Section 271G Penalty is Levied for Non-Submission of Information and Not for Failure to Benchmark: ITAT Ahmedabad
The ITAT Ahmedabad has recently dismissed an appeal filed by the Income Tax Department against upholding the deletion of an Rs 8.8 crore penalty under Section 271G, which was levied by the department, claiming that the assessee failed to benchmark the transactions properly with its Associated Enterprises.
The assessee, Atul Limited, filed its Income Tax Return (ITR) for the AY 2016-17, reporting a total income of Rs 301, 28,45,510. Their return was selected for scrutiny by CASS, where the Assessing Officer found that the assessee had entered into some international transactions and specified domestic transactions with its associated enterprises. The Transfer Pricing Officer asked the assessee to provide documents and details about the arm’s length pricing (ALP) of its transactions. As per the TPO, the company did not properly benchmark some of its transactions. On this basis, the TPO imposed a penalty of Rs 8,80,51,068 under Section 271G, claiming that the company did not submit the required documents. However, the assessee argued that they had submitted all documents and details requested by the TPO.
The assessee filed an appeal before CIT(A), which also agreed with the assessee and deleted the penalty imposed by the TPO. However, the revenue approached the Income Tax Appellate Tribunal (ITAT) Ahmedabad.
The Revenue argued that the assessee did not benchmark the international transactions and specified domestic transactions with its AEs and failed to discharge the primary onus cast upon it as per the statute. The assessee, on the other hand, argued that the section 271G penalty can only be imposed if the assessee does not submit any information or documents and not when the information submitted by the assessee is not acceptable to the TPO. The assessee also submitted that the TPO had not specified which information or document was not given by the assessee for which the penalty was leviable.
The ITAT observed that the penalty under Section 271G of the Act can only be imposed if the person who has entered into an international transaction or specified domestic transaction does not submit any such information and the documents as asked under Section 92D(3) of the Act. The Tribunal noted from the penalty order that the TPO never specified the document or information required under section 92D(3) of the Act. It also said that, before levying the penalty, the AO or the TPO must have mentioned which documents or information were not submitted by the assessee.
The Tribunal concluded that in the present case, the penalty under Section 271G of the Act was not levied for non-submission of information and documents but for not benchmarking the international as well as specified domestic transactions as per the provisions of the Act. The tribunal held that the basis for levying the penalty was misplaced. The ITAT cited the Delhi High Court decision in the case of M/s. Leroy Somer & Controls (India) Pvt. Ltd., 37 taxmann.com 407 (Delhi), which had also held that the revenue, before imposing a penalty under Section 271G, must specify which documents or information are not submitted by the assessee. The reason was levying a penalty, saying that the assessee failed to benchmark the international as well as specified domestic transactions, is not permissible under the provisions of section 271G of the Act.
Therefore, the tribunal upheld the decision of CIT(A) and deleted the penalty levied under section 271G of the Act.
Case Citation: Deputy Commissioner of Income Tax, Circle – 1 Vs Atul Limited (ITAT Ahmedabad); ITA No.1774/Ahd/2024; 10/10/2025; 2016-17
