Madras HC deletes Penalty for failure to furnish Information or Document as conduct of Assessee was Bonafide [Read Order]

The Madras High Court deleted the penalty for failure to furnish information or document as conduct of the assessee was bonafide.

The assessee, M/s.SSL-TTK Ltd. is a Public Limited Company engaged in the manufacture of foot care and footwear products to the domestic and export markets. It is a joint venture between a UK Company and an Indian Company. For the assessment year under consideration 2006-07, the assessee filed its return of income admitting total loss. The case referred to the Transfer Pricing Officer (TPO) under Section 92CA of the Act for computing the Arm’s Length Price. The TPO held that there is no need for adjustment and the Assessing Officer, in his order, accepted the total income/loss returned by the assessee. The Assessing Officer initiated penalty proceedings under Section 271G of the Act on the ground that the assessee-company did not comply with the letter issued by the TPO requiring the assessee to furnish information in terms of Section 92D and Section 92E of the Act and proceeded to levy penalty at 2% of the value of international transaction.

The crucial fact, which is noteworthy is that though the Assessing Officer made a reference to the TPO, the TPO, on going through the documents filed by the assessee, was satisfied and passed an order stating that no addition was required to be made and this was accepted and the total income/loss returned by the assessee was accepted and the assessment was completed. It is thereafter, the Assessing Officer proposed to levy a penalty by invoking his power under Section 271G of the Act.

The respondent submitted that no leniency is required to be extended to the assessee and in fact, on an individual assessee, the High Court of Kerala did not show any indulgence with regard to the penalty, which was imposed under Section 271C and Section 273B of the Act in the case of CIT v. Thomas Muthoot.

Mr.R.Vijayaraghavan, counsel for the assessee submitted that the notice issued was defective and did not comply with the provisions of Section 92D(3) of the Act.

The division bench of Justice T.S.Sivagnanam and Justice Sathi Kumar Sukumara Kurup ruled that offered by the assessee stating that they are a novice to transfer pricing transactions, which is not prima facie acceptable, but the conduct of the assessee in complying with 12 items out of 16 items as called for by the TPO can be considered to be reasonable and the act cannot be held to be an unreasonable act, but can be considered as a reasonable act of an organization acting with prudence under normal circumstances without negligence or inaction or want of bonafides. There is no finding recorded by the Assessing Officer that the conduct of the assessee lacks bonafide or there was supine indifference on the part of the assessee in not producing the records called for by the TPO, despite notice and despite fixing time frame and not furnishing all the details was on account of inaction leading to failure on the part of the assessee to invoke Section 271G of the Act.

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