Transfer pricing documentation penalty under section 271G fails where arm's length price is accepted and reasonable cause is shown.

Penalty under section 271G for alleged non-furnishing of transfer pricing documentation was held unsustainable where the assessee had produced study material and available segmental details, and the TPO accepted the arm's length price without adjustment. The Tribunal accepted that exact segment-wise cost allocation in the diamond trade involved practical difficulty and that any shortfall was covered by reasonable cause under section 273B. It further held that section 271G cannot be invoked mechanically merely because more documentation is desired. Penalty deletion by the CIT(A) was upheld.

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Issues: Whether penalty under section 271G of the Income-tax Act, 1961 was sustainable for alleged failure to furnish transfer pricing documentation under section 92D read with Rule 10D, when the transfer pricing officer accepted the arm's length price without making any adjustment and the assessee claimed reasonable cause under section 273B.

Analysis: The appeals arose from penalty orders passed for alleged non-furnishing of certain transfer pricing documents and segmental details. The record showed that the assessee had furnished transfer pricing study material, segmental information to the extent available, and other supporting details, while the transfer pricing officer accepted the benchmarking result and did not disturb the arm's length price. The deficiency complained of was essentially the absence of precise segment-wise profitability for AE and non-AE transactions in the diamond trade. The Tribunal followed the earlier decision in the assessee's own case on identical facts and accepted that the nature of the business involved practical difficulty in maintaining exact transaction-wise cost allocation. The Tribunal also held that the shortfall, if any, was covered by reasonable cause and that section 271G could not be invoked mechanically merely because the officer desired more documentation. The reliance on Shatrunjay Diamonds was held to be inapposite because that decision concerned section 40A(2)(b), not penalty under section 271G.

Conclusion: Penalty under section 271G was not leviable and the deletion of penalty by the CIT(A) was upheld.

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