Penalty for failure to furnish information or document under section 171.

457

If any person who has entered into an international transaction or specified domestic transaction fails to furnish any such information or document as required by section 171(2), a penalty equal to 2 % of the value of such transaction may be imposed upon him for each such failure by the Assessing Officer or the Transfer Pricing Officer as referred to in section 166 or the Commissioner (Appeals).

Explanation

Section Summary:

Section 457 of the Income Tax Act imposes a penalty on taxpayers who fail to provide required information or documents related to international transactions or specified domestic transactions under Section 171(2). The penalty is calculated as 2% of the value of the transaction for each failure to comply.

Key Changes:

This section introduces a specific penalty for non-compliance with Section 171(2), which mandates the submission of information or documents related to international or specified domestic transactions. Previously, penalties for such failures were either not explicitly defined or were part of broader non-compliance penalties.

Practical Implications:

• For Taxpayers: Taxpayers engaged in international or specified domestic transactions must ensure timely and accurate submission of all required information and documents. Failure to do so will result in a penalty of 2% of the transaction value for each instance of non-compliance.
• For Businesses: Companies involved in cross-border transactions or significant domestic transactions must strengthen their documentation and compliance processes to avoid penalties.
• For Compliance Processes: Tax authorities now have a clear penalty structure to enforce compliance with transfer pricing documentation requirements.

Critical Concepts:

• International Transaction: A transaction between two or more associated enterprises, at least one of which is a non-resident.
• Specified Domestic Transaction: Certain domestic transactions between associated enterprises that are subject to transfer pricing regulations.
• Assessing Officer/Transfer Pricing Officer: Tax officials responsible for assessing and ensuring compliance with transfer pricing rules.

Compliance Steps:

1. Identify Transactions: Determine if your transactions qualify as international or specified domestic transactions under Section 92B and Section 92BA.
2. Maintain Documentation: Ensure all relevant information and documents are maintained as per Section 92D.
3. Timely Submission: Submit the required information and documents within the stipulated time frame to avoid penalties.
4. Review and Audit: Regularly review documentation and compliance processes to ensure adherence to transfer pricing regulations.

Examples:

• Scenario 1: A company based in India enters into a transaction with its subsidiary in the UK. The company fails to submit the required transfer pricing documentation. The Assessing Officer imposes a penalty of 2% of the transaction value.
• Scenario 2: An Indian company engages in a specified domestic transaction with its sister concern in India. The company does not provide the necessary documents. The Transfer Pricing Officer imposes a penalty of 2% of the transaction value for each failure to comply.

By understanding and adhering to Section 457, taxpayers can avoid significant penalties and ensure compliance with transfer pricing regulations.