TaxTMI 
TaxTMI 
2022 (8) TMI 1596
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.... material facts are as follows. The assessee before us is a public company engaged in the business of generation of power, and operation and maintenance of the power plants, as also other allied activities. During the course of its assessment proceedings, the Assessing Officer made a reference under section 92CA(1), for determination of the arm's length price of the international transactions and specified domestic transaction entered into by the assessee with its associated enterprises (AEs), to the Deputy Commissioner of Income Tax, Transfer Pricing 2(3)(1), Mumbai (hereinafter referred to as the Transfer Pricing Officer'). Based on the determination of the arm's length price of the determination of arm's length price by the DCIT, arm's length price adjustments were made in respect of interest received on loans given to the AEs, amounting to Rs 11,88,79,423, in respect of interest on overdue receivable from AEs, amounting to Rs 3,05,278, and in respect of power conversion charges, amounting to Rs 52,95,000, were made by the Assessing Officer. The matter, however, did not rest there. The Transfer Pricing Officer also noted that there was a lapse on the part of the assessee inasmuc....
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.... adjournment on 4th January 2017. As noted by the TPO, the adjournment was declined, and, even till 13th February 2017, the assessee did not furnish the requisitioned information. On 13th February 2017, the TPO, for the first time issued a notice under section 92D(3), which was partly complied with. The relevant observations in the penalty order are as follows: 6.3 Further, the TPO issued notice u/s 92D(3) of Act on 13.02.2017 requesting the assessee to submit the above-mentioned information/documents as was called for by the notice issued u/s 92CA(2) dated 22.12.2016. In response to the same, vide letter dated 24.02.2017, the assessee filed the Copy of form no 3CEB, financials of the assessee for AY 2014-15, order of CIT(A) for A.Y. 2011-12 but did not submit the Transfer pricing study report and other documents prescribed under Rule 10D(1) of Income Tax Rules 1962, in respect of the transactions entered into by the assessee with its AEs. 4. As for the balance information, the assessee prayed for, vide letter dated 24th February 2017, "to grant us (i.e. the assessee) an adjournment". However, no adjournment was granted by the Transfer Pricing Officer. As evident from t....
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....at there was a Chief Financial Officer present in the Company when notice u/s 92D(3) was issued and he/she could have complied with the notice. Without prejudice to the above, it needs to be noted that the TPS and other documents/information as per Rule 10D(1) are supposed to be with the assessee while filing Form 3CEB (in this case on or before 30th Nov. 2014) and those can be furnished before the TPO within 30 days, just by copying one set, which does not require any application of mind and can be submitted without a CFO also, However, in this case, the assessee did not furnish a single document/information required to be maintained under sub Rule (a) to (m) of Rule 10D(1) within 30 days. c) Further the assessee contented that TP Study (for specified domestic transactions) was already submitted vide letter dated 7th July 2017. In this regard it is pertinent to mention that this filing of TPS of Specified domestic transactions by the assessee was not within the time of 30 days after receipt of notice under section 92D(3) as prescribed under section 92D(3). d) The, assessee relied upon Annapurna Business Solutions vs Assistant Commissioner of Income-tax, Circle 6(....
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....ould not be made u/s 271G of the Act. Without prejudice to the above, it is not requirement of law to state in the TP order that the penalty proceedings under section 271G should be initiated separately. Penalty proceedings under section 271G can be initiated even before passing the order u/s. 92CA(3) if there is failure on part of the assessee to furnish any such information or document as required by sub-section (3) of section 92D of the Act. h) The contention of the assessee that TPO accepted Transfer Pricing Report of the assessee is not acceptable. In this regard it is stated that on a plain reading of provisions of Sec 271G of the Act, it may be seen that there is no mention or linkage to the adjustment made by the TPO/ALP determined by the TO or acceptance of Transfer Pricing Study Report as one of the basis for levy of Penalty under this Section. Section 271G has to be seen independently of the final adjustment made by the TPO in the ALP of the transactions with AE. It is important to mention that in case an ALP adjustment was made in the case of the assessee then the penalty provisions us. 271(1) (c) would have been separately considered by the Assessing Officer, ....
