The Income Tax Appellate Tribunal (ITAT), New Delhi Bench imposed the penalty for failure to maintain Transfer Pricing Documents under and Section 271AA.
Facts of the case:
The assessee, Convergys Customer Management Group Inc. is a non-resident company incorporated under laws of the USA. The assessee has a subsidiary in India by the name of Convergys India Services Pvt. Ltd. to service its customers, the assessee procures services from India from the subsidiary of the assessee. The subsidiary of the assessee provides IT enabled call centre/back office support services to the assessee. The interest and FTS income were earned by the assessee from CIS and associated enterprises of the assessee in India.
The Assessing Officer held that the assessee has fixed place PE, Service PE and dependent PE as per Article 5 of Indo-USA DTAA and profits were attributable to the PE of the assessee in India.
The Assessing Officer made disallowance relating to PeopleSoft License cost/Maintenance charges amounting to Rs.68,17,878/- and the same as taxable on a gross basis at 15% as “Royalty” under the provisions of Section 9(1) (vi) of the Act and Article 12 of the DTAA. As regards the IPLC/link charges amounting to Rs. 53,282,192, the Assessing Officer held that the same is taxable at 15% as “Equipment Royalty” as per clause (iva) of Explanation 2 to Section 9(1) (vi) of the Act and Article 12(2) read with Article 12(3) (b) of the DTAA. The assessee preferred an appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
Interpretation of law:
The assessee has not maintained documents as per the requirement of the Section 92D wherein every person has to maintain its own documents. The department submitted that the CIT(A) without stating any reasonable cause for not maintaining documents/information under section 273B has simpliciter deleted the penalty. It was further pointed out that the assessee has not maintained its TP Study report but in fact, the Indian AE of the assessee has maintained the TP Study report which is relied on by the assessee as being his own TP Study report. Therefore, the department submitted that the order of the CIT(A) should be quashed.
On the other hand, the assessee contended that there is no international transaction, therefore, there was no need to maintain the TP documents. However, as per Section 92D of the Income Tax Act, every person has to maintain its own document.
The two-member bench of R.K. Panda and Suchitra Kamble held that It is mandatory for all taxpayers, without exception, to obtain an independent accountant’s report in respect of all international transactions between associated enterprises or specified domestic transactions. The report has to be furnished by the due date of the tax return filing. “Non- maintaining documents on account that there is no international transaction and merely relying on the supporting documents of Associated enterprise, cannot be termed as reasonable cause for not maintaining the documents on its own under Section 273B of the Income Tax Act in respect to the international transactions as well as the specified domestic transactions as well,” the tribunal said. Therefore, the tribunal held that the Assessing Officer was right in imposing the penalty under Section 271AA of the Income Tax Act and the CIT(A) was not right in deleting the penalty.