the requirement of specification of missing documents before imposing penalty under Section 271G and their applicability to the facts. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Necessity of specifying missing information/documents for imposition of penalty under Section 271G Legal framework: Section 271G penalizes failure by a person who has entered into international or specified domestic transactions to furnish any information or documents as required under Section 92D(3). Rule 10D prescribes categories of information and documents to be kept and maintained under Section 92D. Precedent treatment: The Tribunal relied on authority holding that before levying penalty under Section 271G the revenue must explicitly identify the documents or information that were required to be maintained or furnished but were not. That line of authority interprets Section 271G in conjunction with the scope of Rule 10D and Section 92D(3) to require a specific pleading of default. Interpretation and reasoning: The Court reasoned that Section 271G is penal in nature and operative only on failure to furnish specific information/documents. Given Rule 10D enumerates multiple and diverse categories, a general allegation of non-compliance is insufficient. The AO/TPO must first bring on record which particular categories or items specified in Rule 10D were not maintained or furnished within the statutory framework and time. In the present case the penalty order did not identify any specific item under Rule 10D that remained unfurnished; indeed the TPO acknowledged submissions and acceptance of the TP study report for most transactions. Ratio vs. Obiter: Ratio - Penalty under Section 271G cannot be sustained unless the revenue points to specific information/documents (as contemplated by Rule 10D) that were not furnished by the assessee in response to a valid requisition under Section 92D(3). Obiter - observations on the volume/variable nature of documentation under Rule 10D and practical considerations relating to collation of third-party data. Conclusion: The penalty was unsustainable because the TPO failed to identify the specific Rule 10D documents/information that were not furnished; therefore the statutory precondition for Section 271G was not established. Issue 2 - Whether penalty under Section 271G can be imposed for disputed benchmarking or non-acceptance of submitted documentation Legal framework: Section 271G is triggered by failure to furnish information/documents required under Section 92D(3). The statutory scheme distinguishes between non-furnishing/non-maintenance and disagreements over the acceptability or correctness of furnished material for transfer pricing adjustment. Precedent treatment: The Tribunal relied on case law where penalties were deleted where the material was furnished but subsequently disputed by the AO/TPO; penalties under Section 271G are not a mechanism to penalize taxpayers for the content or acceptability of submitted documents where the primary non-furnishing allegation is absent. Interpretation and reasoning: The TPO's show cause and penalty order focused on alleged inappropriate benchmarking (e.g., use of CUP with related party comparables) rather than identifying missing documents. The Court emphasized that penal action under Section 271G cannot substitute for merits disputes in transfer pricing methodology. If documents were furnished (even if their correctness or the method applied is contested), that does not constitute the statutory failure contemplated by Section 271G. The Tribunal reviewed the record showing transaction-wise listings, invoices and TP study were provided and that higher forums (DRP) accepted the CUP method in at least one instance with only a quantification tweak; consequently the penalty could not be sustained on the basis of non-bench-marking alone. Ratio vs. Obiter: Ratio - Disagreement over benchmarking or the TPO's rejection of submitted materials does not by itself warrant penalty under Section 271G; the prosecution of penalty requires demonstration of specific non-furnishing/non-maintenance as per Section 92D(3)/Rule 10D. Obiter - remarks on the appropriateness of methods adopted and the TPO/DRP adjustments where relevant to the assessment but not to the validity of penalty. Conclusion: Penalty based on asserted improper benchmarking (rather than non-furnishing) was misplaced and unsustainable. Issue 3 - Effect of alleged defect in notice period under Section 92D(3) and timeliness of compliance Legal framework: Section 92D(3) empowers the AO/Commissioner to require furnishing of documents within a specified time; compliance within the prescribed statutory time is a relevant consideration in penalty proceedings under Section 271G. Precedent treatment: Authorities were relied upon where penalties were deleted where the notice period did not comply with statutory minima or where substantial compliance was shown. Interpretation and reasoning: The Tribunal noted the assessee's contention that the compliance period in the notice was less than 30 days as required by law and that jurisprudence has set aside penalties on that ground in comparable circumstances. Independently the record showed that the assessee made submissions in response to notices and that the TPO itself acknowledged receipt of the TP study and supporting documents. Given acknowledgement of submissions and acceptance of the TP study for most transactions, the element of non-compliance or fatal procedural defect required to sustain a penalty was absent. Ratio vs. Obiter: Ratio - Where the notice under Section 92D(3) is procedurally defective (e.g., inadequate compliance period) or where substantial compliance is shown, penalty under Section 271G is not sustainable. Obiter - comment that each factual matrix must be tested on record for prejudice or actual failure to furnish. Conclusion: The combination of asserted defect in the notice and demonstrable compliance militates against imposition of penalty; the Tribunal upheld the CIT(A)'s finding that compliance was sufficient and/or notice invalid insofar as penal consequences were concerned. Issue 4 - Applicability of cited precedents and the scope of Rule 10D Legal framework: Rule 10D lists specific documentary/record categories to be maintained under Section 92D; jurisprudence has required that penalties under Section 271G refer to defaults in respect of these specific categories. Precedent treatment: The Tribunal treated earlier decisions (including those deleting penalties where no specific default was identified) as squarely applicable and noted the TPO had not attempted to distinguish them. Interpretation and reasoning: The Tribunal examined Rule 10D's enumerated categories and held that, because they are broad and many, a general allegation of non-maintenance/furnishing cannot support a penalty. The Tribunal applied precedents requiring identification of the specific missing category/item and found the TPO's penalty order deficient on this threshold requirement. The Court further observed the TPO accepted the TP study for most transactions, indicating general compliance. Ratio vs. Obiter: Ratio - Precedents requiring specificity of identified missing documents under Rule 10D are applicable and binding for the purpose of sustaining Section 271G penalties; failure to follow that approach renders the penalty order invalid. Obiter - observations on the practical burdens of maintaining third-party data and the rationale for a reasoned, particularized approach to penalty imposition. Conclusion: The precedents relied upon by the taxpayer were applicable and applicable principles were not distinguished by the TPO; consequently the penalty could not be sustained. Overall Conclusion The Court upheld the appellate authority's deletion of penalty under Section 271G: penalty was unsustainable because (a) the TPO failed to specify which Rule 10D documents/information were not furnished, (b) the penalty was premised on contested benchmarking decisions rather than on non-furnishing/non-maintenance of documents, and (c) the record demonstrated submissions and substantial compliance with Section 92D(3) requisitions. The appeal by the revenue was dismissed.