Transfer pricing documentation penalty not leviable where no associated enterprise relationship existed and no adjustment was made.

Penalty under section 271G was considered unsustainable where the foreign entity was found not to be an associated enterprise within section 92A. On that factual finding, the transaction did not constitute an international transaction, so the obligation to maintain transfer pricing documentation under section 92D(3) and Rule 10D did not arise. The absence of any transfer pricing adjustment by the TPO further supported that penalty was not exigible. The deletion of penalty was therefore upheld in favour of the assessee.

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Issues: Whether penalty under section 271G was sustainable where the assessee and the foreign entity were held not to be associated enterprises and no transfer pricing adjustment was made.

Analysis: The assessee had furnished the relevant shareholding details of both entities, and on appreciation of the facts the foreign entity was found not to be an associated enterprise within the meaning of section 92A. In the absence of an associated enterprise, the impugned transaction did not qualify as an international transaction, and the obligation to maintain the prescribed transfer pricing documentation under section 92D(3) and Rule 10D did not arise. The Tribunal also noted that no adjustment had been made by the TPO in respect of the reported transaction, which reinforced that penalty under section 271G was not exigible.

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

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