Cargill India Pvt. Ltd. Vs. Dy. Commissioner of Income-tax - Court Judgment

Excerpt:
1. this appeal by the taxpayer for the assessment year 2003-04 (f.y 2002-03) is directed against order of the commissioner of income-tax (appeals) [cit(appeals)] upholding levy of penalty of rs. 40,46,41,376/-under section 27ig of the income-tax act (the act) for not submitting the documents called from the tax payer in time.2. the taxpayer company m/s cargill india pvt. ltd. (cip in short) is a wholly owned indian subsidiary of cargill mauritius limited which in turn is a wholly owned subsidiary of cargill inc., usa. the taxpayer company, in india, in the relevant period, was engaged in the business of import, export and domestic trading in edible oils, fertilizers, grains, oil seeds and other food products including processed food. the taxpayer was also engaged in the business of.....

Judgment:
1. This appeal by the taxpayer for the assessment year 2003-04 (F.Y 2002-03) is directed against order of the Commissioner of Income-tax (Appeals) [CIT(Appeals)] upholding levy of penalty of Rs. 40,46,41,376/-Under Section 27IG of the Income-tax Act (the Act) for not submitting the documents called from the tax payer in time.

2. The taxpayer company M/s Cargill India Pvt. Ltd. (CIP in short) is a wholly owned Indian subsidiary of Cargill Mauritius Limited which in turn is a wholly owned subsidiary of Cargill Inc., USA. The taxpayer company, in India, in the relevant period, was engaged in the business of import, export and domestic trading in edible oils, fertilizers, grains, oil seeds and other food products including processed food. The taxpayer was also engaged in the business of processing crude oil. The taxpayer had carried various transactions with its foreign associate enterprises (AEs in short) of value of Rs 20,23,20,68,761/- and filed audit report in Form 3CEB along with the return. The summary of the transactions carried and the method applied by the taxpayer to show that transactions with AE were carried at arms' length is reproduced from para 2.1 of TPO's order dated 22.03.2006 and is as under: "2.1 During he year, the assessee has undertaken the following international transactions:S.No. Description of Method Value (in Rs.) transaction1 Purchase of oil CUP 27,99,48,9182 Contract cancellation CUP 5,27,796 penalty/charges3 Purchase of fertilizers CUP 1,38,26,80,9574 Purchase of corn.

TNMM 72,05,26,4645 Purchase of soyabean TNMM 73,92,33,814 meals6 Purchase of soyabeans TNMM 5,63,26,75,2097 Sale of ferrous CUP 9,67,29,9038 Sale of rice CUP 18,04,86,8359 Sale of wheat TNMM 3,85,55,49,17310 Sale of soyabean meals CUP 97,60,92,51911 Sale of corn.

TNMM 72,11,48,36912 Sale of soyabeans TNMM 5,48,78,02,61013 Purchase of assets CUP 7,21,69714 Support service fee TNMM 1,08,47,441 received15 Availing of Cost Plus 1,90,999 administrative services Method16 Commission paid on sales CUP 51,54,533 of ferrous17 Distribution commission TNMM 19,58,800 income18 Ocean freight savings - 4,90,71,54219 Cost sharing arrangement - 2,71,71,20220 Dispatch income received TNMM 1,13,14,42821 Reimbursement of expenses - 80,72,556 paid22 Demurrage charges TNMM 1,09,31,72923 Contact extension/ 27,35,827 penalty charges24 Provision of support - 3,04,95,440 agency services As total value of international transaction with AE exceeded Rs. 5 crores, the Assessing Officer (A.O) made reference to the Transfer Pricing Officer (TPO in short) for determining the Arms' Length Price (ALP in short) of those transactions. The TPO in above order did not accept book value of various transactions shown by the taxpayer and proposed an addition of Rs 50,17,08,483/-, to be made in the assessment of the taxpayer. The above order was incorporated and addition on account of adjustments for transfer pricing was made in the assessment order. However, above addition on merit is subject matter of a different appeal and not the issue before us.

3. It is claimed by the Revenue that taxpayer failed to comply with directions of the TPO and did not submit documents sought from the taxpayer in time and, therefore, committed a default Under Section 271G of the Income-tax Act. The Assessing Officer imposed penalty of Rs 40,46,41,376/- on the taxpayer under the above provision.

4. The learned CIT (Appeals) while confirming levy of penalty and in the concluding paras has held as under: (vii) On consideration of arguments and perusal of penalty order and Id. AR 's submission and paper book, I find that the time limit for furnishing the documents and detail was prescribed as on 21.11.2005.

There is no dispute on this date from either of the sides. However, as per Id. AR, the assessee has furnished all the details prescribed under the Income-tax Act and Rule WD of the Income-tax Rules on or before 16.11.2005. The rest of details furnished later on 21.11.2005 were only supporting documents and back up paper and the same cannot be treated as violation of Section 92D(3) read with Rule 10D of Income-tax Rules. On the other hand, the AO observed that the relevant document prescribed under Rule 10D from which arm 's length price could have been determined were not filed within due date.

Hence, the assessee failed to furnish the prescribed documents/information within due date.

Considering both sides of point of view, I have to examine the documents which could be filed before 16.11.2005 and or after 21.11.2005 or not filed at all. On going through the penalty order, 1 find that the appellant has applied CUP method for some of the transactions while for certain transactions, it has applied Cost Plus Method (CPM) and Transactional Net Margin Method (TNMM). In this regard, I have to quote following observation of the AO given in the penalty order with reference to CUP, CPM & TNMM. As seen from the above, the assessee has not furnished any comparable data with respect to the international transaction where CUP method is used as to determine the arms length price. The actual working details of the comparable data and financial information used in applying the CUP method was not furnished. Hence, the documentation filed by the assessee company on 16.11.2005 was quite inadequate and does not satisfy the statutory requirements as mentioned in Rule 10D of the Income Tax. Rules, 1962. It is evident from these submissions that application of the CUP method as recorded by the assessee was only a formal deliberation, cosmetic in nature and was not sustainable with logical date of comparables.

It is seen from the above that no back up documents /agreements were given by the assessee on the basis of which the said Cost Plus Method was applied. It has also not furnished any comparable data of similar transactions undertaken by comparables in a similar industry and to this extent the CPM was not justified by the assessee. Hence, the documentation filed was incomplete.

During the year under reference there are major international transactions termed as Export of Wheat and Merchanting trade and the functional analysis of which is mentioned at page 25 and selection of Transactional Net Margin Method as method for transfer pricing at page 39 of document-I dated 16.11.2005. The assessee has taken itself as the tested party and has stated its transactions to be at arm's length by selection of comparables from the Capitaline database. What the assessee has mentioned is merely a search process through which it has attempted to identify a set of comparables. In the conclusion at page 46 of document-I, the assessee has merely intimated that profit level indicator used for benchmarking international transactions is OPM which means operating margin over sales/turnover. It is concluded in this paragraph that OPM of assessee is 0.09% which is better than 20 final set of comparables having OPM at 6.95%. The names of comparables, their financial data, their working of OPM and the details of their financial profile was not available in this document. The working of operating profit margin of the assessee was also not available in documentation submitted by the assessee on 16.11.2005 In totality, the approach is totally devoid of any merit whatsoever to draw any reasonable conclusion regarding the justification of the assessee having maintained arm's length standards in the transactions it has proposed to cover under TNMM. As seen from the above paragraphs, the assessee company had not furnished proper documentation as required statutorily in 92CD read with Rule 10D. Hence, the penalty under Section 271G of the Income Tax Act is attracted. The reply furnished by the assessee is highly unsatisfactory. I am, therefore, satisfied that it is a fit case for imposition of penalty under Section 271AA of the act. The quantum of penalty leviable under Section 271G of the Income Tax Act is 2% of the value of the international transaction for each such failure.

The AO further observed that the assessee company had not furnished the documentation as required statutorily with respect to the transaction shown in the chart prepared at page 14 of the assessment order. The total international transaction has been worked out in the chart for Rs 2023.20 crore.

(viii) On examination of the evidences and after going through the observation of AO, I reached to the conclusion that the documents furnished beyond due date i.e. after 21.11.2005 were not 'supporting documents', argued by Id. AR but the same were vital for the determination of arm's length of international transactions. I further find that these documents are prescribed under sub-rule G, H, I & J of Rule 10D of the Income Tax Rules. In substance, I find that the appellant failed to furnish the prescribed documents/informations within due date before the TPO. Hence, it violated the provision of Section 92D(3) read with Rule 10D, G, H, I &J of Income-tax Rules.

(ix) The Id. AR has argued about the failure of non furnishing document on account of the reasonable cause being grey area in new provision of Section 92D read with Rule 10D of the Income Tax Rules.

However, I do not agree with the Id. AR as the assessee was required to furnish necessary documents /information as prescribed under Section 10D of the Income Tax Rules within due date but it failed to furnish the vital documents/information. I further find that the appellant is well supported by the CA & legal Advisors. Hence, the plea of grey areas and ignorance of law is not sustainable in the appellant's case.

(x) The Id. AR with an alternative argument pleaded that the penalty should not be levied on the total turnover but it should be levied on international transaction of Rs. 2023.20 crore. For the sake of convenience, the relevant portion of written submission at page 54 is reproduced below: Without prejudice, it is submitted that assuming for the sake of an argument, but without admitting, that there was an alleged default committed by the assessee and penalty was rightly leviable, it could have been imposed only in respect of those international transactions forming part of the value of international transactions of Rs 2023.20 crore, in respect of which there was an alleged non compliance of Clauses (g) to(j) of Rule 10D of the Income Tax Rules.

It is thus evident that the penalty has been imposed mechanically and without application of mind.

On going through the penalty order, I find that the AO has worked out the international transaction vide chart given at page 14 of the penalty order (under dispute). Thus, the AO after determining the international transaction at Rs 2023,20,68,788/-, levied the penalty @ 2% against such transactions only. Thus, the AO has levied the penalty on the value of international transaction of Rs 2023.20 crore, as argued by Id. AR. Hence, there is neither any difference in transaction nor any scope to interfere with that.

In substance, I find that the appellant has committed default by not furnishing the prescribed document/information within due date.

Hence, there was violation of provision of Section 92D(3) read with Rule 10D of the Income Tax Rules. With these observations, I hold that the AO was justified to levy penalty under Section 271G amounting to Rs 40,46,41,376/- and, thus, the action of the AO is upheld.4.1 It is clear from above that penalty of Rs 40,46,41,376/- has been imposed on the taxpayer for not furnishing documents and information called from him by due date which has been taken as 16.11.2005. In other words, the penalty has been levied for delay in furnishing the documents later than 16.11.2005.

5. We are, therefore, to see whether penalty of more than Rs 40 crores in this case is justified for delay in the submission of the documents claimed to have been called by the TPO in terms of Section 92D(3) of the Act.

5.1 Before proceeding to consider the legality and validity of aforesaid penalty on the facts and circumstances of the case, it would be necessary to refer to the relevant provisions of the Transfer Pricing Regulation under the Income-tax Act.

5.2 Section 92(1) of the Act enjoins that any income arising from an international transaction shall be computed having regard to arm's length price. It is, therefore, mandatory to take income of international transactions at arm's length price both by the taxpayer and the taxing authorities. The Central Board of Direct Taxes vide Instruction No. 3 dated 20^th May, 2003 has directed all its Officers to refer all cases for determination of ALP to TPO in which value of international transaction exceeds Rs 5 crores. Accordingly, this case was also referred to the TPO for the above purposes. Vide order dated 31.3.2006 the TPO determined the ALP and suggested adjustment to be made in the assessment. The A.O added the suggested amount of the adjustment in the assessment. The TPO in his order also observed that taxpayer had failed to comply with provisions of Section 92D read with Rule 10D of Income-tax Rules by not furnishing information in time and, therefore, action Under Section 271AA and 271G should be taken by the A.O. Accordingly, penalty proceedings Under Section 271G were taken and after hearing the taxpayer and after obtaining report from the TPO, penalty in question was imposed and upheld by the ld. CIT (Appeals).

6. It is the claim of the tax authorities that TPO had called for certain information and documents Under Section 92D(3) which the taxpayer failed to submit within the specified period of 30 days as extended by another 30 days under proviso to the above section. The TPO, therefore, asked the Assessing Officer to take action Under Section 271AA and 271G of the Income-tax Act, Information and documents prescribed under Sub-section (1) of Section 92D (Rule 10 D of Income-tax Rules) which the taxpayer has to keep and maintain and which the taxpayer can be asked to furnish as per Sub-section (3) of Section 92D were not furnished within the specified time. But how these documents were summoned in the present case is to be seen. Whether or not default for which penalty in question has been imposed took place.

