PENALTY U/S 271G CANNOT BE LEVIED ARBITRARILY IN CASE OF NON KEEPING OR NON FURNISHING OF INTERNATIONAL TRANSACTION DOCUMENTS

Though no transfer pricing adjustment was made, the AO levied penalty u/s 271G of Rs. 22 lakhs (2% of the value of international transactions) on the ground that the assessee had not furnished the documents prescribed under Rule 10D r.w.s. 92D(3). This was deleted by the CIT (A). On appeal by the department, HELD dismissing the appeal:

S. 271G authorizes the levy of penalty if the information/ documents prescribed by s. 92D (3) are not furnished. Rule 10D prescribes a voluminous list of information and documents required to be maintained and it is only in rare cases that all clauses would be attracted. Some of the documents may not be necessary in case of some assessees. 

Before issuing a notice u/s 92D(3), the AO has to apply his mind to what information and documents are relevant and necessary for determining ALP. A notice u/s 92D(3) is not routine and cannot be casually issued but requires application of mind to consider the material on record and what further information on specific points is required. The notice cannot be vague or call for un-prescribed information.

On facts, the TPO issued a notice calling for “information and documents maintained as prescribed u/s 92D r.w. Rule 10D” without specifying any particular information under any clause of Rule 10D.

The notice was “omnibus”, issued in a casual manner, without examining records nor nature or details of international transactions and showed total lack of application of mind as to what information was required in this case.

Even in the penalty order, the exact nature of default was not brought out.

         Meaning of OMNIBUS : including or covering many things or classes