DCIT v. Convergys Customer Management Group Inc. [ITA Nos. 3529 & 3530/Del/2015, dt. 13-10-2020] : 2020 TaxPub(DT) 4242 (Del.-Trib.)

Levy of penalty under section 271AA for non-maintenance of TP documentation on non-resident

Facts:

Assessee was in receipt of income from his Indian subsidiary which was offered to tax. Revenue made additions alleging existence of a PE and subjected certain additions which were partly allowed by Commissioner (Appeals). On higher appeal the ITAT confirmed existence of a place PE and sustained additions attributing income in India besides certain passive incomes as well. Nonetheless assessee has gone in higher appeal to high court; pendency of which the assessing officer gave effect to the order of the ITAT and proposed levy of penalty under section 271AA which was allowed by Commissioner (Appeals). Aggrieved revenue went in higher appeal -

Held (against the assessee) in favour of the revenue reversing the order of Commissioner (Appeals) that they cannot simply hinge on the TP submissions of their Indian subsidiary alleging that there were no international transactions hence no separate TP documentation was maintained. Penalty was leviable under section 271AA.

Editorial Note: The decision casts even more onerous responsibility on non-resident entities who even passive incomes from India need to maintain TP documentation. Bereft the documentation as per TP regulations levy of penalty becomes a new normal by revenue. Most times the issue of whether they had an international transaction or otherwise especially in cases of PE existence in question itself is subject to debate. To expect maintenance of documentation on ifs and buts alone is not a correct proposition. But TP regulations appear to grant no respite on this. Is better if CBDT comes out with some clarifications on this aspect.