The Chennai Tribunal have held that penalty under section 271G of the Income-tax Act, 1961 [“the Act”] cannot be levied for benign reasons in the nature of procedural issues provided the taxpayer has maintained substantial documentation in support of its arm’s length price.

Executive Summary
The Chennai bench of the Income Tax Appellate Tribunal (“The Tribunal”) recently pronounced its ruling in the case of SSL-TTK Ltd. (Appeal no. ITA No. 544/Mds/2011), wherein the Tribunal ruled that a notice issued by the Transfer Pricing Officer [“TPO”] under section 92CA (3) of the Act cannot be considered as a notice issued under Section 92D (3) and hence non-compliance of the taxpayer would not attract levy of penalty under Section 271G1 of the Act. Further, the taxpayer had made substantial compliance of filing the information as required by the letter issued by the TPO and the arm’s length price was accepted by the TPO.
Facts
SSL-TTK Limited. (“the taxpayer”) is engaged in the manufacturer of antiseptic products such as cracked heat cream, anti-fungal cream, corn removal, plasters, odour control foot powder, foot spray, insole, etc.
For the assessment year [“AY”] 2006-07, the taxpayer filed its return as on 29 November, 2006. There being some international transactions exceeding the prescribed limit, the case was referred to the TPO by the assessing officer [“AO”] for determining the arm’s length price of the international transactions.
In pursuance of this referral, the TPO issued a letter to the taxpayer dated 25 November, 2008 [“Letter of the TPO”] requiring the taxpayer to furnish certain details as required under Section 92D and 92E of the Act on or before 24 December, 2008 [“reply of taxpayer”]. However, as per the TPO, the tax-payer did not conform to the request and only filed a portion of the information called for by the said date. According to the TPO, the taxpayer filed the complete set of information only by 9 June, 2009, much after the statutory time limit of 30 days provided under the Act. Based on the above observations of the TPO, the AO was of the opinion that the taxpayer was liable for penalty under Section 271G of the Act and issued a show cause notice to the taxpayer in this regard.
In response to this notice issued by the AO, the taxpayer put forth its contentions claiming that 12 out of the 16 items required as under the notice were furnished by the taxpayer in his reply (i.e. on 24 December, 2008). Further, since it was the initial year of the company’s operations, it did not have much experience with regard to the TP regulations. The AO rejected the plea of the taxpayer and proceeded to levy penalty under Section 271G of the Act, a sum amounting to 2 percent of the international transactions.
Aggrieved, by the penalty notice, the taxpayer filed its objections before the Commissioner of Income-tax (Appeals) [“CIT (A)”].
Ruling of the Commissioner of Income-tax (Appeals)
At the time of the CIT(A) proceedings, the taxpayer made the following arguments:
 The Letter of the TPO was a general one requiring the company to furnish certain details prescribed under Section 92D and 92E of the Act.
 The taxpayer had substantially complied with the said letter by furnishing 12 out of the 16 documents called for.
 The tax-payer further submitted that the notice issued by the TPO was not one under Section 92D (3) of the Act, but one under Section 92CA (3) of the Act.
 Reliance was also placed on the decision of the Delhi Bench of the Tribunal in the case of Cargill India Private Limited vs. DCIT (110 ITD 616).
The CIT(A) was appreciative of the contentions put forth by the taxpayer and held the following:
 The TPO in his TP order mentioned that notice under Section 92CA of the Act was issued and this by implication meant that the letter issued was not a notice under section 92D (3) of the Act.
 The CIT (A) concluded that the said case was not a fit case for penalty under Section 271G of the Act and deleted the penalty imposed by the AO.

Being aggrieved by the actions of the CIT(A), the AO appealed against the order issued by the CIT(A) with the Tribunal.
Ruling of the Tribunal
The main issue under consideration was whether the Letter of the TPO can be considered as notice under Section 92 D(3) of the Act, the failure to comply with which would attract penalty under Section 271G.
The Tribunal held the following:
 The finding of the CIT(A) that the TPO himself had mentioned in the TP Order that the Letter of the TPO was one issued under Section 92CA of the Act was not rebutted by the AO;
 The taxpayer had made substantial compliance with the requirements by filing 12 out of the 16 items required by the letter of the TPO. The specific failure (if any) has not been pointed out by the AO. Further, the AO has not pointed out as to which information/documents as prescribed under section 92 D(1) of the Act has not been filed by the taxpayer in respect of its international transactions for the year; and
 It has not been disputed that the arm’s length price adopted by the taxpayer was accepted by the TPO.
In view of the above, the Tribunal concluded that even it was presumed that there was a procedural violation, it was a benign one and that the case was not fit for levy of penalty under Section 271G of the Act. Thus, the CIT (A) was justified in deleting the penalty.
Conclusion
The Chennai bench of the Tribunal recently pronounced a ruling, wherein the Tribunal held that a notice issued by the TPO under section 92CA (3) of the Act cannot be considered as a notice issued under Section 92D (3). Further, the Tribunal held that though there might have been certain procedural lapses on the part of the taxpayer, however, it being a benign one, does not call for the levy of penalty under Section 271G of the Act.
Source: Income-tax Officer, SSL-TTK Pvt. Ltd. Assessment Year 2006-07, ITA No. 544/ Mds/ 2011