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....ultinational enterprises comply with the requirements of the new sections, it is also proposed to amend section 271 and insert new sections 271AA, 271BA and 271G in the Income-tax Act, so as to provide for the penalty to be levied in cases of non-compliance with the procedural requirements and in cases of understatement of profits through fraud or willful negligence. It is clear from the above that the intention of the legislature for levying penalty u/s 271G is for non-compliance with the procedural requirements. In this case, also as stated above, the assessee has failed to furnish, without reasonable cause, the documents/information as required by section 92D within the stipulated time and this is nothing but non-compliance to statutory notices with procedural requirements. 8.7 Therefore, in view of the above facts and circumstances of the case, I am of the considered opinion that the assessee has, without any reasonable cause, failed to furnish the information/document as required under section 92D(3), within the specified time limit of 30 days as stated in section 92D(3) of Act in respect to the International transactions and specified domestic transactions e....
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....ving eligible specified domestic transaction referred to in Rule 10THB. (iii) Copies of all agreements entered into by your with your Associated Enterprises till date. 3. The aforesaid documents may please submitted on or before 24.02.2017. Sd/- Dy. Commissioner of Income-Tax Transfer Pricing-2(3)(1) Mumbai. The above notice was to be complied with within 30 days under section 92D(3) and further on an application, it can be extended by 30 days in accordance with the proviso to said section. 6. In the instant case there is no doubt that the notice is not complied with. Thus initiation is correct and assessee has been establish reasonable cause within meaning under section 273B of Income Tax Act 1961. 7. The objections of the appellant are: A. Over all, within the proceedings, the company acted in good faith and all details were provided to Transfer Pricing Officer (Para 12 of written submission) B. At the specific point of time of default company was in process of appointing new CFO which is words of appellant " resulted in some inordinate transitional delays - including delay in appointment of the authorized....
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....he Company when notice u/s. 92D(3) was issued and h/she could have complied with the notice. Without prejudice to the above, it needs to be noted that the TPSR and other documents/information as per Rule 10D(1) are supposed to be with the assessee while filing Form 32EB (in this case on or before 30th Nov, 2014) and those can be furnished before the TPO within 30 days, just by copying one set, which does not require any application of mind and can be submitted without a CFO also. However, in this case, the assessee did not furnish a single document/information required to be maintained under sub Rule (a) to (m) of Rule 10D(1) within 30 days. 10. The first question is whether the default has taken place. There is no doubt that item 2 of the notice under section dated 13.02.2017 did describe "Documentation as prescribed in Rule 10D(1) for Rule 10D(2A) is a case of assessue lining eligible specified domestic transaction referred to in Rule 10THB]". There is no lack of clarity in the same. Moreover law does not prescribe form in which information required under section 92D(3) is to be furnished. 11. Next comes the compliance part. A statutory notice is to be complied.....
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....lus two supporting documents were called for. The allegation of non-application of mind is rejected. 17. Considering all aspects I hold that the penalty imposed by Transfer Pricing Officer is justified. Accordingly, the grounds 1 to 5 are dismissed. 6. The assessee is not satisfied and is in further appeal before us. 7. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 8. Let us begin by reproducing the relevant statutory provisions, namely Sections 92D and Section 271G of the Income Tax Act, 1961 and rule 10D of the Income Tax Rules, 1962, as these provisions stood at the material point of time: Maintenance and keeping of information and document by persons entering into an international transaction or specified domestic transaction 92D. (1) Every person who has entered into an international transaction or specified domestic transaction shall keep and maintain such information and document in respect thereof, as may be prescribed. (2) Without prejudice to the provisions contained in sub-section (1), the Board may prescribe the peri....
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....th each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction; (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 or the specified domestic transaction; (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 or the specified domestic transactions entered into by the assessee; (g) a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions or the specified domestic 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 or specified domestic transactions, as the case may be]; (h) a ....
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....e following information and documents, namely:- (i) a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises; (ii) a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted; (iii) the nature and terms (including prices) of specified domestic transactions entered into with each associated enterprise and the quantum and value of each such transaction or class of such transaction; (iv) a record of proceedings, if any, before the regulatory commission and orders of such commission relating to the specified domestic transaction; (v) a record of the actual working carried out for determining the transfer price of the specified domestic transaction; (vi) the assumptions, policies and price negotiations, if any, which have critically affected the determination of the transfer price; and (vii) any other information, data or document, including information or data relating to the associated enterprise, whic....
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....ocuments specified under sub-rules (1), (2) and (2A), 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 or a specified domestic 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 or the specified domestic transaction, as the case may be, 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), (2) and (2A) shall be maintained bringing out the impact of the change on the pricing of the international transaction or the specified domestic transaction. (5) The information and documents specified in sub-rules (1), (2) and (2A) shall be kept and maintained for a period of eight years from the end of the relevant assessment year. 9. As a plain reading of the above statutory provisions show, condition ....