We are also to see the circumstances under which the default, if any, was committed. We would, therefore, examine various notices issued by the TPO and information furnished by the taxpayer in reply from time to time. Although audit report is not an information or document mentioned in Rule 10D of Income-tax Rules, but report's connection with the Rule 10D is important and is to be seen under Section 92F. The report dated 27.11.2003 from RSM and Co., Chartered Accountant was duly furnished on the prescribed Form 3CEB is not in dispute. The report contained name and address of the taxpayer, list of the associated enterprises with whom the taxpayer had entered into international transactions, their names, relationship etc particulars in respect of transactions of intangible properties given, name with details were entered. Other columns of the prescribed Form in respect of transactions were duly filled and information was given in Exhibits attached with the report.

It is running into 18 pages and its copy is available at pages No. 8 to 25 of paper book Vol. 1. The report claims that goods and services were transferred at arms' length price. The report further showed that taxpayer had carried transaction with its 17 foreign associated enterprises listed at pages 15 and 16 of the report. It had carried transactions of purchase of oil, purchase of fertilizers, sale of soyabean meals, wheat, ferrous, rice, purchase of corn, sale of soyabeans, transfer of misc. assets, rendering of services, cost sharing arrangement, demurrage charges, reimbursement of expenses etc.

It also gave the method used for determination of arms length price which was either comparable uncontrolled price (CUP) or Transactional Net Margin Method (TNMM).

6.1 Besides the above report on Form 3CEB, the taxpayer had furnished audit report on Form 3CA dated 8th October, 2003 along with report on Form 3CD dated 28 August, 2003 which are running into 61 pages. Copies of the same are available at page No. 153 to 214 of the paper book of the taxpayer.

7. On a reference for the determination of transfer price to him, the TPO issued notice dated September 22, 2005 requesting the assessee to furnish some information and documents. The said notice/letter is referred to hereunder to appreciate the contention that it was a notice Under Section 92D(3) of the Act: A reference has been received Under Section 92CA(1) of the Income-tax Act from Cir. 3(1), New Delhi, the Assessing Officer, to determine us 92CA(3) the arm's length price in respect of 'international transactions' entered into by you during the F. Y. 2002-03. You are, hereby required to attend my office on 10.10.05 at 1.00 a.m. either in person or by a representative duly authorized in writing in this behalf or produce or cause thereby to be produced at the same time, any evidence and/or material, which has been relied upon by you in support of computation of arm's length price of the aforesaid international transactions. Further, in accordance with Rule 10D(2) of the Income-tax Rules, please substantiate on the basis of material available with you that the income arising from aforesaid international transactions has been computed in accordance with Section 92 of the Income-tax Act.

2. For the purpose of determination of 'arm's length price' Under Section 92CA(3) in respect of such international transactions, the following information/documents may also be filed in my office on or before the above mentioned date: (a) Balance sheet and Profit and loss account for F. Y. 2002-03 alongwith copy of Audit Report and Tax Audit Report filed with the Return.

(b) Statement of Computation of income filed with Return for A. Y. 2003-04.

(c) Information and documents maintained as prescribed Under Section 92D of the Income-tax Act, 1961 read with Rule 10D of the IT Rules.

If the above requirements are not complied with the arm's length price for 'international transactions' during the F. Y. 2002-03 shall be determined Under Section 92CA(3) of the I. T.Act on merits and on the basis of material on record.

8. The taxpayer, vide application dated October 10, 2005 sought an adjournment on the ground that its representative was traveling and was not available.

9. The TPO issued second notice on 13 October, 2005 to the taxpayer which is as under: Sub: Notice Under Section 92CA(3) of the Income-tax Act, 1961 - Computation of Arm's Length Price - Assessment Year 2003-04 - regarding.

Please refer to this office letter dated 22.09.2005 requesting you to submit documentation as prescribed under Rule 10D of the Income-tax Rules by 10^th October, 2005. However, the above-said documentation is yet to be submitted by your company.

10. On 7^th November, 2005, taxpayer again sought adjournment as relevant person who was to collect information and documents had to rush home due to some personal matter. Thereafter the TPO issued letter dated 8th November. 2005 to the taxpayer which stated as under: Sub: Notice Under Section 92CA(3) of the Income-tax Act, 1961 - Computation of Arm's Length Price - Assessment Year 2003-04 - regarding.

Please refer to proceedings Under Section 92CA(3) of the Income Tax Act, 1961 pending in the office of the undersigned.

2. This office letter dated 22.09.2005 requested you to submit documentation as prescribed under Rule 10D of the Income Tax Rules by 10^th October 2005. However, your company submitted no documentation on that date.

3. Another letter dated 13.10.2005 was issued requesting to submit the desired documentation by 7^th November 2005.

4. On 7^th November 2005, RSM and Co. filed a letter requesting for yet another date, it may be mentioned that as per the provisions of Section 92D maximum permitted period is 30 days and relevant section is reproduced below for ready reference: Maintenance and keeping of information and document by persons entering into an international transaction.

92D. (1) Every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed: (2) Without prejudice to the provisions contained in Sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under Sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard: Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.

5. It is reiterated that since time maximum permitted under the act for filing of statutory documentation is 30 days extendable by another thirty days. You are, therefore, again advised that statutory documentation, as prescribed, under Section 92D of the I.T. Act read with Rule WD of the IT. Rules may be filed immediately and latest by 21.11.2005. If possible documentation may be filed earliest possible even before 21.11.2005.

11. It is claimed by Shri C.S. Agarwal, Sr. Advocate, the learned counsel for the taxpayer that TPO has himself extended time upto November 21,2005 as per his fresh notice. This was done under proviso to Section 92D(3) of Income Tax Act and, therefore, there could not be any default upto the aforesaid date. This inference of no default can be drawn by what has been observed by the TPO in his notice dated November 8, 2005 wherein it is clearly stated that the filing of statutory documentation is extendable by another 30 days.

11.1 The taxpayer has claimed that on November 16, 2005 it filed information and documents with covering letter from RSM and Co. with several annexures and Notes running into 54 pages (copies available at pages 95 to 145 of Paper Book Vol.1 ). The said information once again gave background of the taxpayer, referred to Chapter X i.e. to Indian Transfer Pricing Regulations (TPR). How above regulations were applied to determine ALP of various transactions carried by the taxpayer with its Associated Enterprises (AEs) was explained. It was further stated that the taxpayer has maintained all the prescribed information and documents.

11.2 On furnishing of the information, the taxpayer added the following Note: In your goodselfs captioned notice, you have called upon the assessee to produce any evidence and/or material which has been relied upon by it in support of computation of the ALP of the international transactions entered into during FY 2002-03. In addition to the above, your goodself has also called upon the assessee to furnish the following: 1. Balance sheet and Profit and Loss account for FY 2002-03 along with copy of Audit Report and Tax Audit report filed with the return of income (ROI) for A Y 2003-04, 2. Statement of computation of income filed with the ROI for AY 2003-04.

3. Information and documents maintained as prescribed Under Section 92D of the Act read with Rule WD of the Rules.

In connection with the above, under instructions from, and for and on behalf of the assessee, we submit as under: 1. In respect of item (I) above, as required by your goodself we have attached herewith the copies of the Balance sheet, Profit and Loss account, Audit Report and Tax Audit report filed with the ROI for the captioned AY (refer Annexure I).

2. In respect of item (2) above, as required by your goodself, we have attached herewith the statement of computation of income filed with the ROI for captioned AY (refer Annexure 2) 3. In respect of item (3) above, as required by your goodself, we have attached herewith our submissions (refer Annexure 3).

We trust the above fully meets with your goodself s requirements and would be happy to provide further additional information/clarification that your goodself may desire. Further we also crave leave to add any documents in this regard.

Certified copy of the Power of Attorney executed by our client in our favour to represent before your goodself is attached herewith.

12. We ignore for the purposes of this discussion Annexure 1 and 2 which were audit report and computation of income already filed by the taxpayer and proceed to consider Annexure 3. With annexure 3, the taxpayer had tried to give information prescribed under Rule 10D(1) as under: Information/documents as prescribed under Section 92D of the Act read with Rule WD of the Rules: (a) Description of the ownership structure of the assesseeenterprise with details of shares or other ownershipinterest held therein by other enterprises.

(b) Profile of the multinational group of which theassessee enterprise is a part along with the name, address,legal status and country of tax residence of each of theenterprises comprised in the group with whominternational transactions have been entered into by theassessee, and ownership linkages among them.

(c) Broad description of the business of the assessee andthe industry in which the assessee operates, and of thebusiness of the associated enterprises with whom theassessee has transacted.

(d) Nature and terms (including prices) of internationaltransactions entered into with each associated enterprise,details of property transferred or services provided andthe quantum and the value of each such transaction orclass of such transaction.

(e) Description of functions performed, risks assumed andassets employed or to be employed by the assessee and bythe associated enterprises involved in the internationaltransaction.

(f) Record of the economic and market analyses, forecasts,budgets or any other financial estimates prepared by theassessee for the business as a whole and for each divisionor product separately, which may have a bearing on theinternational transactions entered into by the assessee.

(g) Record of uncontrolled transactions taken into accountfor analyzing their comparability with the internationaltransactions entered into, including a record of thenature, terms and conditions relating to any uncontrolledtransaction with third parties which may be of relevanceto the pricing of the international transactions.

(h) Record of the analysis performed to evaluatecomparability of uncontrolled transactions with therelevant international transaction.

(i) Description of the methods considered for determiningthe ALP in relation to each international transaction orclass of transaction, the method selected as the mostappropriate method along with explanations as to whysuch method was so selected and how such method wasapplied in each case.

(j) Record of the actual working carried out fordetermining the ALP, including details of the comparabledata and financial information used in applying the mostappropriate method, and adjustments, if any, which weremade to account for differences between the internationaltransaction and the comparable uncontrolledtransactions, or between the enterprises entering into suchtransactions.

(k) The assumptions, policies and price negotiations, ifany, which have critically affected the determination ofthe ALP.(1) Details of the adjustments, if any, made to transferprices to align them with ALPs determined under theserules and consequent adjustment made to the total incomefor tax purposes.

(m) Any other information, data or document, includinginformation or data relating to the associated enterprise,which may be relevant for determination of the ALP.12.1 In the letter dated November 21, 2005, the assessee made reference to information filed in TPO's office on November 16, 2005 and further stated as under: We trust the same (information) are in order. Should your goodself require any further clarification/information, we shall be glad to furnish the same.

12.2 During the course of hearing, the learned TPO instructed the taxpayer to furnish further information documents as per letter dated 12^th December, 2005. which reads as under: In your 10D documentation there is nothing in suggestion and justification of Comparative Uncontrolled Price wherever it is used in the sense that, with what uncontrolled transaction your international transaction is benchmarked, is not provided.

Similarly wherever Transactional Net Margin Method is used, your documentation does not provide which comparables are used, it further does not provide any functional details of comparables it is also not providing except reject matrix.

In the case of payment of discounting charges which was not reported in 3CEB. Even in documentation of 10D at page 17 figures of payment is mentioned and it is justified at page 41 by an averment that the rate charged is LIBOR + 12.5 basis points and PLR is on higher side without actually demonstrating the same.

In view of the above arguments please show cause why 10D documentation be not treated as insufficient and is requested that the same be furnished according to the rules.

12.3 The taxpayer filed further information on December 20/23.12.2005 with a covering letter which had the following references: With reference to the personal hearing before your goodself today, we, under instructions from, and for and on behalf of the assessee, attach herewith the working of application of TNMM in respect of the following international transactions: We crave leave to furnish the remaining information/documents sought by your goodself on the next date of hearing i.e. December 23, 2005.

12.4 In response to above show cause notice, the taxpayer submitted further documents in December, 2005. In doing so, the taxpayer, according to the TPO, committed a default which he recorded as under: 3.3 In response to above show cause, no reply was submitted on merits, instead on 20^th December, 2005, the assessee submitted a reply which was dated 12.12.2005. This document contained working of TNMM in respect of wheat, Merchanting trading, Support services, support agency services and distribution services; (this document is hereinafter referred as document-II). The contents of this letter were supposed to be part of original statutory documentation.

3.4 Even at this stage the documentation was not complete and on 23rd December, 2005, CIPL submitted more backup papers in the form of Annexure's, substantiating applicability of Comparable Uncontrolled Price method in oil, fertilizer, soya meal, rice, discounting charges, purchase of assets, commission on ferrous etc.

(Document-III). In this letter assessee defended its stand that the earlier documentation was complete and was adequate compliance the requirements of Rule 10D documentation.

