ITAT backs CIT(A) order Deleting ₹1.2 Crore Income Tax Penalty on Ship-Breaker for Lack of Alleged International Transactions Documents [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) recently upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to delete a ₹1.2 crore penalty imposed on a ship-breaking company observing the lack of documents to prove that they had indulged in international transactions.

The Deputy Commissioner of Income Tax, Ahmedabad had filed an Income Tax Appeal against the Respondent-Assessee Priya Blue Recycling LLP (Priya Blue), a Gujarat-based ship-breaking firm, on the grounds that they had failed to maintain documents related to alleged international transactions

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A search was conducted by the Income Tax Department at the premises of Priya Blue under Section 132 of the Income Tax Act, 1961 and assessment proceedings were subsequently undertaken. The matter was referred to the Transfer Pricing Officer (TPO) to determine whether the international transactions undertaken by Priya Blue adhered to the arm’s length pricing .

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Although no discrepancies were found by the TPO, the Assessing Officer (AO) proceeded to impose a penalty of ₹1,20,78,927 under Section 271AA, citing non-maintenance of documents specified in Section 92D read with Rule 10D of the Income Tax Rules, 1962.

Senior Advocate Tushar Hemani along with Parimalsinh B. Parmar reiterated that the alleged international transactions were actually domestic in nature – being transactions with Priya Blue Industries Pvt., all of which were duly recorded in the Tax Audit Report under Section 40A(2)(b) of the Act. They further contended that since no transfer pricing adjustments were made by the TPO, the imposition of a penalty under Section 271AA was baseless.

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Meanwhile, Senior Departmental Representative Sanjay Kumar reiterated the findings made by the AO leading to the impugned penalty.

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The two-member bench of Vice President Dr. B.R.R. Kumar and Judicial Member Siddhartha Nautiyal observed that the subject-matter transactions were indeed domestic in nature and thus did warrant transfer pricing documentation under Section 92D.

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The Ahmedabad Bench of ITAT proceeded to dismiss the Revenue’s appeal and confirm deletion of the ₹1.2 crore penalty, asserting that since the PO had found no issues with the firm’s pricing and did not propose any penalty, the AO had no grounds to impose one.

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