2025 (5) TMI 1489 - AT - Income Tax

Penalty levied by JCIT u/s. 271AA - violation of requirement of section 92D(1) of the Act as the assessee failed to report the transaction in Form 3 - CEB in respect of reimbursement from (Associate Enterprise) - HELD THAT - We notice that firstly the assessee has maintained complete information and documents about the alleged transaction and the allegation on the assessee is that the said transaction is not reported in Form No.3CEB in its report prepared by the Auditor to be furnished under 92A of the Act relating to the international transaction. Now as per the discussion made above we find that the alleged sum is basically in the nature of reimbursement of the amount received through debit notes for A.Y. 2009-10 to A.Y. 2014-15. In the given circumstances it is quite possible that the Auditor did not treat it as an international transaction and has not mentioned in Form No.3CEB report. Further 273B of the Act is clearly applicable in the instant case because for the alleged failure there was a reasonable cause on the part of assessee for not reporting the said transaction as it was not considered to be an international transaction. Thus where the transaction is alleged to have not been reported by the assessee in Form No.3CEB we find the AO erred in visiting the assessee with penalty u/s. 271AA of the Act without considering the fact that assessee has already offered the income in the preceding years and has excluded the same from the income declared during the year and the said amount was calculated on the directions of the DRP for A.Y. 2009-10 to A.Y. 2014-15 and therefore the said transaction is not in the nature of new international transaction which is required to be reported in Form No.3CEB. Therefore no penalty is leviable u/s. 271AA of the Act and even the assessee deserves immunity from the levy of such penalty in view of section 273B - Appeal of the assessee is allowed.

The core legal issues considered by the Tribunal in this appeal are:

1. Whether the penalty under section 271AA of the Income-tax Act, 1961 (the Act) is leviable on the assessee for failure to report a reimbursement transaction of Rs. 4,07,42,345/- in Form 3CEB, which pertains to transfer pricing adjustments related to earlier assessment years and not a fresh international transaction for the year under appeal.

2. Whether the penalty proceedings initiated against the erstwhile entity (Sequence Design India Private Limited) post amalgamation are valid.

3. Whether the penalty imposed under section 271AA on the entire value of international transactions reported in Form 3CEB instead of the specific amount of voluntary transfer pricing adjustment is justified.

4. Whether the assessee had a reasonable cause for non-reporting of the said transaction in Form 3CEB, thereby attracting immunity under section 273B of the Act.

Issue-wise Detailed Analysis:

1. Levy of penalty under section 271AA for non-reporting of reimbursement transaction in Form 3CEB

Relevant legal framework and precedents: Section 271AA imposes penalty if an assessee fails to keep and maintain information and documents as required under section 92D, fails to report such transactions, or furnishes incorrect information relating to international or specified domestic transactions. Form 3CEB is a prescribed form under Rule 10D for reporting international transactions and furnishing transfer pricing details. Section 92D mandates maintenance and furnishing of information and documents for international transactions.

Court's interpretation and reasoning: The Tribunal noted that the penalty was levied on the ground that the assessee failed to report the reimbursement amount of Rs. 4,07,42,345/- received from Associated Enterprises (AEs) in Form 3CEB. However, the Tribunal observed that this amount was not a fresh international transaction for the year under appeal but a reimbursement relating to transfer pricing adjustments for earlier years (A.Y. 2009-10 to A.Y. 2014-15) pursuant to directions of the Dispute Resolution Panel (DRP). The debit notes for this amount were issued in March 2015 and the amount was received in April 2015, which is prior to the year under appeal (A.Y. 2015-16).

The Tribunal emphasized that the amount had already been offered to tax in the relevant earlier years and excluded from the income computation for the current year. Therefore, it did not constitute a new international transaction that required reporting in Form 3CEB for the year under appeal.

Key evidence and findings: The assessee produced debit notes issued to the AE, the DRP directions adopting Cost Plus Margin @20% in line with Safe Harbour norms, and proof of tax and interest paid for earlier years. It was established that the reimbursement was a result of transfer pricing adjustments for prior years and not a fresh transaction.