It may be seen that the assessee company, therefore, consumed all most 3 months in compliance of submission of statutory and contemporaneous documentation. The documentation was submitted in a piece meal manner spread over various dates.

3.5 CIPL has failed to file statutory documentation by the due date as per provisions of Section 92D of Income Tax Act read with Rule 10D of Income-tax Rules. Apart from the above the following documents which are critical in determination of arm's length price of international transaction were not submitted as part of documentation submitted on 16.11.2005.

I. a record of uncontrolled transactions taken into account for analyzing their comparability including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties; II. a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction; 3.6 The Assessing Officer may consider initiating proceeding under Section 271AA and 271G of Income Tax Act.

3.7 Further, it is worthwhile to mention that the assessee did not report a transaction related to "Payment of discounting charges". In documentation submitted on 16.11.2005 at page 17, the assessee has admitted that it did not report, thus transaction related to "Payment of discounting charges" in Form 3CEB. It is, therefore, evident that by due date of filing of 3CEB no statutory documentation was maintained. Moreover, even in the documentation on 16.11.2005 nothing except that Comparable Uncontrolled Price method is most appropriate method to benchmark this international transaction was mentioned by CIPL. The total documentation submitted in respect of this international transaction is just one paragraph at page 41 of Document-I and one page in Document-Ill submitted on 23.12.2005. This page is a list of discounting contracts entered into by the assessee during the year along with rate of interest charged. The documentation is totally insufficient and qualifies to be characterized as no documentation. Hence it is a case where action both under Section 271 AA and 271G of Income Tax Act can be considered by the Assessing Officer.

13. It appears that on the basis of above order, the Assessing Officer initiated penalty proceedings Under Section 27IG by issuing show cause notice to the taxpayer on 13.4.2006 to explain why penalty be not imposed under the above provision. The taxpayer raised objection to the show cause notice vide its reply dated 18.5.2006 claiming that penalty proceedings were not initiated during the course of assessment proceedings and, therefore, no penalty can now be levied. The Assessing Officer rejected this contention, as according to him Scheme of Section 27IG was different from Scheme of Section 271(1) and, therefore, it is not necessary to initiate penalty proceedings during the course of assessment proceedings. The contention was rejected. The Assessing Officer further relied upon provision of Section 92D which, according to him, was to be read along with the provisions of Section 27IG. Both the sections, according to the Assessing Officer, are independent of assessment proceedings. The decisions referred to and relied upon by the taxpayer and noted by Assessing Officer in para 7 of the impugned order were held to be not applicable.

13.1 The Assessing Officer also rejected the objection of the taxpayer that no specific ground of initiation of penalty proceedings was mentioned in the show cause notice. According to the Assessing Officer in the show cause notice, reference to penalty Under Section 27IG was made and since the taxpayer failed to furnish information or documents as required under Sub-section (3) of Section 92D of the act, the requirements of the provision were satisfied. He rejected this objection also.

13.2 The Assessing Officer also considered the claim of the taxpayer on merit that it had maintained information and documents under Rule 10D of Income Rules read with Section 92D of Income-tax Act and furnished them within the prescribed time when called by the TPO. The Assessing Officer has recorded that report on the submission of the taxpayer was called from the TPO with relevant record of the proceedings. The TPO's report is dated 23.6.2006 where he had made reference to various order sheet entries of proceedings before him and stated that taxpayer had failed to furnish requisite documents as prescribed under Section 92D, read with Rule 10D of Income-tax Rules. Taxpayer's attention was also invited to the report of the TPO and objections were invited. These were submitted to the Assessing Officer, vide submission dated 29.8.2006.

13.3 In para 13 of his order, the Assessing Officer has briefly referred to the various notices issued to the taxpayer seeking information. The Assessing Officer rejected taxpayer's claim that it had submitted all the documents and information by 16.11.2005.

According to the Assessing Officer, documents and information filed by the taxpayer by 16.11.2005 were quite inadequate and did not satisfy the statutory requirement as envisaged in Rule 10D. The Assessing Officer has thereafter noted value of transactions of various description and method applied for evaluating their ALP. He noted that the taxpayer had applied CUP and TNMM methods to evaluate international transactions with associated enterprises (AE). He noted steps to be taken under comparable uncontrolled price method (CUP) under Rule 10B(1)(a) of Income-tax Rules. He further noted requirement of Clauses (g) to (j) of Rule 10D(1) of Income-tax Rules. Thereafter he referred to documentations filed by the taxpayer with TPO on 16.11.2005 (wrongly recorded as 16.11.2006 by the A.O).

13.4 After taking note of the submissions made by the taxpayer before the TPO, the Assessing Officer concluded that taxpayer, "has not furnished any comparable data with respect to the international transactions where 'CUP' method is used to determine the arm's length price. The actual working, details of the comparable data and financial information used in applying the CUP method was not furnished." Hence the documentation filed by the taxpayer on 16.11.2005 was quite inadequate and did not satisfy the statutory requirement as per Rule 10D.13.5 The taxpayer further failed to give backup documents/agreements on the basis of which cost plus method was applied. It failed to furnish comparable data of similar transactions undertaken by comparable in a similar industry. Hence documentation was incomplete.

13.6 As regards Transactional Net Margin Method (TNMM) applied by the taxpayer, the Assessing Officer has recorded as under: 24. During the year under reference there are major international transactions termed as Export of Wheat and Merchanting trade and the functional analysis of which is mentioned at page 25 and selection of Transactional Net Margin Method as method for transfer pricing at page 39 of document-l dated 16.11.2005. The assessee has taken itself as the tested party and has stated its transactions to be at arm's length by selection of comparables from the Capitaline database. What the assessee has mentioned is merely a search process through which it has attempted to identify a set of comparables. In the conclusion at page 46 of document-l, the assessee has merely intimated that profit level indicator used for benchmarking international transaction is OPM which means operating margin over sales/turnover. It is concluded in this paragraph that OPM of assessee is 0.09 percent which is better than 20 final set of comparables having OPM at -6.95%. The names of comparables, their financial data, their working of OPM and the details of their functional profile was not available in this document. The working of operating profit margin of the assessee was also not available in documentation submitted by the assessee on 16.11.2005.

In totality, the approach is totally devoid of any merit whatsoever to draw any reasonable conclusion regarding the justification of the assessee having maintained arm's length standards in the transactions it has proposed to cover under TNMM.13.7 The Assessing Officer also noted the contention of the taxpayer that it had furnished all documents under Rule 10D by 16.11.2005 and what was furnished on 12.12.2005, were actually "additional backup papers". The Assessing Officer held the view that documents furnished on 12.12.2005 were not additional backup papers but were inextricably linked with transactions and justification of their adherence to the arm's length principle. These were basic documents.

13.8 In respect of certain other international transactions, the Assessing Officer observed as under: 26. In case of other international transactions relating to Ocean Freight Savings, Cost Sharing Arrangements, Reimbursement of expenses paid, Contact extension/penalty charges and provision of support agency services, no method was adopted by the assessee to justify their arm's length nature. Even if. the assessee considered that these transactions were outside the purview of any benchmarking on any method prescribed under the act, reasonable and attributable justifications ought to have been brought out bv it in the Transfer Pricing report. No such analysis was made and again, the documentation maintained under Rule 10D in respect of these transactions was found incomplete.

13.9 No penalty for payment of discount charges was imposed Under Section 271G, with the following observations: 28. Though the assessee has not furnished the required documentation as prescribed under the Rule 10D, this issue ("Payment of discounting charges") was not considered for the levy of penalty Under Section 271G since the levy of penalty Under Section 271AA for non maintenance of proper documentation was already considered against the assessee vide the order of even date.

13.10. The Assessing Officer computed penalty Under Section 271G at Rs 40,46,41,376/-, as under: 30. Hence, the total value of international transaction on which penalty Under Section 271G is to be levied is Rs 20,23,20,68,788 (excluding the transaction relating to "Payment of discounting charges" for which penalty Under Section 271AA is being levied).

Amount of 2% of the same, amounting to Rs 40,46,41,376 is levied on the assessee company Under Section 271G of the IT. Act for non furnishing the information or document as required under Section 92D of the Act read with Rule 10D of the IT. Rules, 1962.

14. The taxpayer challenged levy of above penalty in appeal before the CIT (Appeals) and reiterated the submissions advanced before the Assessing Officer which are summarized by the learned CIT (Appeals) in para 2 of the impugned order. He has recorded his findings on various points in para 3 which are summarized hereunder: (i) The Id. CIT (A) has recorded that it is not necessary to initiate penalty proceedings during the course of assessment proceedings. These can be initiated at any time. The Assessing Officer can adjudicate and pass an independent order Under Section 271G (ii) That penalty imposed was not time barred as limitation was to commence from the date of issue of show cause notice. Dates are not recorded.

(iii) That it was not necessary for Additional C.I.T. to provide opportunity of being heard to the taxpayer before granting approval for the levy of penalty.

(iv) That penalty proceedings Under Section 271G were different from penalty proceedings Under Section 271(1) where a "satisfaction" is required to be recorded during the course of assessment proceedings.

There was no such requirement Under Section 271G. (v) The learned CIT (Appeals) further recorded that penalty proceedings Under Section 27IG are different from penalty provisions of Section 271AA. In the appeal before him he was concerned with penalty imposed Under Section 27IG only.

(vi) On examination of various findings of the Assessing Officer at page 10, 11, 13 and in paras 21, 23, 24 and 29 of the order imposing penalty, the learned CIT (Appeals) reached the conclusion that documents furnished beyond due date i.e. after 21.11.2005 were not "supporting documents". These were vital in determination of ALP in international transaction. These documents are prescribed under Sub-rule (g), (h), (i) and (j) of Rule 10D of Income-tax Rules. The appellant had failed to furnish the prescribed documents/information within the due date and, therefore, penalty was rightly levied and worked out. The penalty order was accordingly confirmed.

15. In these appellate proceedings, Shri C.S.Agarwal, learned counsel for the taxpayer appellant vehemently contended that there was no default in maintaining Information and documents prescribed as per Rule 10D. Auditor's report on Form 3CEB was also furnished in time. He further contended that provisions of Sub-section (3) of Section 92D are directory and not mandatory. In the present case, no valid proceedings Under Section 27IG of Income-tax Act were initiated. The penalty proceedings could have been initiated during the course of assessment proceedings. It was further necessary for the Assessing Officer to record, during the course of assessment proceedings and in the assessment order, that asscsscc had committed a default Under Section 271G of the Income-tax Act. This, according to Mr. Agarwal, was implied requirement of law. The learned Commissioner had also granted approval to the levy. of penalty in a mechanical manner and, therefore, such mechanical approval vitiated the entire proceeding. Shri Agarwal placed reliance on the decision of Hon'ble Supreme Court in the case of CIT v.D.P. Sandu Bros. Chembur P. Ltd. Shri Agarwal further pleaded that Assessing Officer who made assessment order had no jurisdiction to initiate or levy penalty. No default admittedly was committed in the proceedings taken by him. The default, if any, was committed before TPO, therefore only TPO had jurisdiction to initiate penalty proceedings as he was also defined as Assessing Officer in the statutory regulations. There is nothing in Section 271G to show that Assessing Officer could punish even for the default committed in proceedings not before him.

15.1 Shri Agarwal stated that notice issued by the Assessing Officer was invalid in law and otherwise vague. Shri Agarwal drew our attention to the show cause notice issued to the taxpayer which is as under: It is noticed that you have failed to furnish the information or documents as required under Sub-section (3) of Section 92D....

It was argued that in fact no show cause notice for purported default allegedly committed under Clauses (g), (h), (I), (j) of Rule 10D was ever issued. The show cause notice issued is highly vague and non specific of the charge to which the taxpayer was expected to respond.

In fact two show cause notices under Sections 271AA and 27IG contradicted each other were issued. Shri Agarwal relied upon decision of Supreme Court in Reckitt & Colman of India Ltd. v. Collector of Central Excise wherein their Lordships have observed as under: 10. There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not. sufficient to proceed against the respondents unless it is shown that they were parties to the arrangements, if any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGATcannot be faulted.

15.2 Shri Agarwal also relied upon decision of Supreme Court in the case of Hindustan Polymers Co. Ltd. v. Collector of Central Excise, Guntur 15.3 Shri Agarwal also contended that penalty in the present case was levied on a different footing than what assessee was asked to respond as per show cause. Principles of natural justice were also vitiated in this case. Shri Agarwal also submitted that as per settled proposition of law, penalty provisions are required to be strictly construed.

15.4 In support of contention that penalty proceedings are to be initiated during the course of assessment proceedings, Shri Agarwal relied upon decision of jurisdictional High Court in the case of CIT v.Sardar Amarjit Singh 132 ITR 365 (Del), wherein it has been held as under: There is also another aspect to Section 275. It also contains implicitly a limitation that the penalty proceedings should be commenced before the completion of the assessment...

