9911796707
TMI Blog2011 (9) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,85,66,522/- filed on 31st October, 2005 by the assessee, manufacturing alternators, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 25th October, 2006 . The assessment in this case was completed with the disallowance of 2,50,000/- on account of cash discount. Through a reference was made to Transfer Pricing Officer [TPO] u/s 92CA of the Act, no adverse inference was drawn. However, on the recommendation of TPO, the Assessing Officer [AO in short] initiated penalty proceedings u/s 271G of the Act for delay in submission of some documentation. In response to a show cause notice dated 22nd June, 2009 before levy of penalty, the assessee replied that TPO had already reviewed the transfer pricing documentation maintained by the assessee and concluded that no adverse inference need be drawn. However, the AO did not accept the submissions of the assessee and imposed a penalty of 22,20,100/- @2% of the value of international transactions, amounting to 11,10,04,980/-. 3. On appeal, the learned CIT (A) cancelled the penalty in the following terms:- " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their submission before the Revenue authorities for determining the ALP. The AO/TPO requires certain information and documents on controlled and uncontrolled international transactions and other relevant evidence. In this connection relevant Rule 1OD of Income-tax Rules, 1962 lays down as under: Rule 1OD. Information and documents to be kept and maintained under section 92D. "(1) Every person who has entered into an Time/form when international transaction shall keep and maintain information is to the following information and documents, namely:- be furnished as per clause. No.1 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ofthe international transactions; (g) - same - (f) a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction; (h) - same - (g) a description ofthe methods considered for determining the arm's length price in relation to each international transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case; - same - (h)a record of the actual working carried out for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 ofthe international transaction. (5) The information and documents specified in sub-rules (1) and (2) shall be kept and maintained for a period of eight years from the end of the relevant assessment year." 5.1 As is evident from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. 5.2 In the instant case, we are concerned with levy of penalty 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) 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 regard. 5.2.1 In terms of provisions of sec. 92D (3) of the Act, the AO may require (from any person) any information or document as may be prescribed. The word 'any' information or document does not mean 'all' the documents prescribed under rule 1OD of the IT Rules, 1962. The word 'required" is important as it rules out option with the assessee and makes i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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. 5.3 In the instant case, the TPO issued first notice on December 13, 2007 u/s 92CA (2) and 92D(3) of the Act, seeking information and evidence by 10.1.2008. The date of service of this notice is not known nor it is evident as to whether or not time to submit information was extended. The TPO mentioned in an office note that transfer pricing report was filed on 26.2.2008.There is no finding in the order of the TPO or the AO as to whether or not the said report was filed with the extended time stipulated, if any ,in the notice .In any case, in first para of the notice, the TPO asked the assessee to support and substantiate the computation of ALP in international transactions as required by section 92CA(2) of the Act. In next para, the T.P.O. further required to furnish information including the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor the exact nature of default has been brought out. In these circumstances, we are of the opinion that above mentioned notice cannot be treated as valid and legal to justify application of provision u/s 271G of the Act and levy of penalty of Rs. 22,20,100/-. The omnibus notice issued without application of mind and without considering documents already placed by the assessee and without considering as to which specific clause of sub-rule (1) or other sub rules was attracted or which relevant information was needed in this case, cannot be treated as a valid notice for the purpose of sec. 271G of the Act. Under section 92D(3) of the Act, A.O. or CIT (Appeals) is authorized to require prescribed information but here both prescribed and un-prescribed information like balance sheet, profit and loss account, computation of income etc was also required to be furnished from the assessee before the assessee could file evidence under section 92CA(2) of the Act. Not only primary documents necessary to support the computation of ALP of the assessee but also supporting documents detailed in sub-rule (3) of Rule 1OD were required to be furnished without considering which supporting documents ..... X X X X Extracts X X X X X X X X Extracts X X X X
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