ITAT set aside penalty as TPO had no jurisdiction to impose penalty u/s 271G

1. The assessee company was engaged in providing software development solutions to it's A.E., filed its return of income before the AO. As the assessee had international transactions with its AE, the AO referred the assessee's case to the Transfer Pricing Officer for determination of arm's length price. The TPO proposed adjustment u/s 92CA of the Act and the AO passed the draft assessment order in accordance with the same.

2. Assessee company filed appeal before the DRP u/s 144C of the Act, and DRP directed the TPO to consider the interest rate at LIBOR + 2% as against 12.25% adopted by the TPO.

3. The TPO determined the shortfall in the TP adjustment and proposed addition of Rs. 11,83,41,255/- and the final assessment was, accordingly, made.

4. In the meanwhile, the TPO initiated penalty proceedings u/s 271G of the Act by issuance of a notice for non-submission of information required by him. TPO levied penalty u/s 271G @ 2% of the value of the international transactions.

5. CIT(A) confirmed the order of the TPO.

6. On appeal, the ITAT held as under:

“ In support of the assessee's contention, the learned counsel for the assessee has relied upon various judgments and, more particularly, the decision of the ITAT, Hyderabad Bench in the case of M/s Remy Electricals India Ltd. in ITA No. 872/Hyd/2011, order dated 0/07/2012, wherein the Tribunal at para 3 of its order has held as under:

" We have heard rival contentions and perused the material on record. Section 271G provides for imposition of penalty for failure to furnish information or documents under s. 92B of the Act. The language in section 271G specifically provides that the penalty order has to be passed by the AO or the CIT (A). We find force in the contention of the learned AR for the assessee that the TPO cannot be termed as AO for the purpose of section 271G. We find no infirmity in the reasoning of the CIT (A) in this regard. Even on merit also, the CIT (A) after elaborately discussing on the fact, has come to a categorical finding that penalty u/s 271G is not automatic. If the assessee shows a reasonable cause, then no penalty can be imposed. The CIT (A) after considering the explanation submitted by the assessee found that there is reasonable cause in not submitting the documents within the specified time. From the order of the CIT (A), it is clear that the assessee has been able to explain the cause for not submitting the required documents within the specified time before the TPO. On the aforesaid view of the matter, we do not find any infirmity in the order of the CIT (A) in deleting the penalty. We therefore uphold the same and reject the grounds raised by the Revenue."

7.1 In the case before us also, it is the TPO and not the AO, who has initiated and levied the penalty. Since the facts of the present case before us are same, and the TPO has without jurisdiction, levied penalty u/s 271G, respectfully following the decision of the coordinate bench in the case of M/s Remy Electricals India Ltd. (supra), we set aside the order of CIT(A) and delete the penalty of Rs. 35,14,139/- levied u/s 271G of the Act.

8. In the result, appeal of the assessee is allowed.”

Case Reference-Bartonics India Ltd., Hyderabad vs. Dy. Commissioner of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL

HYDERABAD BENCH "A", HYDERABAD

BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER

AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER

ITA No. 794/Hyd/2015

Assessment Year: 2010-11