TaxTMI 
TaxTMI 
2012 (4) TMI 114
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.... Facts, in brief, as per relevant orders are that return declaring loss of Rs. 36,03,300/- filed on 27.10.2005 by the assessee, providing telecommunication network services within India for Global contracts entered by the Indian customers with EGN BV, the parent company formed and registered under the laws of the Netherlands, besides providing international bandwidth and international telecommunication facilities, after being processed u/s 143 (1) of the Income-tax Act, 1961 (hereafter referred to as the Act) was selected for scrutiny with the service of notice u/s 143(2) of the Act, issued on 30th October, 2006.Subsequently, the assessee submitted a revised computation, revealing loss of Rs. 7,23,56,799/- During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee had entered in to international transactions with its A.E. Since the value of such transactions exceeded Rs. 15 crores, the AO made a reference to transfer pricing officer [TPO] for determining arms length price [ALP] of the international transactions. Though the TPO did not suggest any adjustment in his order dated 16th September, 2008, he suggested initiation of penalty ....
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....271AA of the Act, 1961 leviable in this case is Rs. 22,58,827/-. Therefore, penalty of Rs. 22,58,827/- is hereby imposed." 3. Similarly, the AO imposed a penalty of Rs. 22,58,827/- u/s 271G of the Act, holding as under:- "The submission of the assessee has been considered and found to be unacceptable and rejected as the assessee fails to keep and maintain information and document in respect of international transaction as required by sub-section (1) or sub section (3) of Section 92D of the I.T. Act, 1961 during the course of assessment of 'international transactions' before the TPO. Therefore, it is clear that it is a deliberate default of the assessee. Further, the case laws relied upon by the assessee company is distinguishable from the facts of the present case. Therefore, I am convinced that the assessee had committed default for imposition of penalty u/s 271G of the Act for failure to keep and maintain information and document in respect of international transaction. Hence, penalty u/s 271G of the Act, 1961 leviable in this case is Rs. 22,58,827/-. Therefore, penalty of Rs. 22,58,827/- is hereby imposed." 4. On appeal, the led CIT(A) after having comments of the TP....
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....of the above, levy of penalty u/s 271G is not justified. The AO is directed to delete the penalty." 5. Likewise, the ld. CIT(A) cancelled the penalty levied u/s 271G of the Act in the following terms:- "5. The appellant had submitted chronology of events before the TPO. On 16 different occasions the appellant either presented the case before the TPO or submitted details as asked for. As can be clearly seen from the submission of the appellant, documents maintained by the company was furnished to the TPO. Even the remand report has not denied these facts. The TPO was satisfied with the documentation and that is why no adjustment was made to the international transaction. Nowhere it is proved that appellant did not maintain the documents as required u/s 92D of the IT Act. 5.1. Failure of the appellant was in getting his books audited in time and file report in form no. 3CEB. The appellant has stated that many key employees of the company entrusted with the responsibility of looking after company's finance/accounts left the company without proper handing over and also certain records were misplaced for certain accounts. However, documentation u/r IOD does not require an audit....
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....margins of the comparable companies. The margins and financials of the tested party were not submitted with this TP report. * On 01/02/2008, Authorized Representative submitted before the TPO that financials of the company had not yet been finalized. The Authorized Representative was asked to explain as to how the ALP could be computed in absence of complete financials for the year under consideration. It is reiterated here that the requisite TP documentation should have existed latest by the due date of filing return, i.e 31/10/2005, but the same was not ready even after lapse of nearly two years and three months. * On 20/02/2008, Authorized Representative submitted before the TPO that the Auditors Report in Form No. 3CEB is not yet finalized . * The TPO issued a show cause to assessee on 20/02/2008, as to why penalty should not be imposed under Section 271AA, 271G and 271BA of the Income Tax Act. * The Auditors Report in Form No. 3CEB along with other details/documents requisitioned by the TPO was filed by the assessee on 04/03/2008. It is reiterated here that the complete documents requisitio....
