NOTIFICATION

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CASE LAWS

2017-TII-334-ITAT-HYD-TP

KARVY COMPUTERSHARE PVT LTD Vs ADDL CIT: HYDERABAD ITAT (Dated: July 7, 2017)

Income tax - Sections 92D(3), 92E, 271B & 271G

Keywords - furnishing of Form 3CEB - non compliance of provision - bonafide belief - levy of penalty - issuance of separate notice

A) The assessee is engaged in providing registry services to various companies and mutual funds. During the scrutiny proceedings, the AO noticed that the assessee did not furnish report in form No. 3CEB as required u/s 92E r/w rule 10E. As there was a non-compliance, penalty proceedings u/s 271BA were initiated by way of issue of notice. In response to the said notice, the assessee filed written submissions, stating that the assessee was under the impression that separate compliance u/s.92E was not required once approval was obtained for payment of royalty. Even in the assessment proceedings, the report could not be filed due to paucity of time and as the assessee had doubts about the legal validity of the reports. After considering the facts and submissions of the AR, the AO observed that Statute casts clear obligation on the assessee to furnish report in form no. 3CEB within 'due date and that obligation is compulsory. Obtaining permission for payment of royalty from RBI or any other government authority is a totally different process and there is no exception u/s 92E or rule IDE for such a case. In view of such observations, the AO held that this is a fit case for levy of penalty u/s 271BA and accordingly, penalty of Rs. 1,00,000/- was levied.

B) During the scrutiny proceedings for AY 2010-11, the assessee was required to file the TP study maintained u/s 92D(3) r/w rule 10D. Accordingly, a request was made by the AO to this effect and the assessee filed its report. On verification of the same, the AO noticed that it did not comply with the requirements laid down under Rule 10D and, hence, penalty proceedings u/s 271G were initiated by way of issue of notice. In response, the assessee filed its written submissions stating that the Assessee had adopted the RBI rate as the bench mark for determination of ALP. After considering the facts and submissions of AR, the AO observed that the assertion that no notice was issued u/s 92D(3) was incorrect. Section 92D(3) did not prescribe any format for notice and Notice did not mean that a separate letter has to be issued. Further, the adjustment to ALP or not was not a criterion to determine whether there was default or not. In this case even 3CEB report was not filed. On account of further default of the assessee in filing an improper TP study, the Department was further deprived. In light of the above observations, the AO held that this wa- isss a fit case for levy of penalty u/s 271G and penalty of Rs. 4,23,634/- was levied being 2% of the value of international transactions of Rs. 2,11,81,697/-.

On appeal, the ITAT held that,

Whether ignorance & bonafide belief in non-compliance of Section 92E, can save an Assessee from rigours of penalty u/s 271B - NO: ITAT

+ as far as levy of penalty u/s 271B is concerned, the AR of the assessee has pleaded that the non-submission was not intentional but bonafide belief and ignorance of Finance Manager in complying the provision u/s 92E. Mere ignorance and bonafide belief will not be considered as reasonable cause to delete the penalty. It is clearly the obligation on the part of assessee to comply with the provisions of section 92E. Hence, the action initiated by the AO in levying penalty u/s 271BA is proper in these cases. Accordingly, we uphold the order of the CIT(A) in confirming the penalty levied by the AO;

Whether penalty u/s 271G can be levied only when AO issues notice u/s 92D(3) and assessee fails to furnish information for completing the assessment - YES: ITAT

+ as far as levy of penalty u/s 271G is concerned, the AO initiated the penalty proceedings because assessee has not filed the information required as per Rule 10D. However, the assessee has filed the relevant information during assessment proceedings and accordingly, AO completed the assessment. On careful reading of section 271G & 92D(3), penalty can be levied only when AO issues notice u/s 92D(3) and assessee fails to furnish information for completing the assessment. Further, on application by the assessee, the AO can extend the period for submission by further period of 30 days. In the given case, AO has not issued any notice, however, AO opined that it is not necessary to issue notice but order sheet notice/entry also amounts to notice issued u/s 92D(3). We find that the assessee has in fact filed the relevant information as soon as it is brought to the notice and AO has completed the assessment without making any adjustment. It shows that the assessee has complied with the provisions of section 92D(3). Considering the facts on record and other judicial pronouncements relied on by the assessee, we are inclined to accept the contention of AR and in our opinion, penalty u/s 271G is uncalled for and accordingly, it is deleted.

Assessee's appeal partly allowed