He also relied upon decision of Ahmedabad High Bench of Income-tax Appellate Tribunal in the case of H. Ajitbhai and Co. v. ACIT 45 ITD 15.5 In support of contention that before initiation, no satisfaction was recorded that default in terms of Section 271G was committed in the assessment proceedings or in the assessment order, Shri Agarwal drew our attention to the assessment order and also the finding of learned CIT (Appeals) in para V, page 7 of his order. As Assessing Officer has failed to record his satisfaction regarding initiation of penalty proceedings Under Section 271G in his assessment order, therefore, subsequent initiation of penalty proceedings are void ab initio and totally vitiated in law. For above proposition, Shri Agarwal relied upon the following decisions:Saroop Lal Adlakha v. DCIT He submitted that above mentioned decisions were in the context of Section 271(1)(c), yet the ratio of these judgments was equally applicable Under Section 271G.15.6 Shri Agarwal also attacked reference made by the Assessing Officer to TPO Under Section 92CA(1) as illegal and not in accordance with law, yet when his attention was drawn to binding decision of Full Bench in the case of Aztech Software & Tech Ltd. v. ACIT 107 ITD 141 TM, he did not further address on this aspect.

15.7 The show cause notice is verbatim reproduction of penalty provision as laid in Section 271G without application of mind and without specifying the nature of default. Such a notice is clearly illegal and for this proposition, Shri Agarwal relied upon decision of Hon'ble Supreme Court in the case of Amrit Foods v. Commissioner of Central Excise UP 2005 (190) ELT 433, wherein their Lordship observed as under: The revenue has preferred an appeal from the order of the Tribunal setting aside the imposition of penalty under Rule 173Q of the Central Excise Rules, 1944. The Tribunal has set aside the order of the Commissioner on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 173Q had been allegedly contravened by the appellant. We are of the view that the finding of the Tribunal is correct. Rule 173Q contains six clauses the contents of which are not same. It was, therefore, necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of the 173Q. This not having been done the Tribunal's finding cannot be faulted. The appeal is, accordingly, dismissed with no order as to costs.

He also relied upon decision of Hon'ble Madras High Court in the case of B. Lakshmichand v. Government of India wherein it was held that no penalty could be validly imposed unless specific clause is quoted and show cause notice must contain specific allegations and the amount of duty payable. He also relied upon decision of Hon'ble Delhi High Court in the case of CIT v. Ajay Hari Dalmia 15.8 Shri Agarwal also argued that the Assessing Officer contradicted himself by issuing notice Under Section 271AA and 271G of the Income-tax Act. If no accounts or documents were maintained as alleged, then there was no question of producing them. The learned counsel's submission was as under: (iii) It would be apparent from the said two notices that the ACIT without specifying, in respect whereof Appellant had failed to furnish information or documents and in respect whereof the Assessee had failed to keep and maintain information and documents, has directed the Assessee to show cause, why penalty be not imposed under two independent different statutory provisions namely 271G and 271AA of the Act and as such notices were vague and contradictory.

Further it is submitted that the order of assessment made by the assessing Officer (copy placed at page 1-9 of paper book-1) nowhere shows that there was any such failure as was alleged by him in his show cause notices.

15.9. Shri Agarwal relied upon the case of Smt. Ramilaben Ratilal Shah v. ACIT 100 Taxman (Mag) 338, a decision of Ahmedabad Bench of the Income-tax Appellate Tribunal wherein it was held as under: if the Assessing Officer is not precise about the charge while issuing the show cause notice for initiating the penalty proceedings, the penalty levied is liable to be cancelled on this score alone, since the very issuance of the show-cause notice initiating the penalty proceedings, is invalid.

16. Shri Agarwal stated that even on merit there was no justification to impose any penalty recording that the taxpayer appellant had failed to furnish information or documents required by the statutory provision. As is clear from order, penalty has been levied for furnishing documents found to be "inadequate" and it has been held that documents filed on 16.11.2005 were insufficient which insufficiency was rectified by letters filed on 12.12.2005 and 23.12.2005. However, no such specific "inadequacy" was mentioned in the show cause notice. In this connection, Shri Aggarwal in support of above contention has drawn our attention to following observations at page 14 of order Under Section 271G: ...However as seen from the documentation filed by the assessee company vide submissions dated 16.11.2005 the documentation filed was quite inadequate.....

It is clear from record that Assessing Officer was totally unspecific besides being unclear in respect of the default allegedly committed by the taxpayer. This is evident from Assessing Officer's observations which are different and changing in different parts of order Under Section 271G.16.1 Shri Agarwal further submitted that it is well settled law that an opportunity of being heard must be real, effective and not illusionary.

In the instant case, it is apparent that show cause notices were vague, unspecific, contradictory and general in nature. Therefore, levy of penalty was totally vitiated, so was its initiation. When objection on above account was raised before the learned CIT (Appeals), he failed to address the above contention regarding validity of the show cause notice. Shri Agarwal thus emphasized contradiction in the penalty order and the show cause notice where it was time and again stated that documents filed by the taxpayer by 16.11.2005 were inadequate (para 14 of penalty order Under Section 27IG) whereas in para 29 of the same order, it is stated as under: As seen from the above paragraphs, the assessee company had not furnished proper documentation as required statutorily in Section 92D read with Rule 10D of the IT rules.

In support of the contention that levy of penalty on a different footing than one on which it is initiated would lead to inference that reasonable opportunity was not afforded to the taxpayer and, therefore, penalty could not be sustained. Shri Agarwal also relied upon decision of Supreme Court in the case of CCE v. Brindavan Beverages (P) Ltd. and Ors, which has already been quoted.

16.2 Shri Agarwal then drew our attention to Sub-section (2) of Section 274 of Income-tax Act providing that no order imposing penalty shall be made unless assessee has been heard or has been given reasonable opportunity of being heard. Further the penalty order must have prior approval of the Joint Commissioner where penalty exceeds Rs. 20,000/-.

In the present case the Additional Commissioner, Range-Ill granted approval in a mechanical manner without affording any opportunity of being heard to the assessee. Therefore, order was bad in law. In support of his contention, Shri Agarwal relied upon decision of Hon'ble Supreme Court in the case of R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commissioner (IT and WT) and Anr. 176 ITR 169 where it has been observed as under: the act in violation of principle of natural justice or a quasi-judicial act is void or of no value. The Hon 'ble SC in so holding has relied on its judgment in the case of State of Orissa v. Dr. (Miss) Binapani Dei Reported 16.3 Shri Agarwal also relied upon decision of Supreme Court in the case of Rajesh Kumar and Ors. v. DCIT and Ors. 287 ITR 91. He also relied upon Circular No. 12 dated August 23, 2001 of Central Board of Direct Taxes and drew our attention to the following observations: However, this is a new legislation. In the initial years of its implementation, there may be room for different interpretation leading to uncertainties.... While it is necessary to protect our tax base, there is a need to ensure that the tax-payers are not put to avoidable hardship in the implementation of these regulations.

16.4 Shri Agarwal reiterated that findings of the Assessing Officer were beyond jurisdiction and on appeal, learned CIT (Appeals) failed to consider that Assessing Officer had exceeded his jurisdiction and commented upon maintenance of documents under Rule 10D of Income-tax Rules in respect of international transactions with AE's in respect of which TPO did not make any adverse observations on maintenance or production of documents. Shri Agarwal further submitted that,In respect of certain international transactions such as Ocean Freight Savings, Cost sharing arrangements, reimbursement of expenses paid, contract extension, provision of support agency seivices, etc., no observations on deficiency on filing of documentation have been made by the TPO. On the other hand, the AO has not only commented upon maintenance of documentation even in respect of such transactions but has also levied penalty on the same, which in any case should not have been levied.

Shri Agarwal further submitted, that the TPO while computing the Arm's length price in respect of the international transactions entered into by the appellant has not considered any fresh evidence but has merely relied upon the documents/records furnished by the appellant during the course of transfer pricing proceedings. This fact is conclusive enough to indicate that proper documentation, including supporting documentation, were maintained by the appellant and the same were made available to the TPO as and when called for to enable him to compute the arm's length price in respect of the international transaction entered into by the appellant.

16.5 Shri Agarwal further argued that provisions of Section 271G can be invoked only in a case where prescribed information and documents are not furnished within the prescribed time. He drew our attention to provision of Section 92D(3) and 271G and argued that Under Section 92D(3), the Assessing Officer or the CIT (Appeals) has discretion to call for information, documents as prescribed under Section 92D(1) read with Rule 1OD in the course of any proceedings under the Act. If the taxpayer fails to furnish prescribed documents within the prescribed period of 30 days or 60 days as envisaged in the statutory provision, the penalty can be imposed. Shri Agarwal argued that question of invoking above provision cannot arise as there was no default by the taxpayer as T.P.O. never exercised his power Under Section 92D(3). Shri Agarwal referred to TPO's first notice and detail of the documents summoned from him. The above notice, according to Shri Agarwal, was not in spirit of the statutory provision. On the information called, Shri Agarwal submitted that by Sl. No. 3 the TPO has called for "all" the information which has been maintained by the appellant in relation to the international transactions. He submitted that the documentation requirements under Rule 10D are huge and cast onerous documentation responsibilities upon the appellant. A perusal of Rule 10D of the rules would show that the data required to be maintained is huge and can be considered as equivalent to separate and additional books of account.

Shri Agarwal also referred to provision of Section 142(1)(ii) and 143(3) that even for purposes of regular assessment, the Assessing Officer has to exercise his discretion in a reasonable manner for assessment purposes. The T.P.O. adopted unreasonable and illegal approach.

Shri Agarwal further argued that it is clear from the order of the TPO dated 22.3.2006 that all documents were filed by the taxpayer. The TPO has recorded as under: ...In response to notice Under Section 92CA, the authorized representative of the assessee appeared from time to time. The documentation under Rule 10D of the Income-tax Rules was submitted and placed on record.

16.6 Shri Agarwal further submitted that CIT (Appeals) failed to appreciate that no penalty Under Section 271G was leviable as all information and documentation, as per the provision of Rule 10D, were furnished. Shri Agarwal also provided us a chart regarding happening on each date of hearing before the TPO from 22nd September, 2005 to 23rd December, 2005. Shri Agarwal referred to reply letter dated 16.11.2005 filed before TPO to show that there was a bonafide attempt to comply with provision of Section 92D read with Rule 10D of the Income-tax Act.

It was accordingly contended that all information/documents prescribed by Section 92D of Income-tax Act read with Rule 10D were duly furnished vide letter dated 16.11.2005 and only additional information and voluminous back up documents were furnished to TPO vide letters dated December 12, 2005 and December 23, 2005. The taxpayer from time to time cooperated with the TPO.16.7 Shri Agarwal in the alternative and without prejudice to above submissions, submitted that the implementation of transfer pricing policy is at initial stage and the CBDT itself has stated that it would not put taxpayers to avoidable hardships in the implementation of these regulations. It is submitted that documents were filed as per the understanding of the new law by the taxpayer and as per the advice received by the taxpayer from time to time relating to transfer pricing regulations. There was no malafide intention on the part of the assessee to commit any default. The default, if any, of few days could not be said to be without a reasonable cause.

16.8 Shri Agarwal further submitted that plea of a reasonable cause before the Assessing Officer was raised in letter dated May 18, 2006 as under: Despite significant movement of its key finance/accounting personnel responsible for coordinating, collating and compiling the information/documents maintained by the various business departments, the assessee extended complete cooperation in the assessment proceedings. To place on record, the Country Finance Controller left the organization on October 25, 2005 and a new Controller was hired who joined the organization on November 7, 2005, and was thus uninitiated in respect of the subject assessment proceedings. The new Controller is based out of the assessee's office in Pune. Further, the position of Manager (Corporate Accounts) fell vacant, and was filled on September 1, 2005.

It was again reiterated in reply dated August 29, 2006 that alleged delay had occurred on account of a reasonable cause and in the absence of country financial controller. However, Assessing Officer imposed penalty without making any adverse comment on the pleaded cause. The learned CIT (Appeals) in appellate proceedings also did not record any adverse finding on the cause pleaded and explained by the taxpayer.