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....n levied for delay in furnishing the report in Form No. 3CEB, the explanation offered for the delay is not at all relevant for the case. (3) The TP documentation was required to have existed by 31/10/2005 but the same was not ready even by February 2008. Thus, the delay in finalizing the TP documentation is nearly 2 years & 3 months. By no stretch of imagination, the explanation offered for delay in finalization of accounts, can be treated as a reasonable cause, having regard to facts and circumstances of the case." 7. On the other hand, the ld. AR on behalf of the assessee supported the findings of learned CIT(A) while relying upon decision dated 09.11.2011 of the Mumbai Bench in the case of ACIT v. Smith and Nephew Health Care Pvt. Ltd. in I.T.A. No.5779/Mum/2007 for the assessment year 2003-04 . It was further submitted that the assessee complied with the requirement of maintaining "contemporaneous documentation" in the form of TP study before the due date, i.e. October 31, 2005 and also furnished the documentation/ information as required by the TPO well within the stipulated time. Since there was a reasonable cause for delay in filing of Form 3CEB and which had no ....
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....B in the audit report or u/s 92D(3) or u/s 92CA(2) (e) a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction; (e) - same - (f) a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions entered into by the assessee; (f) - same - (g) a record of uncontrolled transactions taken into account for analyzing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions; (g) - same - (h) a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction; (h) - same - (i) a description of the methods considered for determining the arm's length price in....
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....ts and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions; (f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise; (g) documents normally issued in connection with various transactions under the accounting practices followed. (4) The information and documents specified under sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F: Provided that where an international transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under sub-rules (1) and (2) shall be maintained bringing out the impact of the change on the pricing of the in....
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....t. Sec. 271AA stipulates penalty for failure to keep and maintain information and document in respect of international transaction while sec. 271G provides for penalty for failure to furnish information or document under section 92D of the Act. However, sec. 273B of the Act provides that penalty under these provisions shall not be imposable if the assessee establishes reasonable cause. 8.2 In the instant case, we are concerned with levy of penalty u/s 271AA for failure to keep and maintain information and documents as stipulated under sec. 92D(1) & 92D(2) of the Act without any reasonable cause & u/s 271G of the Act for failure to furnish information/documents required by sub-section (3) of Section 92D, which stipulates that the said provision can be applied in the following circumstances: (i) in the course of the proceedings under the Act before the Assessing Officer or the Commissioner (Appeals). (ii) Any documents or information prescribed under sub-section (1) & subsection (2) as may be required. (iii) required to be furnished under sub-section (3) within 30 days (as extended by another 30 days) from the receipt of notice issued in this regar....
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....er, there is no restriction of furnishing prescribed information in response to a notice u/s 92CA(2) of the Act to support the computation of ALP by the assessee. However, there is no authority u/s 92D(3) with the T.P.O. to require the assessee to furnish non-specified information or such information or document already filed by the assessee or use of the provision, without asking the assessee to support first its ALP of International transactions. In nutshell, application of mind to ascertain and consideration of material on record and to see what further information on specific points is required, is essential before issuing notice u/s 92D(3) of the Act to the assessee. It is not a routine notice, which can be casually issued calling for any information or all prescribed information. Where the assessee has "option" to select relevant information, it is not a notice u/s 92D(3) as "option" and word "require" do not go together. In this connection we find that the assessee submitted the following reply before the AO in respect of maintenance and furnishing of prescribed information : Nature of Information/Documents prescribed under Rule 10D(1) Nature of International Transacti....
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....ole and for each division or product separately, which may have a bearing on the international transactions entered into by the assessee. Since, the appellant is just one of the participants of the profit split method applied to the group globally, such financial estimates/budgets etc. (if any) at the group/global level are prepared/ maintained by the overseas group companies. The audited financial statements of the appellant were submitted to the Ld. TPO. (g) Record of uncontrolled transactions taken into account for analysing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions. The appellant has provided record of uncontrolled transactions with respect to routine administrative/support activities undertaken by GOIPL in India as a part of its Economic Analysis on page 35 and Appendix C of the TP Report for FY 2004-05. (h) Record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction. Further, ....
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....ement of determining the arm's length price for such activities in India. (k) The assumptions, policies and price negotiations, if any, which have critically affected the determination of the ALP. The detailed methodology of arriving at the arm's length price of international transactions for the appellant is discussed and provided in the transfer pricing report. The TP Report is a summary of the prescribed information and any details required thereof would be timely provided by the appellant. (l) Details of the adjustments, if any, made to transfer prices to align them with ALPs determined under these rules and consequent adjustment made to the total income for tax purposes Not relevant as the transfer prices in the instant case are determined/ fixed based on the arm's length price of such transactions applying the profit split method. (m) Any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the ALP. The TP Report provided to the Ld. TPO is a summary of the prescribed information and any other details required were provided by the appellant, as and when desired by ....