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ITAT levies Penalty for Failure to Maintain Transfer Pricing Document

calendar18 Nov, 2020
timeReading Time: 3 Minutes
Penalty for Failure to Maintain Transfer Pricing Document

The Income Tax appellate tribunal of New Delhi bench levied the penalty for the violation of laws regarding the maintenance of Transfer Pricing Document u/s 271AA. The Assessee named Convergys Customer Management Group Inc. is an overseas company operating under the laws of the USA. The assessee has a full-fledged unit in India operating as a subsidiary named as Convergys India Services Pvt. Ltd. This write up talks about the failure to maintain Transfer Pricing Document and the penalty provision related to it.

What are the Quantum of Penalty?

Section Nature of default Penalty Threshold Authority Involved
271A* Failure to keep and maintain retain book and documents u/s 44AA Rs 25,000 AO/CIT(A)
271AA (1)* Failure to keep and maintain information u/s 92D, failure to report transactions Two percent of value of each cross border or domestic transaction AO/CIT(A)
271AA (2)* Failure to render info and documents as per Section 92(4) Rs 5,00,000 Prescribed IT Company

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Facts of the Case

The subsidiary company facilitates a wide range of IT related services including call center/back-office support to the parent company. The FTS income and interest were reaped by the parent company from CIS and linked companies of the assessee operating in the Indian Territory[1]

The assessing office claimed that the company posses the fixed place PE, dependent PE, and Service PE in the view of Article 5 of Indo-USA DTAA. Furthermore, the arrangement of profit under the same article will be attributable to the unit working in India. 

The assessing officer refused to approve People Soft License maintenance charges that cost around Rs 68, 17,878/. Moreover, this particular amount is taxable @ 15% on the gross basis as Royalty u/s 9(1) (VI) of the Act & Article 12 of the DTAA. 

In the context of IPLC/link charging costing around Rs 53,282,192, the officer claimed that the amount is taxable @15 percent in the form of “Equipment Royalty” as per Section 9(1) (VI) of the Act and Article 12(3) (b) of the DTAA.

Assessee Approached to CIT (A)

The assessee chose to appeal before the Commissioner of Income Tax (also referred to as CIT(A). CIT(A) refused to accept the same part of the appeal. The assessee have failed to comply with the provision under Section 92D that talks about the failure to maintain Transfer Pricing Document. According to the department, the Commissioner of Income Tax simply eradicates the penalty without any reasonable ground. 

Further, it was claimed that the assessee has failed to maintain the Transfer Pricing report as per the bylaws. However, its subsidiary managed to remain in compliance in this context. In the view of this event, the assessee pretended to show conformity with compliances, which in fact is a violation in the eye of the law. Henceforth, the department refused to accept the CIT (A) order in the view of the above fact. 

Furthermore, the assessee claimed that in the absence of the cross-border transaction, the requirement for the Transfer Pricing Document doesn’t make any sense which otherwise is a mandatory requirement as per section 92D IT Act. 


The member of the bench claimed that is compulsory to maintain an independent accountant’s report in the context of all cross-border transactions held between associated companies. The tribunal further cited that the report is meant to be submitted on or before the due date of the ITR filing.

The entities cannot bypass the law (related to Transfer Pricing Documents) by merely relying on the document of linked companies. This is against the code of conduct and it cannot be viewed as complied action. Henceforth, the tribunal mentioned that the assessing officer was doing the right job and their response is legitimate by all means. Failure to maintain Transfer Pricing Document will lures significant penalties, thus; the company needs to take care of all its transaction and record it appropriately.

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