Penalty u/s 271AA cannot be Levied without Identifying Missing Documents: ITAT [Read Order]
The CIT(A) deleted the penalty, and the ITAT upheld this decision, emphasizing that the Revenue failed to specify which documents were missing or how their absence impacted the assessment
![Penalty u/s 271AA cannot be Levied without Identifying Missing Documents: ITAT [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/Penalty-Penalty-Section-271AA-Identifying-Missing-Documents-Missing-Documents-Documents-ITAT-taxscan.jpg "Penalty u/s 271AA cannot be Levied without Identifying Missing Documents: ITAT [Read Order]")
The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT) ruled that a penalty under Section 271AA of Income Tax Act,1961 cannot be levied without identifying the specific missing documents. The Revenue-appellant appealed against the order passed by Commissioner of Income Tax (Appeals)[CIT(A)] dated 28.12.2023 challenging penalty orders under Section 271AA for Assessment Years 2012-13...
The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT) ruled that a penalty under Section 271AA of Income Tax Act,1961 cannot be levied without identifying the specific missing documents.
The Revenue-appellant appealed against the order passed by Commissioner of Income Tax (Appeals)[CIT(A)] dated 28.12.2023 challenging penalty orders under Section 271AA for Assessment Years 2012-13 to 2019-20. In this case, Priya Blue Industries Pvt. Ltd, respondent-assessee, engaged in shipbreaking, recycling, and scrap sales, filed its return for AY 2019-20 on December 25, 2020, declaring an income of ₹4.99 crore, which was processed under Section 143(1) of the Act.
A search was conducted on November 19, 2019, at the Priya Blue Group of Companies, including the assessee's premises. In response to a Section 153A notice, the assessee filed its return with the same income. The case was referred to the Transfer Pricing Officer (TPO) due to transfer pricing issues. The TPO made an upward adjustment of ₹1.54 crore, including ₹67.96 lakh for services to an associated enterprise and ₹86.80 lakh for a corporate guarantee.
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Since the assessee did not challenge the TPO’s order, the Assessing Officer (AO) finalized the assessment, determining the income at ₹22.06 crore after disallowing ₹5 lakh as unexplained rental expenses, ₹11.29 crore as unaccounted profit, and ₹3.41 crore for suppressed gas turbine sales.
The TPO accepted the transactions at arm’s length and did not recommend any adjustment. However, the AO imposed a penalty of ₹5.36 crore under Section 271AA, citing failure to maintain required documents for all eight assessment years.
The assessee challenged the penalty orders before the CIT(A), who deleted the penalties after reviewing various tribunal decisions. The AO had imposed a penalty under Section 271AA of the Act, amounting to ₹5,36,25,808, which was 2% of the international transactions.
This penalty was based on the claim that the assessee failed to maintain documents required under Section 92D read with Rule 10D. The transactions involved vessel purchases with an associated enterprise, which were duly reported in Form 3CEB.
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The CIT(A) noted that the TPO had not made any adjustments regarding these transactions, indicating they were at arm’s length. The TPO had also not raised any concerns about missing documents or non-compliance. Furthermore, the AO had accepted the assessee’s submissions and had not questioned the transaction value in the assessment order.
The tribunal decisions cited by the CIT(A) supported the view that a penalty under Section 271AA cannot be imposed without specifying which documents were missing or how their absence affected the assessment. Given these findings, the penalty was deleted.
Aggrieved by the decision of the CIT(A) the revenue appealed before the tribunal.
The two member bench comprising T.R.Senthil Kumar(Judicial Member) reviewed the case records, submissions, and relevant documents before addressing the penalty under Section 271AA. The AO imposed penalties for multiple assessment years related to vessel purchases from Associated Enterprises (AE) but did not specify which required documents were missing as per Section 92D read with Rule 10D.
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The TPO had examined the transactions and made no adjustments, confirming they were at arm’s length. The transactions were also disclosed in Form 3CEB before the search, and the AO had not questioned the purchase value in the final assessment order.
Referring to past rulings, including DCIT vs. Bebo Technologies Pvt. Ltd. and CIT vs. Leroy Somer & Controls India (P) Ltd., the ITAT stated that penalties under Section 271AA could not be upheld without identifying specific documentation failures. It also noted that the penalty order was passed without a proper show-cause notice or a fair hearing.
Since the TPO had accepted the transactions as at arm’s length and no specific default was pointed out, the ITAT found the penalty unjustified and upheld the CIT(A)’s decision to delete it for assessment years 2012-13 to 2019-20.
In short,the appeal filed by the revenue was dismissed.
To Read the full text of the Order CLICK HERE
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