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....ay rely in support of the computation made by him of the arm's length price". The second important point of distinction is, and that is material in the present context, that while non-compliance with a notice under section 92D(3) may result in being visited with a penalty under section 271G, no such consequence is visualized, under section 271G, for non-compliance with the notices under section 92CA(2). The third important point of distinction is that while a valid notice under section 92D(3) must at least allow 30 days of time to the assessee for furnishing of the requisitioned information, no such time restrictions are visualized for notices under section 92CA(2). Accordingly, the time permitted for compliance to notice under section 92CA(2) is to be tested on the ground of 'reasonableness' alone. As we deal with these aspects of the matter, and particularly from the point of view of first and second points of distinction, we may usefully refer to the observations made by a coordinate bench of this Tribunal, in the case of Cargill India Pvt Ltd Vs DCIT [(2008) 110 ITD 616 (Del)], as follows: 27...........If in the notice non-prescribed information is also called for, it ....
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....d be obtained from Assessing Officer was required or needed is not clear from the notice or other material available on record. The notice was issued in a casual manner. The TPO had not examined records of the tax payer nor nature or details of International transactions. There was total lack of application of mind as to what information was required in this case. It was a omnibus notice without any regard of unwarranted heavy burden it was likely to place on the taxpayer not authorized under section 92D(3). It was an unintelligible notice where all the information and documents maintained under rule 10D of Income-tax Rules were required in addition to the information referred to above. 31. The second notice issued on similar lines on 13-10-2005 asking for submission of documents by 7-11-2005 did not improve the situation. A third notice dated 8-11-2005 was again issued quoting provision of section 92D and calling upon the assessee to file information and documents latest by 21-11-2005. The said notice also had all infirmities noted in the first notice. 32. In the light of what we have discussed above relating to the requirement of valid notice under section 92D(3....
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....th the notice dated 13th February 2017, but then, in the light of the above discussions, this notice was vitiated in law. A valid notice under section 92D(3) being served upon the assessee is a condition precedent for imposition of penalty for non-compliance with such a notice. As a matter of fact, learned CIT(A) has, as noted earlier in this order, himself observed that "The Transfer Pricing Officer issued notice with direction to assessee to comply by 24.02.2017, short of the statutory 30 day period" and that should be reason enough to hold the notice as illegal. However, learned CIT(A) goes on to add that "Nothing happened after receipt of notice, no time extension sought within 30 days and no suo motu compliance made ever within 60 days"; this is factually incorrect. After service of notice, the part-compliance was made, and the assessee specifically requested for extension of time, vide letter dated 24th February 2017- a copy of which is placed before us in the paper-book, and there is nothing on record even to suggest that this prayer was disposed of. As for the question of suo-motu compliance, that is irrelevant for the purpose of penalty under section 271G. It is so because....
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....t that "The aforesaid notice was a notice under section 92CA(2) but the TPO by asking further information made it a notice under section 92CA(3). Only under above sub-section TPO can call for information like balance sheet, P&L account, and audit report, which already stood filed and which are un-prescribed. Such unspecific information could not be required under section 92D(3)", such a course of action was impermissible under section 92D(3). The notice under section 92D(3) was vitiated in law for this reason also. The third reason why the plea of the assessee deserves to be upheld is this. The proceedings under section 271G are subject to the provisions of Section 273 B, which categorically stated that "notwithstanding anything contained in the provisions of" inter alia section 271G, "no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause46 for the said failure". It cannot be in dispute that penalty under section 271G is not an automatic consequence of non-furnishing of the information maintained under section 92D(1) read with rule 10D, since section 273 inter ....
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...., in a large organization like the assessee, is indeed something serious and not a matter of course. Even when a new CFO is appointed, it takes him a while to get a grip over things and ensure the smooth running of the business. It is, therefore, indeed possible that the absence of the CFO, or the fact that it was a transitory phase when the new CFO was taking over, could have been the real reason for the delay in furnishing the information. The balance of probabilities does favour this explanation of the assessee. No doubt that in an ideal situation, such a situation should not have developed, and people at the operational level should have ensured scrupulous compliance with all requisitions from the TPO, but we are not sitting in judgment about what should have happened in an ideal situation. We are only concerned with whether the explanation of the assessee is a reasonable explanation vis-à-vis the ground realities. In our considered view, the explanation of the assessee deserves to be accepted as it is quite in harmony with the ground realities of life, and there is no good reason to reject the same. The rejection of assessee's explanation, on the basis of their subjecti....