2025 (4) TMI 274 - AT - Income Tax

Penalty u/s 271AA - penalty imposed invoking clause (iii) to section 271AA(1) - HELD THAT - We find prima facie merit in the plea of the assessee towards inapplicability of sec. 271AA in the facts of the case having regard to the erstwhile position of law. The AO has referred to clause (iii) to sub-clause (1) to sec. 271AA of the Act. The aforesaid clause was inserted w.e.f 01.07.2012 whereas the information cited is based on records maintained prior to the substitution of sec 271AA. The obligation placed by newly substituted sec 271AA expanding the obligation of the assessee were not existing at the time of preparation of records. This ground alone is sufficient to drop the penalty of strict nature. Besides the imposition of penalty u/s 271AA is not automatic and dependent upon the discretion of the AO. Needless to say that such statutory discretion requires to be exercised in a fair and objective manner having regard to the totality of circumstances. In the present case the assessee has offered an explanation towards the difference in the value of international transactions owing to insurance and freight on the capital goods. The explanation offered towards difference appears plausible and accounts for the difference in the valuation. Thus statutory discretion ought to have been exercised in favour of the assessee. Thus on both counts the assessee is exonerated from imposition of penalty u/s 271AA - Decided in favour of assessee.

Summary

The Appellate Tribunal ITAT Delhi, comprising Judicial Member Shri Vikas Awasthy and Accountant Member Shri Pradip Kumar Kedia, adjudicated an appeal filed by the assessee challenging the imposition of a penalty of INR 13,61,930 under section 271AA of the Income Tax Act, 1961. The penalty was imposed by the Commissioner of Income Tax (Appeals)-XXV, New Delhi, arising from an assessment order for the assessment year 2012-13.The assessee contended that it had made adequate disclosures in its transfer pricing report and return of income, arguing that the penalty was incorrectly upheld by invoking clause (iii) to section 271AA(1), which applies to maintaining or furnishing incorrect information. This clause was inserted effective from 01.07.2012, whereas the records in question were maintained prior to this date. The Tribunal found merit in the assessee's argument, noting that the legal obligation imposed by the newly substituted section 271AA did not exist at the time of record preparation.Additionally, the Tribunal emphasized that the imposition of a penalty under section 271AA is discretionary and should be exercised fairly, considering the totality of circumstances. The assessee provided a plausible explanation for the difference in the value of international transactions, attributed to insurance and freight costs, which should have led to a favorable exercise of discretion by the Assessing Officer.Consequently, the Tribunal exonerated the assessee from the penalty under section 271AA, allowing the appeal. The order was pronounced in open court on 26th March 2025.