TaxTMI 
TaxTMI 
2026 (7) TMI 776
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....y under section 271AA of the Income-tax Act, 1961 ('the Act), even when the Ld. AO himself, as well as the Learned Transfer Pricing Officer, has made no additions to the total income of the Appellant in the quantum assessment / transfer pricing assessment, as the case may be, in respect of the transactions which were not reported by the Appellant in the Form 3CEB. 4. The Ld. AO, in the facts and circumstances of the case and in law, erred in issuing show cause notice u/s. 271AA of the Act without stating the specific clause under sub-section (1) of section 271AA of the Act, under which penalty proceedings were initiated, thereby vitiating the entire penalty proceedings and rendering the penalty order non-est and void ab initio. 5. The Ld. CIT(A) has, in the facts and circumstances of the case, erred in holding that penalty u/s. 271AA of the Act is applicable even if there was no loss of revenue to the exchequer: 6. The Ld. CIT(A) has, in the facts and circumstances of the case and in law, erred in holding that non-taxability of a transaction under the provisions of the Act or the applicable Double Taxation Avoidance Agreement does not negate applicabi....
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.... and hence the Appellant was not eligible to be sheltered by the provisions of section 273B of the Act. 12. The Ld. CIT(A) has, in the facts and circumstances of the case, erred in brushing-aside the judgement of the Hon'ble ITAT in the case of LM Wind Power AS v. ACIT [2025] 180 taxmann.com 758 (Delhi- Trib.), wherein the Hon'ble ITAT, in identical facts and circumstances, has held that non-reporting of non-taxable transactions u/s. 92E of the Act would not warrant applicability of penalty w/s 271AA of the Act. The Appellant further craves leave to add, alter, amplify, modify, or delete all or any of the aforementioned grounds at or before the hearing." 2. Brief facts of the case are as under: The assessee, is domiciled in the Republic of Korea and is engaged in the business of manufacturing and export of wide range of steel products including hot rolled sheets, plate, wire rod, cold rolled sheets, galvanized sheets and stainless steel. The assessee filed its return of income for AY 2021-22 on 14.03.2022, declaring a total income of Rs. 7,71,08,714/-. 2.1. The return of income filed by the assessee was selected for scrutiny and the case was refer....
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....he Ld. AR submitted that the sale transaction referred to by the Revenue amounting to INR 2,467.6 crores pertains to sale of raw materials by the assessee to POSCO Maharashtra Steel Private Limited. It was submitted that the said transaction was not derived from the Project Office of the assessee in India. 3.1.1. The Ld.AR further submitted that the aforesaid transaction is not taxable in India either under the provisions of the Income-tax Act, 1961 or under the India-Korea DTAA and, therefore, the same was not required to be reported in Form No. 3CEB by the assessee. 3.2. The Ld. AR further submitted that the applicability of transfer pricing provisions under Chapter X presupposes existence of income chargeable to tax under the normal provisions of the Act. Referring to sections 4 and 5 of the Act, it was submitted that only total income chargeable to tax can be brought within the scope of transfer pricing provisions. 3.3. The Ld. AR submitted that the provisions of Chapter X of the Act, including the reporting requirements prescribed therein, would apply only to such international transactions which are chargeable to tax in India. In support of this proposition, reliance....
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....High Court accepted the view that where the legal position itself lacked certainty, penal consequences under section 271AA could not be sustained. 3.8. The Ld.AR submitted that the transaction under consideration, namely sale of raw materials by the assessee to its Indian AE, is not taxable in India either under the provisions of the Income-tax Act, 1961, in the absence of any business connection, or under the India-Korea DTAA in the absence of a Permanent Establishment ("PE") in India. It was further submitted that even the Revenue authorities have neither made any addition to the income returned by the assessee nor attributed any profits arising from such transaction to the Project Office-PE of the assessee in India. 3.9. The Ld. AR further submitted that the transaction under consideration has also been accepted to be at Arm's Length Price ("ALP") in the case of the assessee's Indian AE. Reliance was also placed on the decision of the Coordinate Bench of the Tribunal in LM Wind Power A/S v. ACIT reported in [2025] 180 taxmann.com 758 (Delhi-Trib.), wherein under similar facts, the issue was decided in favour of the assessee. 3.10. In view of the aforesaid judicial prece....
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....has also been accepted to be at Arm's Length Price ("ALP") in the case of the Indian AE. These facts clearly support the bona fide belief entertained by the assessee that the transaction was not chargeable to tax in India either under the provisions of the Act or under the India-Korea DTAA and, consequently, was not required to be reported in Form No. 3CEB. 4.2. We also find merit in the contention of the assessee that where the applicability of Chapter X itself was debatable and the assessee had acted under a bona fide understanding of law, penalty under section 271AA could not be imposed mechanically. The judicial precedents relied upon by the assessee, including the decision of Hon'ble Delhi Bench of this Tribunal in LM Wind Power A/S v. ACIT,(supra) support the proposition that existence of reasonable cause would take the case outside the ambit of penal provisions. Accordingly, considering the entirety of the facts and circumstances of the case, we are of the view that the assessee had demonstrated a reasonable cause for non-reporting of the impugned transaction and, therefore, levy of penalty under section 271AA of the Act is unsustainable. Accordingly, Ground.no.1 raise....
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.... part of the original penalty proceedings. 5.5. Without prejudice to the aforesaid contention, the Ld. AR submitted that the same arguments advanced in relation to the transaction of sale of raw materials would equally apply to the transactions relating to guarantee fees and payment of trade affairs services. It was submitted that the guarantee fee transaction had already been accepted to be at Arm's Length Price by the Ld.TPO in the assessment proceedings of the Indian AE, namely POSCO Maharashtra Steel Private Limited, both for Assessment Year 2020-21 as well as for the year under consideration. 5.6. It was further submitted that the transaction relating to provision of trade affairs services had also been accepted by the Ld.TPO to be at ALP in the assessment proceedings of the Indian AE for the year under consideration. Accordingly, the Ld.AR submitted that even on merits, levy of penalty under section 271AA of the Act was unsustainable. 5.7. On the contrary, the Ld. DR submitted that the Ld. CIT(A) is duly empowered under section 251(1)(b) of the Act to enhance the penalty while disposing of an appeal arising from penalty proceedings. It was contended that the powers o....