Therefore, even if the alleged failure was proved, no penalty is exigible or sustainable as failure took place on account of a reasonable cause. The Assessing Officer and learned CIT (Appeals) have erred both on facts and in law in levying and upholding penalty without recording a finding on the reasonable cause. Shri Agarwal, in this connection, relied upon the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26 wherein it has been observed as under: Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

In the case of Woodward Governor India Pvt. Ltd. v. CIT and Ors. 253 ITR 745 (Del) wherein, in the context of Section 27IC (penalty for failure to deduct tax at source), the Hon'ble Court held as under: Levy of penalty under Section 27IC...is not automatic. In order to bring in application of Section 27IC, in the backdrop of the overriding non obstinate clause in Section 273B, absence of reasonable cause, existence of which has to be established, is a sine qua non. Before levying penalty, the concerned officer is required to find out that even if there was any failure to deduct tax at source, the same was without reasonable cause ... the cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, would the prescribed consequences follow.In Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471 (Del), it is explained that reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides.Collector v. P. Mangamma , while interpreting the word "reasonable" has observed as follows (headnote): It would be hard to give an exact definition of the word 'reasonable'. Reason varies in its conclusions according to the idiosyncrasy of the individual and the times and circumstances in which he thinks. The reasoning which built up the old scholastic logic stands now like the jingling of a child's toy. But mankind must be satisfied with the reasonableness within reach; and in cases not covered by authority, the decision of the judge usually determines what is 'reasonable' in each particular case; but frequently reasonableness, 'belongs to the knowledge of the law, and therefore, to be decided by the courts'. An attempt to give a specific meaning to the word 'reasonable' is trying to count what is not a number and measure what is not space. It means prima facie in law reasonable in regard to those circumstances of which the actor, called upon to act reasonably, knows or out to know. It is impossible a priori to state what is reasonable as such in all cases. You must have the particular facts of each case established before you can ascertain what is reasonable under the circumstances.

17. Shri Agarwal further submitted that keeping the above principles in mind, it is evident in the instant case, the appellant had explained that despite significant movement of its key finance/accounting personnel responsible for coordinating, collating and compiling the information/documents maintained by the various business departments, the appellant extended complete cooperation in the assessment proceedings. The Country Finance Controller left the organization on 25.10.2005 and a new Controller was appointed who joined the organization on 07.11.2005 and was thus unfamiliar with the instant assessment proceedings. The new Controller is based out of the appellant's office in Pune. Further, the position of Manager (Corporate Accounts) fell vacant, and was filled on 01.09.2005. Thus, even for the sake of an argument it is presumed that the appellant furnished a part of the prescribed information/documents only after the statutorily prescribed deadline of 60 days, the above facts would, in terms of Section 273B of the Income-tax Act, would constitute reasonable cause for failure to do so. The delay too was rectified within 10 days of intimation of the same from the TPO.17.1 As such the appellant humbly submits that, it has extended its full cooperation in the Transfer Pricing assessment proceedings initiated in its case under Section 92CA of the Income-tax Act, by way of furnishing all the information/documents/clarifications to the TPO, (inspite of the fact that there was significant movement of key finance personnel responsible for maintaining these records), as and when called for, and thus, there was total absence of mens rea in this case.

18. The submissions of counsel for the assessee were opposed by Shri L.M. Pandey, learned Departmental Representative appearing for the Revenue. It was contended that taxpayer's submission that notice issued Under Section 271G was without jurisdiction, is without any substance.

In this connection, Shri Pandey drew our attention to provisions of Section 271G of the Income-tax Act. He argued that Assessing Officer is within his jurisdiction to issue notice under the above provision as assessment proceedings were finalized by him and assessment was made by him. He argued that legislative provision on the above aspects was clear and unambiguous. Explanation to Section 92CA clarifies that TPO would be an Assessing Officer for purposes of Section 92C and Section 92D of the Act. The TPO is to compute ALP by application of most appropriate method. He further argued that Section 92C and 92CA make it clear that when ALP is determined by Assessing Officer Under Section 92C(3), the Assessing Officer may recomputed the total income of the taxpayer having regard to ALP so determined. Shri Pandey emphasized that, it is aptly clear that the provisions of Section 92C are expressly available to the A.O and once a reference is made these provisions up to the determination of ALP is relayed to the TPO.18.1 Shri Pandey further argued that T.P.O. has been given power Under Section 92CA to determine the ALP only on a reference made by the A.O.The TPO can use powers Under Section 92C and Section 92D which are relayed to him for determining ALP. He has to record whether the documents prescribed were 'filed' or 'not filed' within the prescribed statutory period. The penalty Under Section 27IG is to be initiated by the authority who is empowered to levy the penalty which is -the Assessing Officer.

18.2 Shri Pandey further contended that it was not right on the part of the taxpayer to contend that taxpayer did not commit any default before the Assessing Officer and, therefore, his action in imposing penalty was not in accordance with law. Shri Pandey once again placed reliance on statutory provision of Section 92D which authorizes the TPO and the Assessing Officer to summon information and documents from the taxpayer. Shri Pandey further contended that authorities of Assessing Officer and TPO may be different in form but in substance they are one in this interregnum.

18.3 Shri Pandey further contended that claim of the taxpayer that notice issued by TPO was vague and invalid is also without any substance. Shri Pandey argued that once Assessing Officer had made order of the TPO as part of his assessment order, entire finding and recording of TPO was migrated to and became part of assessment order which was part of AO's satisfaction and finding. The TPO in the order had made clear as to which documents the taxpayer had failed to furnish. Besides the taxpayer was provided adequate opportunity to appear before the A.O and contest the proposed penalty. According to Shri Pandey, the specific documents and default attached thereto were explicitly explained to the taxpayer which is clear from the penalty order. Accordingly, it was submitted that there was no defect in the show cause notice.

8.4 Shri Pandey further submitted that it is not correct on the part of the taxpayer to contend that default in question was merely a technical or venial default. The taxpayer failed to comply with statutory provision and file documents within the specified time and thus committed a default Under Section 271G of the Income-tax Act. The taxpayer deliberately and in defiance of statutory provisions refused to file information and documents sought from the taxpayer to show the basis of its claim that international transactions were at arm's length. Thus from act and conduct of the taxpayer mens rea on the part of the taxpayer is clearly established.

18.5 Shri Pandey also refuted the claim of the taxpayer that as documents were furnished before culmination of proceedings before the TPO, no default was committed. It was stated that documents and information was to be furnished within the time limit as fixed under the Statute and, therefore, penal provisions would be attracted if statutory time limit is not complied with. The burden to establish transactions were carried at arm's length is on the taxpayer. It is for the taxpayer to establish and furnish requisite details on the application of appropriate method for determination of ALP and justify the same by producing relevant information and documents. The whole scheme relating to determination of tax liability, under the transfer pricing are sequential steps of the legislative process and, therefore, default in furnishing of documents have a direct bearing. This has been emphasized by the Special Bench of IT AT in the case of Aztec Software & Technology Services Ltd. v. Asstt. CIT 107 ITD 141 (Bangalore) (SB).

Shri Pandey, therefore, argued that intentions of the Legislature in this issue are quite clear. The limitation or time, within which documents are to be filed, could not be altered.

18.6 Shri Pandey also argued that non mention of any specific clause of Rule 10D in the show cause notice did not affect the validity of the notice. The taxpayer was allowed opportunities and further hearings and all details were made known to the taxpayer as is evident from the penalty order.

18.7 Shri Pandey also argued that Assessing Officer considered all pleas advanced by the taxpayer and its reply was found unsatisfactory.

The CIT (Appeals) also dealt in para 3(ix) of its order with plea of reasonable cause taken by the taxpayer. It was, therefore, not correct that plea of the taxpayer relating to reasonable cause was not discussed.

18.8 Shri Pandey also challenged the argument of the taxpayer that documents filed after 16.11.2005 were merely supporting documents. The orders and annexures of the TPO's order in uncertain terms spell out that documents filed later should have been filed within the due time as in the absence of these documents the justification put forward by the taxpayer for ALP could not be understood or verified.

18.9 It was also wrong to claim that entire international transactions could not be made basis of levy of penalty. Shri Pandey justified the quantum of penalty imposed as the taxpayer has failed to furnish documents and information in respect of all the 24 international transactions. Hence no fault could be found with the basis of the penalty.

19. Shri Pandey further referred to impugned order of CIT (Appeals) wherein he has pointed out that under the provisions of Section 274(2) of the Act, no responsibility is cast on the Assessing Officer to provide opportunity of being heard to the taxpayer before making a reference to the TPO. Likewise, such opportunity is not to be provided to the taxpayer before approval for levy of penalty is granted. The arguments advanced on behalf of the taxpayer were devoid of any substance, Shri Pandey added.

19.1 Shri Pandey further argued that it was wrong on the part of the taxpayer to contend that principles of natural justice were violated in this case. Here material relied upon by the Assessing Officer for invoking provisions of Section 271G was quoted from the order and record of the TPO. This material was duly put to the taxpayer before levy of penalty. No material against the taxpayer was used without reference to the taxpayer. Thus all the principles of natural justice were followed and fully satisfied. Shri Pandey relied upon Circular No.12 dated 23.08.2001 of the Central Board of Direct Taxes specifying 31st August,2001 as cut out date up to which leverage could be provided for formalities relating to transfer pricing. The default in the present case was committed after the above date. There was no respite or privilege granted to the taxpayer to take shelter and claim relief.

19.2 Shri Pandey also gave para-wise reply to the taxpayer's synopsis in the written submissions contained in Volume-II of the paper book. He argued that contention of the assessee that only insufficient documents were given till the time allowed and supporting documents were given later on and that penalty was levied without valid initiation, were all incorrect submissions. The order of the TPO had amalgamated in the order Under Section 143(3) by clear remarks of the Assessing Officer inasmuch as it became a part of he said order. Thus there was satisfaction of the Assessing Officer relating to breach of time in submitting documents.

19.3 Shri Pandey further argued that Section 275 of the Act lays down the time limit for passing penalty order and there is no time for initiation of penalty proceedings. He further relied upon decision in the case of CIT v. Madan Roller Flour Mills [1999] 71 ITD 274 (Asr.) wherein it was held that penalty proceedings were independent of assessment proceedings and, there was no need to initiate them before the completion of the assessment. Shri Pandey also referred to decision of Guwahati High Court in the case of Assam State Warehousing Corporation v. CIT . Shri Pandey also cited cases where penalty proceedings are initiated Under Section 271(1)(c) on the basis of prima facie adjustments and without issuing notice Under Section 143(2) of Income-tax Act. He emphasized that initiation of penalty proceedings can be totally independent of assessment proceedings.

19.4 Shri Pandey further referred to Section 275 providing for limitation for imposing penalty. Shri Pandey contended that limitation issues were serious issues and are governed by express statutory provisions and not by any implied law. Initiation and imposition of penalty provisions are governed by express statutory provisions. One penalty provision cannot be blindly applied to the other penalty provision.

19.5 Shri Pandey also argued that show cause notice issued by the Assessing Officer Under Section 27IG was quite valid. He submitted that no format of show cause notice has been prescribed under the Act.

Therefore, Assessing Officer is only required to quote section under which the show cause notice is issued. In case the default is not clear to the taxpayer, he may make necessary correspondence with the Assessing Officer to clarify any issue. In this case, copy of order of Assessing Officer and of TPO as also report of the TPO was duly furnished to the taxpayer. There is no material on record to show that taxpayer was unaware of the nature of default he was required to meet.

The taxpayer raised plethora of arguments to support its contention on purported default. The taxpayer was allowed personal hearings and after considering arguments and material on record, penalty was imposed.

Therefore, technical objection of the taxpayer was devoid of merit.

20. Shri Pandey also challenged taxpayer's submissions that findings of the Assessing Officer were beyond jurisdiction. As stated earlier, the Transfer Pricing Officer and the Assessing Officer had found that statutory documentation were not filed in time and, therefore, taxpayer committed default Under Section 271G in respect of international transactions carried by the taxpayer with its AEs. It was wrong on the part of the taxpayer to contend that some international transactions such as ocean freight savings, cost sharing arrangements, reimbursement of expenses paid and provision of support agency services on which no observation on deficiency was made by the TPO. All these were international transactions and ought to have been benchmarked on a particular method for determination of the ALP. Even in respect of these transactions, taxpayer failed to furnish information and documents within the prescribed time. As late as on 20 December, 2005 it supplied working of TNMM in respect of support agency services which were required to be given in the original documentation filed in November, 2005. Documents relating to transactions on which CUP method was applied were furnished as late as on 23.12.2005. Therefore, TPO rightly commented on totality of the transactions and contention of the taxpayer that only in respect of part of the international transactions, default was committed, was without substance. From record, it is clear that taxpayer failed to furnish documents, it was required to furnish Under Section 92D(3) of the Income-tax Act and, therefore, committed a default Under Section 271G. The learned Departmental Representative also distinguished the cases cited by the taxpayer.

