No penalty u/s 271G can be levied if no adjustment is made in Arm’s Length Price – ITAT

No penalty u/s 271G if no adjustment made in Arm’s Length Price – ITAT

In a recent judgment, the ITAT has upheld that no penalty under section 271G can be levied if no adjustment made in Arm’s Length Price

ABCAUS Case Law Citation:
ABCAUS 3845 (2024) (01) ITAT

Important Case Laws relied upon by parties:
Annapurna Business Solutions v. ACIT [52 SOT 0140]
DCIT v. Magick Woods Exports (2012) 32 CCH 0422

In the instant case, the Income Tax Department had challenged the order passed by the CIT(A) in deleting the income tax penalty under section 271G of the Income Tax Act, 1961 (the Act).

The assessee was a diamond dealer. He had entered into international transactions as under and benchmarked the transaction by adopting TNMM Method.

During the course of assessment proceedings, the Transfer Pricing Officer asked the assessee to furnish separate profit level indicator (PLI) in AE and Non-AE segment-wise either profit and loss account and / or some other evidences to show that the international transactions were at Arm’s Length Price.

The assessee made an attempt to segregate the segment wise figures of sales, purchase and expenses and submitted the segment wise data on AE and Non-AE sales and worked out the OP/Sales Margins. However, the Transfer Pricing Officer did not discuss anything in his order.

The above said data was submitted before Transfer Pricing Officer.

The Transfer Pricing Officer has accepted the ALP and not proposed any adjustment. However, proceeded to levy penalty under section 271G of the Act, for the reason that assessee has not furnished required informations.

The Tribunal observed from the record that the assessee has not filed the segment wise results of purchase and sales of polished and unpolished diamonds relating to international transactions. However, on the query raised by the Transfer Pricing Officer assessee had made an attempt to segregate the figures of sales and purchases segment-wise and submitted the same before Transfer Pricing Officer.

The Tribunal observed that in the similar facts on record, there are several decisions where various Coordinate Bench of the Tribunal has deleted the penalties in which the relevant Coordinate Bench has deleted the penalty under section 271G of the Act.

The Tribunal noted that in the instant case also the CIT(A) had deleted penalty under section 271G of the Act with the observation that levy of penalty under section 271G of the Act is neither fair nor reasonable and it is not justified in the present facts of the case viz., the nature of diamond trade, substantial compliance made by the assessee and the reasonable cause submitted before Transfer Pricing Officer and above all when there was no adjustment made in the Arm’s Length Price.

After considering the facts on record and findings of the CIT(A), the Tribunal upheld the findings of the CIT(A).

Accordingly, the appeal filed by the revenue was dismissed.

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