Section 271AA — Penalty for Failure to Keep and Maintain Information and Document, etc.

Section 271AA of the Income-tax Act, 1961, imposes penalties on taxpayers who fail to maintain proper documentation and information as required under section 92D. This section is particularly relevant for entities engaged in international transactions or specified domestic transactions, as it mandates the maintenance of detailed records to substantiate the arm's length nature of such transactions. The penalty for non-compliance can be significant, amounting to 2% of the value of each international transaction or specified domestic transaction. The burden of proof lies with the taxpayer to demonstrate compliance with the documentation requirements. This section is significant as it ensures transparency and accountability in cross-border and domestic transactions, thereby preventing tax evasion and ensuring that profits are appropriately taxed in India.

Common Litigation Flashpoints

1. Dispute over adequacy of documentation maintained
2. Challenges in proving arm's length pricing
3. Disagreements on the interpretation of 'specified domestic transactions'
4. Contention regarding the calculation of penalty amounts

Judgments on Section 271AA — Penalty for Failure to Keep and Maintain Information and Document, etc.

• 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.