Procedural Default Cannot Attract Penalty: ITAT Sets Aside S.271BA Levy in Transfer Pricing Case [Read Order]

The bench of the Income Tax Appellate Tribunal, Ahmedabad, has set aside the penalty imposed under Section 271BA of the Income Tax Act, 1961, ruling that the assessee had not deliberately defaulted in furnishing the requisite transfer pricing report, which is procedural in nature. Thus, cannot attract charges.

Priya Blue Industries Pvt. Ltd., is engaged in the ship breaking business, had originally filed its return of income on 24 September 2016 declaring an income of ₹3,40,05,960. The assessment was completed under Section 143(3) of the Income Tax Act on 30 November 2018, wherein an addition of ₹68,87,770 was made under Section 40A(2)(b) for disallowance of interest expenses.

A subsequent search under Section 132 was conducted on the Priya Blue Group on 19 November 2019, covering the appellant as well. Following the search, proceedings under Section 153A were initiated. During this process, the Assessing Officer (AO) noted that the assessee had entered into international transactions with M/s. Best Oasis Limited, a non-resident company, but failed to furnish the report of such transactions in Form 3CEB as required under Section 92E.

Consequently, penalty proceedings were initiated, and a penalty of ₹1,00,000 was levied under Section 271BA. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty. Aggrieved by this, the assessee approached the Tribunal.

Represented by Tushar Hemani and Parimalsinh B. Parmar, the assessee argued that the report in Form 3CEB had in fact been prepared on 16 October 2016 and was physically filed before the Transfer Pricing Officer during transfer pricing proceedings, though it was not filed electronically. It was contended that this constituted sufficient compliance with the requirement, and the lapse was only a technical default.

Relying on judicial precedents, the appellant contended that the penalty could not be sustained as there was reasonable cause for the default under Section 273B of the Act, and the omission was neither deliberate nor with mala fide intent.

Represented by Santosh Kumar,, defended the order of the AO and the CIT(A), submitting that non-filing of Form 3CEB within the statutory deadline amounted to clear non-compliance, justifying the levy of penalty under Section 271BA of the Act.

The Bench comprising of Judicial Member, Suchitra Kamble and Accountant Member, Narendra Prasad Sinha observed that Form 3CEB had indeed been prepared by the assessee well before the search proceedings and was furnished physically before the Transfer Pricing Officer.

It held that while furnishing the report in the prescribed manner is mandatory, the assessee’s action demonstrated bona fide compliance, and the lapse was only procedural.

The Tribunal further held that the authorities below had ignored the fact that the assessee had compiled the report in time, and therefore, the penalty could not be sustained.

Accordingly, the Tribunal set aside the orders of the AO and CIT(A), deleting the penalty under Section 271BA.

Accordingly, the appeal of the assessee was allowed.

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