Section 271AA(2) — Penalty for Failure to Furnish Information or Document under Transfer Pricing Provisions

Section 271AA(2) of the Income-tax Act, 1961, imposes a penalty on taxpayers who fail to furnish the required information or documents related to international transactions or specified domestic transactions as mandated under section 92D(3). This provision is significant as it ensures compliance with transfer pricing regulations, which are crucial for maintaining arm's length pricing in cross-border and certain domestic transactions. The penalty under this section is a sum equal to two percent of the value of each international transaction or specified domestic transaction entered into by the taxpayer. The burden of proof lies with the taxpayer to demonstrate compliance with the documentation requirements. In practice, this section underscores the importance of maintaining detailed and accurate records to substantiate the arm's length nature of transactions, thereby preventing tax evasion through manipulation of transfer prices.

Common Litigation Flashpoints

1. Dispute over adequacy of documentation provided
2. Challenges in determining the value of transactions for penalty calculation
3. Interpretation of 'specified domestic transactions'
4. Disagreements on what constitutes sufficient compliance under section 92D

Judgments on Section 271AA(2) — Penalty for Failure to Furnish Information or Document under Transfer Pricing Provisions

• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.