21. We have given careful thought to the rival submissions of the parties. We have also examined relevant statutory provisions and the case law cited before us. In the case of Aztec Software & Technology Services Ltd. 107 ITD 141 (Bangalore) (SB), the Special Bench of the Tribunal, after considering parallel transfer pricing regulations in large number of countries, as also Indian Regulations on the subject, observed as under: 132. A dispassionate study of provisions of various countries on Burden of Proof would show, the following fundamental features: (i) That the burden to establish that international transaction is carried at ALP, is on the taxpayer who is to disclose all the relevant information and documents relating to prices charged and profit earned with related and unrelated customer.

(ii) If the Assessing Officer has determined an ALP, other then the price declared by the assessee, AO has to prove that the price determined by him is reliable and reasonable and confirms the statutory requirement unless the case is covered by situation No. (111) below.

(iii) In case of failure on the part of the taxpayer to comply with the statutory provisions, the tax authorities would have to determine the ALP. In such a situation, burden of proof on tax authorities is much reduced.

133. Having regard to the statutory provisions, particularly the mandate of Section 92(1) and 92D read with relevant rules, we hold that it is obligatory on the part of the taxpayer to furnish information relating to controlled international transactions, select a suitable method for determination and furnish ALP of such international transactions carried by it and give basis and supporting authentic evidence of ALP and adjustments made. The Taxpayer has further to cooperate in the determination of the ALP by the tax authorities by furnishing all relevant information. The tax authorities in cases where they are of the opinion that ALP has not been correctly determined by the taxpayer, can substitute their own ALP on the basis of material or information furnished by the assessee or collected by them. However, such ALP has to be determined having in mind provisions of Sections 92 and 92C and other Rules and regulations. While determining ALP, tax authorities are bound to follow principles of natural justice and be fair and reasonable to the taxpayer. Any material collected to be used against the taxpayer is to be put to tax payer to explain. Having regard to the purpose of the legislation and application of similar enactment world over, it must further be held that adjustments made on account of ALP by tax authorities can be deleted in appeal only if the appellate authorities are satisfied and records a finding that ALP submitted by the assessee is fair and reasonable. Merely by finding faults with the transfer price determined by the revenue authorities (A.O./TPO), addition on account of "adjustments" cannot be deleted. This is because the mandate of Section 92(1) is that in every case of international transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record has to determine ALP itself Subject to statutory provisions, Appellate authorities can direct lower revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case.

135. On consideration of the relevant provisions, it is evident that in the process of determining Arm's Length Price, the first important factor to consider is the specific characteristics of services rendered both in the international transaction as also in the uncontrolled transaction. Next important aspect required to be considered is amount of assets employed, risk involved, both in controlled and uncontrolled transactions. If there are such differences between transactions taken for comparison, which are likely to affect the price or cost charge etc in the open market then reasonable and accurate evaluation is to be done and adjustment made. Reliability of uncontrolled transaction would depend upon the degree of comparability. The uncontrolled transaction may not be taken "as comparable" if there are such material differences as can not be adjusted. If data found satisfy above requirements then further proceedings to find the most appropriate method, best suited to the facts and circumstances of a particular international transaction is to be selected. In other words, most appropriate method would be the method which provides most reasonable results having regard to the data available for determining arm's length price. If there are more than one ALPs determined on the application of most appropriate method then arithmetical mean of such prices or price at option of the assessee within 5% variation is to be adopted (Proviso to Section 92C(2)).

22. As in the present case, question of validity of levy of penalty of Rs 40,46,41,376/- imposed Under Section 271G for not furnishing information and documents within the time specified in notice Under Section 92D(3) is under challenge, we will examine the Scheme relating to maintenance of information and documents and their furnishing before the revenue authorities for determining the ALP. The Assessing Officer/TPO needs information and documents on controlled and uncontrolled international transactions and other relevant evidence.

The taxpayer, under the legislation, is rightly thought to be the best person to supply the relevant information being a party to the international transaction. The information and documents are prescribed as per Rule 10D of Income-tax Rules, quoted hereafter. In the column No. 2 on the right are the form/stage where particular information under specific clauses is required to be given.

Rule 10D. Information and documents to be kept and maintained under Section 92D.(1) Every person who has entered Time/form when informationinto an international transaction is to be furnished as pershall keep and maintain the clause.(a) a description of the ownership (a) In the audit report onstructure of the assessee form 3CEB.enterprise with details of shares(b) a profile of the multinational (b) - same -group of which the assessee(c) a broad description of the (c) - same -business of the assessee and the(d) the nature and terms (d) In Form 3CEB in the(including prices) of audit report or Underinternational transactions entered Section 92D(3)or Underinto with each associated Section 92CA(2)enterprise, details of property(e) a description of the functions (e) - same -performed, risks assumed and(f) a record of the economic and (f) - same -market analyses, forecasts,(g) a record of uncontrolled (g) - same -transactions taken into account(h) a record of the analysis (h) - same -performed to evaluate(i) a description of the methods (i) - same -considered for determining the(j) a record of the actual working (j) - same -carried out for determining the(k) the assumptions, policies and (k) - same -price negotiations, if any, which(l) details of the adjustments, if (1) - same -any, made to transfer prices toany other information, data or (m) - same -document, including information or (2) Nothing contained in Sub-rule (1) shall apply in a case where the aggregate value, as recorded in the books of account, of international transactions entered into by the assessee does not exceed one crore rupees: Provided that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transactions entered into by him has been computed in accordance with Section 92.

(3) The information specified in Sub-rule (1) shall be supported by authentic documents, which may include the following: (a) official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country; (b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute; (c) price publications including stock exchange and commodity market quotations; (d) published accounts and financial statements relating to the business affairs of the associated enterprises; (e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions; (f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise; (g) documents normally issued in connection with various transactions under the accounting practices followed.

(4) The information and documents specified under Sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in Clause (iv) of Section 92F: Provided that where an international transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under Sub-rules (1) and (2) shall be maintained bringing out the impact of the change on the pricing of the international transaction.

(5) The information and documents specified in Sub-rules (1) and (2) shall be kept and maintained for a period of eight years from the end of the relevant assessment year.

22.1 Sub-rule (2) of Rule 10D provides that no record in books may be maintained in case international transactions entered into by the taxpayer did not exceed one crore rupees. Proviso to above sub-rule requires the assessee to substantiate on the basis of material available with him that international transactions entered into by him have been computed in accordance with Section 92.

22.2 Sub-rule (3) of Rule 10D prescribe the documents which would be needed to support the information. Here different clauses require different type of supporting documents as briefly discussed herein below.

(a) refers to official publications, reports, studies and data basees from the Government of the country of AE or any other country.

(b) require reports of market research studies carried out and technical publications brought out by institutions of national or international repute; (c) requires price publications including stock exchange and commodity market quotations; (d) requires published accounts and financial statements relating to the business affairs of the AEs.

Similar types of information are also mentioned Clauses (e), (f) and (g).

22.3 Sub-rule (4) enjoins that information and documents specified in Sub-rules (1) & (2), should, as far as possible, be contemporaneous and should exist by specified date referred to in Clause (iv) of Section 92F.22.4 Sub-rule (5) prescribe the period for which information and documents specified in Sub-rules (1) & (2) are to be maintained. The period specified is 8 years from the end of the relevant assessment year.

22.5 It is clear from the consideration of Rule 10D and its various sub-rules, that documents and information prescribed under the above rule is voluminous and it would only be in rarest cases that all the clauses of sub-rules would be attracted. It is not possible to casually ask for information under all the clauses. It is likely that in some cases the taxpayer need not carry any analysis of functions performed, risk assumed and assets employed; there may be an exactly similar uncontrolled transaction with independent unconnected party to establish that transaction was an Arm's length transaction. In such a case, Clause (e) of Rule 10D(1) would have no application and no information under this clause need be maintained or produced before tax authorities. Likewise, there might be no necessity to carry economic analysis, take forecasts, budgets or other financial estimates of business. International transaction involved may be of such a nature that analysis and forecasts etc mentioned above have no connection or relevance for the determination of ALP. Depending upon the nature of the transaction question of application of assumptions, policies or price negotiations and, therefore, of Clause (k) of Sub-rule (1) would arise. This is itself indicated in the said clause by use of word 'if any'. It is, therefore, clear that one or more clauses of Sub-rule (1) are applicable and not all clauses of the Rule in a given case. It would all depend upon the facts and circumstances of the case more particularly the nature of international transactions carried or services involved.

Likewise supporting documents, official publications, reports, market research studies, technical publications of Government or other institute of national or international repute, and all the documents mentioned in Rule 10D(3) may not be needed in case of every taxpayer.

Stock exchange, price publication or commodity, market quotations would only be relevant in cases of international transactions involving stock or commodities. Such information would be totally irrelevant in cases of transactions, say for example relating to "intangibles". Application of one or more clauses of Sub-rule (3) would depend upon facts involved in the international transactions. Further, if official publications are needed in the case, other documents like report, studies, and data from Government agencies mentioned in the same clause might not be required. Information even in the same clause may be alternative in some cases. It is evident from the information/documents prescribed in sub-rules of Rule 10D that the taxpayer and the tax authorities are to see what information and documents and from which particular clause is relevant and therefore, needed for determining ALP. The consideration of above aspect is material before issuing notice Under Section 92D(3), if it is to serve its purpose.

The above said prescribed information is gathered from the taxpayer through various means and at different stages of assessment proceedings. The initial or first information relating to international transactions is gathered from the taxpayer in the prescribed audit report in Form 3CEB. This report is required to be submitted along with the return of income as per Section 92E of the Act which is as under: Report from an accountant to be furnished by persons entering into international transaction.

92E. Every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed 23. Further information gathered through the prescribed Tax Audit Report under the above section is as under: 3CEB Report From An Accountant To Be Furnished Under Section 92e Relating To International Transaction(S) Report from an accountant to be furnished under Section 92E relating to international transaction(s) 1. *I/We have examined the accounts and records of...(name and address of the assessee with PAN) relating to the international transactions entered into by the assessee during the previous year ending on 31st March....

2. In *my/our opinion proper information and documents as are prescribed have been kept by the assessee in respect of the international transaction(s) entered into so far as appears from *my/our examination of the records of the assessee.

3. The particulars required to be furnished under Section 92E are given in the annexure to this Form. In *my/our opinion and to the best of my/our information and according to the explanations given to *me/us, the particulars given in the annexure are true and correct.

(i) a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or (ii) any person who, in relation to any State, is, by virtue of the provisions in subsection (2) of Section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State.

Particulars relating to international transactions required to be furnished under Section 92E of the Income-tax Act, 1961 7. List of associated enterprises with whom the assessee has entered into international transactions, with the following details: (b) Nature of the relationship with the associated enterprise as referred to in Section 92A(2).

(c) Brief description of the business carried on by the associated enterprise.

A. Has the assessee entered into any international Yes/No transaction(s) in respect of purchase/sale of raw material, consumables or any other supplies for assembling/processing/manufacturing of goods/articles from/to associated enterprises If 'yes', provide the following details in respect of each associated enterprise and each transaction or class of transaction: (a) Name and address of the associated enterprise with whom the international transaction has been entered into, (c) Total amount paid/received or payable/receivable in the transaction (ii) as computed by the assessee having regard to the arm's length price.

(d) Method used for determining the arm's length price [see Section 92C(1)] B. Has the assessee entered into any international Yes/No transaction(s) in respect of purchase/sale of traded/finished goods If 'yes' provide the following details in respect of each associated enterprise and each transaction or class of transaction : (a) Name and address of the associated enterprise with whom the international transaction has been entered into.

(c) Total amount paid/received or payable/receivable in the transaction (ii) as computed by the assessee having regard to the arm's length price.

(d) Method used for determining the arm's length price [see Section 92C(1)] C. Has the assessee entered into any international Yes/No transaction(s) in respect of purchase/sale of any other tangible moveable/immovable property or lease of such property If 'yes' provide the following details in respect of each associated enterprise and each transaction or class of transaction: (a) Name and address of the associated enterprise with whom the international transaction has been entered into.

(c) Number of units of each category of moveable/immovable property involved in the transaction.

(d) Amount paid/received or payable/receivable in each transaction of purchase/sale, or lease rent paid/received or payable/receivable in respect of each lease provided/entered into- (ii) as computed by the assessee having regard to the arm's length price, (e) Method used for determining the arm's length price [see Section 92C(1)] Has the assessee entered into any international transaction(s) Yes/No in respect of purchase/sale/use of intangible property such as know-how, patents; copyrights, licensees, etc.? If 'yes' provide the following details in respect of each associated enterprise and each category of intangible property: (a) Name and address of the associated enterprise with whom the international transaction has been entered into.

