Penalty under Section 271G deleted for bonafide conduct of the taxpayer

The Madras High Court has ruled that a penalty under Section 271G of the Income Tax Act, 1961, was wrongly imposed on M/s. SSL-TTK Ltd. The penalty was initiated because the company allegedly failed to comply with a notice from the Transfer Pricing Officer (TPO) requesting specific documents. However, the court found that the company had complied with 12 out of 16 requested items, demonstrating reasonable and bonafide conduct. Consequently, the Income Tax Appellate Tribunal's decision to delete the penalty was upheld.

In Commissioner of Income Tax v. M/s. SSL-TTK Ltd. [T.C.A.No.776 of 2014 dated August 05, 2021], the current appeal has been filed against the Order I.T.A.No.544/Mds/2011 dated February 15, 2021 passed by the Income Tax Appellate Tribunal, Chennai ("the ITAT") on the issue as to whether the ITAT was right in upholding the order which directed the Assessing Officer ("AO") to delete the penalty under Section 271G of the Income Tax Act, 1961 ("the IT Act").

M/s. SSL-TTK Ltd. ("the Respondent") filed the return of income admitting loss which was referred to the Transfer Pricing Officer ("TPO") under Section 92CA of the IT Act. The TPO held there was no need for adjustment and the AO accepted the total income declared by the Respondent. However, the AO initiated penalty proceedings under Section 271G of the IT Act on the ground that the Respondent did not comply with the letter dated November 25, 2008 issued by the TPO requiring the assessee to furnish information in terms of Section 92D and Section 92E of the IT Act and proceeded to levy penalty at 2% of the value of international transaction.

The Hon'ble Madras High Court held that the TPO's letter dated November 25, 2008 is a notice under Section 92D(3) of the IT Act. It empowers the AO to require any person who has entered into an international transaction to furnish any information or document. There was no defect in the notice. The AO did not dispute the fact that out of 16 documents/items, which the Respondent was called upon to comply with by the TPO, 12 of them were compiled by the Respondent.

Further, held that the conduct of the Respondent in complying with 12 out of 16 items as called for by the TPO is reasonable and therefore, the act cannot be considered to be unreasonable. Also noted that there was no finding on the side of the AO that the conduct of the Respondent lacked bona fide. Therefore, it was correct on the part of the ITAT to hold the order in favour of the Respondent.