Application of law to facts: Since the transaction was not a fresh international transaction for the year under appeal, it was reasonable that it was not reported in Form 3CEB for that year. The Tribunal found that the penalty under section 271AA was therefore not justified on this ground.

Treatment of competing arguments: The Revenue argued that the transaction was not reported and thus penalty was warranted. The Tribunal rejected this on the basis that the transaction was not required to be reported for the year under appeal as it related to earlier years and had been duly taxed.

Conclusion: The penalty under section 271AA for non-reporting of the reimbursement amount in Form 3CEB is not leviable.

2. Validity of penalty proceedings against a non-existing entity post amalgamation

Relevant legal framework: The appellant contended that penalty proceedings under section 271AA were initiated against the erstwhile entity (Sequence Design India Private Limited), which had amalgamated into Ansys Software Private Limited effective 1 April 2017.

Court's reasoning: This ground was raised but not pressed by the appellant before the Tribunal, and accordingly was dismissed as not pressed. No detailed analysis was undertaken.

3. Penalty levied on incorrect amount

Relevant facts: The penalty was levied at 2% on the entire value of international transactions of Rs. 13,29,97,947/- reported in Form 3CEB, amounting to Rs. 26,59,958/-, rather than on the specific transfer pricing adjustment amount of Rs. 4,07,42,345/- which was allegedly unreported.

Court's reasoning: The Tribunal noted that since the penalty itself was not sustainable on the ground of non-reporting of the reimbursement amount, the question of penalty on the entire international transaction value did not arise. The penalty was thus considered excessive and unwarranted.

4. Applicability of section 273B - reasonable cause for non-reporting

Legal framework: Section 273B of the Act provides that no penalty shall be imposed if the assessee proves reasonable cause for the failure to comply with certain provisions, including section 271AA.

Court's interpretation and reasoning: The Tribunal found that the assessee had reasonable cause for non-reporting of the reimbursement amount in Form 3CEB, as it was not considered a fresh international transaction for the year under appeal. The amount had already been offered to tax in earlier years and excluded from income for the current year. The auditor's omission to report this amount in Form 3CEB was thus understandable and not deliberate. Therefore, the penalty was not sustainable under section 273B.

Application of law to facts: The Tribunal applied section 273B to grant immunity from penalty, emphasizing the bona fide nature of the failure and the prior compliance by the assessee for the relevant amounts.

Significant Holdings:

"The alleged sum of Rs. 4,07,42,345/- is basically in the nature of reimbursement of the amount received through debit notes for A.Y. 2009-10 to A.Y. 2014-15. ... It is quite possible that the Auditor did not treat it as an international transaction and has not mentioned in Form No.3CEB report."

"Penalty u/s. 271AA of the Act is leviable if an assessee fails to keep and maintain any documents in respect of certain transactions and for the sake of convenience section 271AA of the Act is reproduced below ..."

"Section 273B of the Act is clearly applicable in the instant case because for the alleged failure there was a reasonable cause on the part of assessee for not reporting the said transaction as it was not considered to be an international transaction."

"Under these given facts and circumstances where the transaction is alleged to have not been reported by the assessee in Form No.3CEB, we find the AO erred in visiting the assessee with penalty u/s. 271AA of the Act without considering the fact that assessee has already offered the income in the preceding years and has excluded the same from the income declared during the year and the said amount was calculated on the directions of the DRP for A.Y. 2009-10 to A.Y. 2014-15 and therefore the said transaction is not in the nature of new international transaction which is required to be reported in Form No.3CEB."

"Therefore, no penalty is leviable u/s. 271AA of the Act and even the assessee deserves immunity from the levy of such penalty in view of section 273B of the Act."

The Tribunal allowed the appeal and set aside the penalty imposed under section 271AA, holding that the reimbursement amount was not a fresh international transaction for the year under appeal and that the assessee had reasonable cause for non-reporting, thereby attracting immunity under section 273B.

← Previous Next →