(c) Amount paid/received or payable/receivable for purchase/sale/use of each category of intangible property- (ii) as computed by the assessee having regard to the arm's length price.

(d) Method used for determining the arm's length price [see Section 92C(1)] Has the assessee entered into any international transaction(s) in Yes/No respect of services such as financial, administrative, technical, commercial services, etc.? If 'yes' provide the following details in respect of each associated enterprise and each category of service: (a) Name and address of the associated enterprise with whom the international transaction has been entered into.

(b) Description of services provided/availed of/from the associated enterprise.

(c) Amount paid/received or payable/receivable for the services provided/taken (ii) as computed by the assessee having regard to the arm's length price.

(d) Method used for determining the arm's length price [see Section 92C(1)] Has the assessee entered into any international transaction(s) Yes/No in respect of granting/receiving loans/advances to or from associated enterprise If 'yes' provide the following details in respect of each associated enterprise and each loan/advance: (a) Name and address of the associated enterprise with whom the international transaction has been entered into.

(ii) as computed by the assessee having regard to the arm's length price.

(f) Method used for determining the arm's length price [see Section 92C(1)] Has the assessee entered into any international transaction with Yes/No an associated enterprise or enterprises by way of a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises If 'yes' provide the following details in respect of each agreement/arrangement : (a) Name and address of the associated enterprise with whom the international transaction has been entered into.

(c) Amount paid/received or payable/receivable in each such transaction - (ii) as computed by the assessee having regard to the arm's length price.

(d) Method used for determining the arm's length price [see Section 92C(1)] Has the assessee entered into any other international transaction Yes/No Yes/No not specifically referred to above, with associated enterprise If 'yes' provide the following details in respect of each associated enterprise and each transaction: (a) Name and address of the associated enterprise with whom the international transaction has been entered into.

(ii) as computed by the assessee having regard to the arm's length price.

(d) Method used for determining the arm's length price [see Section 92C(1)] (i) a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or (ii) any person who, in relation to any State, is, by virtue of the provisions in subsection (2) of Section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State.

24. It is clear from above that name and addresses of taxpayer, its associated concerns, nature of relationship with such concerns, brief description of business and details of international transactions carried on with the associated enterprises, besides the method used for determining ALP in respect of each international transaction required to be given in the report.

24.1 The Assessing Officer must have the above report (3CEB) with him to determine the question whether total value of the transactions is more or less than Rs 5 crore (now enhanced to Rs 15 crore) to consider the question whether determination of ALP is to be referred to the Transfer Pricing Officer (TPO) or not. If the total value exceeds the prescribed limit, the Assessing Officer has to refer the matter to the TPO.24.2 It is, therefore, reasonable to presume that in every transfer pricing case relevant information, along with Form 3CEB is available on record and A.O/T.P.O is supposed to proceed with the basic and initial information of international transactions carried by the taxpayer in the relevant period as disclosed in form 3CEB. He is supposed to have specialized training and, therefore, understand what job he is to perform for achieving the purpose of the regulations.

24.3 It is clear from above discussion that information prescribed under Rule 10D in different column is voluminous, alternative and it would have to be seen as to what information, from which clause, is required on the facts of the given case. Secondly, information from certain clauses of Rule 10D is obtained in audit report on Form 3CEB required to be filed along with the return. Thirdly, the TPO before proceeding to determine ALP has above basic and initial information of international transactions carried by the assessee.

24.4 Armed with above initial information and when knowing details of international transactions carried by the taxpayer and the method employed to determine the ALPs of transactions, further proceedings are carried towards determination of ALP. The relevant provisions of the scheme of assessment are as under: (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that- (a)the price charged or paid in an international transaction has not been determined in accordance with Sub-Sections (1) and (2); or (b)any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in Sub-section (1) of Section 92D and the rules made in this behalf; or (c)the information or data used in computation of the arm's length price is not reliable or correct; or (d)the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under Sub-section (3) of Section 92D, the Assessing Officer may proceed to determine the arm's length price in relation to the said international transaction in accordance with Sub-Sections (1) and (2), on the basis of such material or information or document available with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm's length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.

24.5 Where, on a reference, the TPO is to determine ALP of an international transaction, Sub-sections (2), (3) and (4) of Section 92CA are relevant and are reproduced below: (2) Where a reference is made under Sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm's length price in relation to the international transaction referred to in Sub-section (1).

(3) On the date specified in the notice under Sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in Sub-section (3) of Section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm's length price in relation to the international transaction in accordance with Sub-section (3) of Section 92C and send a copy of his order to the Assessing Officer and to the assessee.

84b [(4) On receipt of the order under Sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under Sub-section (4) of Section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer.] (The portion is highlighted to emphasize the scheme of the regulations) Maintenance and keeping of information and document by persons entering into an international transaction.

92D. (1) Every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed-.

(2) Without prejudice to the provisions contained in Sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under Sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard: Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.

Penalty for failure to keep and maintain information and document in respect of international transaction.

271AA. Without prejudice to the provisions of Section 271, if any person fails to keep and maintain any such information and document as required by Sub-section (1) or Sub-section (2) of Section 92D, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of each international transaction entered into by such person] Penalty for failure to furnish information or document under Section 92D.271G. If any person who has entered into an international transaction fails to furnish any such information or document as required by Sub-section (3) of Section 92D, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of the international transaction for each such failure] 273B. Notwithstanding anything contained in the provisions of 20 [Clause (b) of Sub-section (1) of] 21 [Section 271, Section 271A, 22 [Section 271AA,] Section 271B, 23 [Section 271BA], 24 [Section 27IBB,] Section 271C, 25 [Section 271CA,] Section 27ID, Section 271E, 26 [Section 27IF, 27 [Section 271FA,] 28 [Section 271FB,] 29 [Section 271G,]] Clause (c) or Clause (d) of Sub-section (1) or Sub-section (2) of Section 272A, Sub-section (1) of Section 272AA] or 30 [Section 272B or] 31 [Sub-section (1) 32 [or Sub-section (1A)] of Section 272BB or] 33 [Sub-section (1) of Section 272BBB or] Clause (b) of Sub-section (1) or Clause (b) or Clause (c) of Sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause 34 for the said failure] 24.6 In the present case as we are concerned with levy of penalty Under Section 271G for failure to furnish information/documents required by Sub-section (3) of Section 92D, we may have a good look at the said provision. On consideration of provisions of Section 92D(3), we find that above provision can be applied in the following circumstances: (i) in the course of the proceedings under the Act before the Assessing Officer or the Commissioner (Appeals).

(ii) Any documents or information prescribed under Sub-section (1) may be required.

(iii) required to be furnished under Sub-section (3) within 30 days (as extended by another 30 days) from the receipt of notice issued in this regard.

Thus the Assessing Officer or Commissioner (Appeals), may require (from any person) any information or document as may be prescribed. Word 'any' information or document cannot ordinarily mean 'all' the documents prescribed under Rule 10D. The word 'required is important as it rules out option with the taxpayer and make it obligatory to furnish the requisite information.

It is clear from above that power under above section can be used in the course of assessment proceedings i.e. in proceedings for determination of ALP and only for requiring to furnish prescribed information or documents under Rule 10D. It being a provision connected with procedure to help an assessment must be purposefully construed.

But regulation does not provide any time or stage when power to issue notice is to be exercised. However, scheme of assessment do indicate the stage at which it is to be issued and the purpose, which is required to be achieved through the issuance of such a notice. We have already noted what are the implications and effect of prescribed Rule 10D on the powers to be exercised under Section 92D(3). We have also noted that taxpayer has filed preliminary or initial information of its ALP of international transaction when reference is received by the TPO Under Section 92CA(1).

24.7 The TPO is thereafter required to serve notice under Sub-section (2) of Section 92CA of the Act. The statutory scheme envisages that the TPO shall serve a notice requiring the taxpayer to produce evidence in support of his computation of ALP. Therefore an opportunity to prove that its ALP is correct has to be allowed to the taxpayer. It is mandatory requirement of the regulations. Thereafter notices Under Section 92D(3) may be issued requiring the taxpayer to furnish information on "specified points", depending upon the facts of the case. We are not suggesting that issuance of notice Under Section 92D(3) along with notice Under Section 92CA(2) is illegal but where heavy penalty is attracted for non-compliance, it has to be shown that the notice Under Section 92D(3) is complied, both in letter and in the spirit of the Statute. This conclusion is based on the scheme and the clear language used in the regulations. Steps as per regulations are to be followed in sequence. Report in Form No. 3CEB in the first instance, is obtained from the taxpayer. Next step is to issue notice Under Section 92CA(2) to the taxpayer to produce evidence in support of ALP.25. Under Sub-section (2) of Section 92CA, evidence in support of ALP would ordinarily include information and documents referred to in Sub-section (3) of Section 92D which are prescribed in various clauses of Rule 10D(1) as discussed above. Documents and information prescribed are required to be maintained to help to determine ALP and are to be filed to support ALP by the taxpayer in response to notice Under Section 92CA(2) of the act. If on consideration of evidence produced by the taxpayer the TPO is satisfied that ALP has been properly and correctly determined by the taxpayer, it is the end of the matter.

There is no question of issuing further notice under any provision to the taxpayer. However, if complete information is not furnished, or otherwise, TPO is of the view that more information on specified points is required from the taxpayer, the TPO can issue notice under Sub-section (3) of Section 92D. TPO can also issue notice Under Section 92CA(3) of the Act, depending upon the facts of the case and the information needed. Only in case of failure of the taxpayer to support its ALP by filing necessary evidence, question of requiring taxpayer to furnish prescribed information would arise. There is no rationality in requiring information, documents from the taxpayer first under Section 92D(3) and thereafter provide opportunity to the taxpayer to support its ALP. Further having regard to purpose of the regulations, the notice Under Section 92D(3) must require specific information (or document) which the taxpayer failed to furnish Under Section 92CA(2) but which according to the TPO are necessary for determination of ALP of international transactions.

Above view is fully supported by Sub-section (3) of Section 92CA of the act providing for the determination of the ALP by the TPO. Besides evidence/material referred to in the above sub-section, the TPO is further required to consider "such evidence as TPO may require on specified points". Thus requirement of evidence on specific points is clearly stated. Therefore, notice Under Section 92D(3) can not be vague but must require specific information. This is established from clear language and scheme of the regulation.The Barium Chemicals Ltd. and Anr. v. Sh. A.J. Rana and Ors. , their Lordship of Supreme Court considered notice issued by the competent authority Under Section 19(2) of Foreign Exchange Regulation Act, 1992, which is as under: 2. (a) In case the said information, book or document is in the possession of any person, the Central Government or as the case may be, the Reserve Bank may by order in writing, require such person to furnish to the Central Government or the Reserve Bank or any person specified in the order such information, book or other document.

(b) In case, however, the information, book or document is not in the possession of the person to whom the order is addressed, but it is possible in the opinion of the Central Government or the Reserve Bank, for such person to obtain and furnish that information, book or other document, the Central Government or the Reserve Bank may, by order in writing, require such person to obtain and furnish to the Central Government or the Reserve Bank or any person specified in the order such information, book or other document.

Their Lordship after considering meaning of words, "consider it necessary or expedient" and after holding that application of mind with regard to necessity to obtain and examine documents to be furnished made the following pertinent observations on sub-Section 19(2): 16. The language of Section 19(2) of the act points to the conclusion while an order under it may be made with respect to 'any information; book or other document', it is essential that such information, book or other document should be specified in the order. This is apparent from the concluding part of the said sub-section wherein there is reference to 'such information, book or other document'. The word 'such' points to the necessity of specifying the information, book or other documents in the order. It is, no doubt, true that the order can relate to a large number of books, documents or informations, it is all the same imperative that the same should be particularized in the order. According to Sub-section (IA) of Section 23 of the act, if any person contravenes any of the provisions of this Act or of any rule, direction or order made thereunder, for the contravention of which no penalty is expressly provided, he shall, upon conviction by a Court, be punishable with imprisonment for a term which may extend to two years, or with fine, or with both. The fact that penal consequences follow from non-compliance with an order made under Sub-section (2) of Section 19 also highlights the importance of specifying the information, book or other document in the order.

Above decision is fully applicable to the case in hand. Slight difference in the language of Section 19(2) considered by their Lordship and Section 92D(3) does not make any material difference. A corporate body like the taxpayer cannot be imprisoned but only fined which may be as heavy as more than Rs 40 crores imposed in this case.

Consequences provided in Section 271G are quite severe.

27. Thus notice Under Section 92D(3) is different from other statutory notices. Here the Assessing Officer or CIT (Appeals) are empowered to require from the taxpayer or any person who has entered into an international transaction to furnish any prescribed information or document. Notice Under Section 92D(3) has to be confined to the furnishing of information or document as may be "prescribed". It is unauthorized to require the noticee to furnish non-prescribed information. If in the notice non-prescribed information is also called for, it would not be treated as notice under Section 92D(3) but under Section 92CA(3) or some other provision of the Act irrespective of the title or label given to such a notice. Relevant information can be sought under notice Under Section 92CA(3) also. Further, there is no restriction of furnishing prescribed information in response to notice Under Section 92CA(2) of the Act to support the computation of ALP by the taxpayer. However, we do not see any authority Under Section 92D(3) with the T.P.O. to require the taxpayer to furnish non specified information or such information or document already filed by the taxpayer or use of the provision without asking the taxpayer to support first its ALP of International transactions. The case of any person other than the taxpayer for notice Under Section 92D(3) stands on a different footing than of the taxpayer to whom notice Under Section 92CA(2) has been issued.

28. Further Under Section 92D(3), it will not be possible to call for, all the information prescribed under Rule 10D including supporting information and documents mentioned in Sub-rule (3) in a routine or a casual manner without application of mind as to what specific information is required to achieve the purpose of the regulations.

Information which has already been furnished by the taxpayer either in the audit report or in response to notice Under Section 92CA(2) would be of no use and, there is no point in requiring the same information again or require un-prescribed information Under Section 92D(3) and cast additional burden on the taxpayer. In all such cases, it would no more remain valid notice Under Section 92D(3)/271G of the Act.

Application of mind to find and consideration of material on record and to see what further information on specific point is required, is essential before issuing notice Under Section 92D(3) of the Act to the taxpayer. The notice is a serious notice as non-compliance within the specified time would lead to imposition of penalty, which may amount to several crores. It is not a routine notice, which can be casually issued calling for any information or all prescribed information. Where the taxpayer has "option" to select relevant information, it is not a notice Under Section 92D(3) as "option" and word "require" do not go together. Having regard to the scheme noted above, the said notice is issued to get information on specified point needed on the facts and circumstances of the case for purposes of determining ALP.29. We now proceed to consider conjunctively provisions of Section 92D, 271G and 273B of the Income-tax Act quoted above.

29.1 It is evident from the above provisions that penalty Under Section 271G can be imposed on any person who has entered into an international transaction but fails to furnish information or document as required under Sub-section (3) of Section 92D. On account of above default (failure), the defaulter is liable to pay penalty for a sum equal to 2% of value of international transactions for each such default.

Provisions of Section 273B overrides Section 271G. In other words no penalty can be imposed for above failure of the person to furnish documents in time if such failure is proved to be due to a "reasonable cause".

30. With the above legal background, we proceed to consider facts and circumstances of the case. The TPO in this case issued first notice on September 22, 2005 which has been reproduced in the earlier part of this order. In para 1 of the notice, he asked the assessee to support and substantiate the computation of ALP in international transactions.

This is required by Section 92CA(2). As per para No. 2 the T.P.O.further required to furnish information including the balance sheet, profit and loss account, statement of computation of income, audit report, tax report and also, "information and documents maintained as prescribed Under Section 92D of Income-tax Act, 1961 read with Rule 10D of Income-tax Rules" without specifying any particular information clause of Rule 10D. The aforesaid notice was a notice Under Section 92CA(2) but the TPO by asking further information made it a notice Under Section 92CA(3). Only under above sub-section TPO can call for information like balance sheet, P&L account, and audit report, which already stood filed and which are un-prescribed. Such unspecific information could not be required Under Section 92D(3). Why and how information already furnished and could be obtained from AO was required or needed is not clear from the notice or other material available on record. The notice was issued in a casual manner. The TPO had not examined records of the tax payer nor nature or details of International transactions. There was total lack of application of mind as to what information was required in this case. It was a omnibus notice without any regard of unwarranted heavy burden it was likely to place on the taxpayer not authorized Under Section 92D(3). It was an unintelligible notice where all the information and documents maintained under Rule 10D of Income-tax Rules were required in addition to the information referred to above.

31. The second notice issued on similar lines on 13th October, 2005 asking for submission of documents by 7 November, 2005 did not improve the situation. A third notice dated 8th November, 2005 was again issued quoting provision of Section 92D and calling upon the assessee to file information and documents latest by 21.11.2005. The said notice also had all infirmities noted in the first notice.

32. In the light of what we have discussed above relating to requirement of valid notice Under Section 92D(3) of the Act, above mentioned notices cannot be treated as valid and legal to justify application of provision Under Section 271G of the act and levy of penalty of more than Rs 40 crores. These are omnibus notices issued without application of mind and without considering documents already placed by the taxpayer on record and without consideration as to which of the specific clauses of Sub-rule (1) or other Sub-rules was attracted or which relevant information was needed in this case. Under Section 92D(3), A.O. or CIT (Appeals) is authorized to require prescribed information but here both prescribed and un-prescribed information like balance sheet, profit and loss account, computation of income etc was also required to be furnished from the taxpayer before the taxpayer could file evidence under Section 92CA(2). Not only primary documents necessary to support the computation of ALP of taxpayer, but also supporting documents detailed in Sub-rule (3) of Rule 10D were required to be furnished without considering which supporting documents out of several mentioned in various clauses of the said sub-rule were available with the taxpayer. The burden of selection/relevancy of clauses applicable was shifted to the taxpayer.

The notice only increased burden of the taxpayer and confused the notice. Above notices issued without application of mind and without considering relevancy and requirement of all the prescribed information and documents under Rule 10D vitiated the legality of the notices.

Above notices could not be treated as proper and legal notices in terms of Section 92D(3) of the act. The failure, therefore, of the taxpayer to comply such notices in time can not justify levy of penalty of Rs 40,46,41,376/-. The notice being illegal question of levy of penalty did not arise.

33. Apart from the decisions cited by Shri Agarwal, the learned counsel for taxpayer, our above view is supported by decision of Calcutta High Court in the case of New Central Jute Mills Co. Ltd. v. Dwijendralal Brahmachari and Ors. 90ITR 467 where a notice was issued by the I.T.O.asking for production of all the books of accounts and documents of company lying in the custody of the Registrar of the Company. The Court found that books of accounts and documents summoned were not seized and not seen by the ITO and, therefore, the ITO had no knowledge and could not have any knowledge about the contents of books and documents nor could determine the relevancy or otherwise of said books and documents.

The Court held that notice clearly suggested that ITO had not applied his mind before issuing the notice. It was also held to be vague and illegal. The notice was, therefore, held to be beyond statutory powers, illegal and quashed accordingly. The facts here are quite similar.

34. In the light of above discussion, we hold that three notices referred to above issued by the TPO could not be treated as valid notices issued in terms of Section 92D(3) of the Act and, therefore, did not attract penalty provisions of Section 271G of the Income-tax Act.

35. TPO's letter dated 12 December, 2005, after considering documents filed by the assessee pointed out certain defects in the comparative uncontrolled price method employed by the tax payer without any benchmark. Likewise TNMM method used was stated to be without providing documents used as comparable nor the functional details of comparables was provided. Such like defects were pointed out. The aforesaid notice relating to specific defects and calling for their rectification could be treated as a notice Under Section 92D(3) of the Income-tax Act although not so labeled by the A.O. However, admittedly before the end of December, 2005, all documents and information were furnished by the taxpayer. So there was no default in not submitting documents and information within the prescribed time to attract provisions of Section 271G of the Income-tax Act. Therefore, on facts we find no justification in the levy of penalty in question.

36. We further find substance in the arguments of the learned counsel for the assessee that not only notices as above were vague, non-specific and showed lack of application of mind, even the show cause notice issued Under Section 271G suffered from the same defect.

No specific clause of the rule or detail of the international transaction relating to which default was committed, were stated in the show cause notice issued by the A.O. The notices issued were prima facie illegal and bad in law. He relied upon the decision in the case of Reckitt & Colman of India Ltd. (supra) and on the case of Hindustan Polymers Co. Ltd. (supra). In the case of Amrit Foods v. Commissioner of Central Excise UP 2005 (190) ELT 433, wherein their Lordship observed as under: The revenue has preferred an appeal from the order of the Tribunal setting aside the imposition of penalty under Rule 173Q of the Central Excise Rules, 1944. The Tribunal has set aside the order of the Commissioner on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 1730 had been allegedly contravened by the appellant. We are of the view that the finding of the Tribunal is correct. Rule 1730 contains six clauses the contents of which are not same. It was, therefore, necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of the 173Q. This not having been done the Tribunal's finding cannot be faulted. The appeal is, accordingly, dismissed with no order as to costs.

37.In above case the Apex Court held that if allegations in the show cause notice are not specific and are vague,_lack details and/or unintelligible, that is sufficient to hold that noticee was not given proper opportunity. Such notice was struck. The cited decisions are applicable to the facts of the case and arguments of Shri Agarwal are well taken. As penalty of 2% Under Section 271G is imposable in respect of international transaction, it was necessary to specify in the show cause notice Under Section 271G, the international transactions or the documents/information with reference to which the taxpayer committed the default by failing to furnish the requisite information in time.

This would enable him to file a proper reply in defence. Without detail of default, no adequate reply could be furnished. The contention of learned Departmental Representative that specific clauses of Rule 10D(1) under which information was not furnished within time and default was committed were mentioned in the penalty order is of no avail. The mention of above detail in the order is of no use. The details were required to be mentioned in the show cause notice so as to afford reasonable and adequate opportunity to the assessee to meet out the case and serve the purpose of the notice. For above defect also, the penalty proceedings are held to be vitiated and liable to be cancelled.

38. The third submission of Shri Agarwal that assessee had explained that small delay in the furnishing of information within the prescribed time took place on account of a reasonable cause as its Financial Controller had gone out of town and was not available to furnish information which was voluminous and highly technical in nature.

Besides the assessee was not clear as to what was required to be furnished in support of determined ALP and other supporting information mentioned in Sub-rule (3) of Rule 10D. In the above and other circumstances duly given in reply to the show cause notice, the taxpayer had claimed that delay, if any, was on account of a reasonable cause and, therefore, no penalty was exigible. The taxpayer had filed information bonafidely according to its understanding of regulations and legal guidance received by it. The A.O. failed to refute any of the claim and recorded no finding on the "reasonable cause" pleaded by the taxpayer. In other words it was not held that the delay was without a reasonable cause. The same position continue unaltered in appellate proceedings before the learned CIT (Appeals). The case pleaded by the taxpayer was neither examined nor refuted before upholding the levy of penalty. The learned Departmental Representative tried to challenge above argument of Shri Agarwal. However, on facts we are of view that arguments of Shri Agarwal arewell taken.

39. As already discussed, provision of Section 271G is to be read alongwith provision of Section 273B of the Income-tax Act. The penalty Under Section 271G can be imposed only if the default is held to be proved to be without reasonable cause. Once a reasonable cause for delay is pleaded then it has to be examined in accordance with law. In the present case, no attempt has been made by the Revenue to look into, examine or refute the claim of reasonable cause put forth by the taxpayer. The case, therefore, cannot be taken to have been rejected.

The penalty has been imposed without considering application of Section 273B of the Income-tax Act which as noted earlier overrides provisions of Section 271G of the Income-tax Act. We are of the view that the present case is covered Under Section 273B. The delay, if any, in the submission of information or documents within the prescribed time is held to be due to a reasonable cause. Therefore, the penalty is not sustainable on account of this ground also. Besides we are of view that penalty of Rs 40,46,41,376/- for mere delay of about a month or so in the submission of information and documents assuming entire case of revenue is established, is to be held to be imposed on mere technical grounds. Having regard to the settled law that no penalty for technical or venial default is imposable, we find force in this alternative argument of Shri Agarwal.

40. The learned counsel for the assessee has also vehemently argued that no satisfaction in this case was recorded by the Assessing Officer during the course of assessment proceedings. We are not inclined to accept this contention, as in our view, provisions of Section 271G are quite different from provisions of Section 271(1) of the Act.

Therefore, CIT (Appeals) was quite justified in holding that no satisfaction need be recorded before initiating proceedings Under Section 271G of the Income-tax Act. Apart from above, in the present case, the TPO has specifically recorded details of the alleged default committed by the assessee in not furnishing information/documents which the TPO thought he was competent to require Under Section 92D of the Act Therefore, there is no merit in the contention that satisfaction was not recorded in this case, although we are canceling penalty on some other ground and this finding does not materially affect the ultimate result of the appeal. There are several other grounds/arguments raised by the parties, but in the light of our decision recorded above, no useful purpose would be served in dealing with each of those grounds. Therefore, on facts of the case, we hold that the penalty imposed is not exigible and the same is hereby cancelled.