DELHI C BENCH DEPUTY CARGILL INDIA (P.) COMMISSIONER OF v. LTD. INCOME TAX, CIR. 3(1), NEW DELHI February 15, 2008 JUDGMENT IN ITAT DELHI BENCH 'C' Cargill India (P.) Ltd. v. Deputy Commissioner of Income-tax, Cir. 3(1), New Delhi [2008] 110 ITD 616 (Delhi) / 167 TAXMAN 114 (Mag.) Vimal Gandhi, President and Deepak R. Shah, Accountant Member IT Appeal No. 1844(Delhi) of 2007 Assessment Year 2003-04 February 15, 2008 Order: Per Vimal Gandhi, President. - This appeal by taxpayer for assessment year 2003-04 (financial year 2002-03) is directed against order of Commissioner of Income-tax (Appeals) ['CIT(A)'] upholding levy of penalty of Rs. 40,46,41,376 under section 271G of Income-tax Act ('the Act') for not submitting documents called from taxpayer in time. 2. taxpayer company M/s. Cargill India Pvt. Ltd. ('CIP' in short) is wholly owned Indian subsidiary of Cargill Mauritius Limited which in turn is wholly owned subsidiary of Cargill Inc., USA. taxpayer company, in India, in relevant period, was engaged in business of import, export and domestic trading in edible oils, fertilizers, grains, oil seeds and other food products including processed food. taxpayer was also engaged in business of processing crude oil. 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 return. summary of transactions carried and method applied by taxpayer to show that transactions with AE were carried at arm's length is reproduced from para 2.1 of TPO's order dated 22-3-2006 and is as under: "2.1 During year, assessee has undertaken following international transactions: S.No. Description of Method Value (in Rs.) transaction 1. Purchase of oil CUP 27,99,48,918 2. Contract cancellation penalty/charges CUP 5,27,796 3. Purchase of fertilizers CUP 1,38,26,80,957 4. Purchase of corn. TNMM 72,05,26,464 5. Purchase of soyabean meals TNMM 73,92,33,814 6. Purchase of soyabeans TNMM 5,63,26,75,209 7. Sale of ferrous CUP 9,67,29,903 8. Sale of rice CUP 18,04,86,835 9. Sale of wheat TNMM 3,85,55,49,173 10. Sale of soyabean meals CUP 97,60,92,519 11. Sale of corn. TNMM 72,11,48,369 12. Sale of soyabeans TNMM 5,48,78,02,610 13. Purchase of assets CUP 7,21,697 14. Support service fee received TNMM 1,08,47,441 15. Availing of administrative services Cost Plus Method 1,90,999 16. Commission paid on sales of ferrous CUP 51,54,533 17. Distribution commission income TNMM 19,58,800 18. Ocean freight savings - 4,90,71,542 19. Cost sharing arrangement - 2,71,71,202 20. Dispatch income received TNMM 1,13,14,428 21. Reimbursement of expenses paid - 80,72,556 22. Demurrage charges TNMM 1,09,31,729 23. Contact extension/penalty charges - 27,35,827 24. Provision of support agency services - 3,04,95,440 Total: 20,23,20,68,761 As total value of international transaction with AE exceeded Rs. 5 crores, Assessing Officer (A.O.) made reference to Transfer Pricing Officer ('TPO' in short) for determining Arm's Length Price ('ALP' in short) of those transactions. TPO in above order did not accept book value of various transactions shown by taxpayer and proposed addition of Rs. 50,17,08,483, to be made in assessment of taxpayer. above order was incorporated and addition on account of adjustments for transfer pricing was made in assessment order. However, above addition on merit is subject-matter of different appeal and not issue before us. 3. It is claimed by revenue that taxpayer failed to comply with directions of TPO and did not submit documents sought from taxpayer in time and, therefore, committed default under section 271G of Income- tax Act. Assessing Officer imposed penalty of Rs. 40,46,41,376 on taxpayer under above provision. 4. learned CIT (A) while confirming levy of penalty and in concluding paras has held as under: "(vii) On consideration of arguments and perusal of penalty order and ld. AR's submission and paper book, I find that time limit for furnishing documents and detail was prescribed as on 21-11-2005. There is no dispute on this date from either of sides. However, as per ld. AR, assessee has furnished all details prescribed under Income-tax Act and rule 10D of Income-tax Rules on or before 16-11-2005. rest of details furnished later on 21-11-2005 were only supporting documents and back up paper and same cannot be treated as violation of section 92D(3) read with rule 10D of Income-tax Rules. On other hand, Assessing Officer observed that relevant document prescribed under rule 10D from which arm's length price could have been determined were not filed within due date. Hence, assessee failed to furnish prescribed documents/information within due date. Considering both sides of point of view, I have to examine documents which could be filed before 16-11-2005 and/or after 21-11-2005 or not filed at all. On going through penalty order, I find that appellant has applied CUP method for some of 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 Assessing Officer given in penalty order with reference to CUP, CPM & TNMM. (A) Assessing Officer's observation at Page 10, Para 21: "As seen from above, assessee has not furnished any comparable data with respect to international transaction where CUP method is used as to determine arm's length price. actual working details of comparable data and financial information used in applying CUP method was not furnished. Hence, documentation filed by assessee-company on 16-11-2005 was quite inadequate and does not satisfy statutory requirements as mentioned in rule 10D of Income-tax Rules, 1962. It is evident from these submissions that application of CUP method as recorded by assessee was only formal deliberation, cosmetic in nature and was not sustainable with logical date of comparables." (B) Assessing Officer's observation at Page 11, Para 23: "It is seen from above that no back up documents/agreements were given by assessee on basis of which said Cost Plus Method was applied. It has also not furnished any comparable data of similar transactions undertaken by comparables in similar industry and to this extent CPM was not justified by assessee. Hence, documentation filed was incomplete." (C) Assessing Officer's observation at Page 11, Para 24: "During year under reference there are major international transactions termed as Export of Wheat and Merchanting trade and 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. assessee has taken itself as tested party and has stated its transactions to be at arm's length by selection of comparables from Capitaline database. What assessee has mentioned is merely search process through which it has attempted to identify set of comparables. In conclusion at page 46 of document-I, 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 per cent which is better than 20 final set of comparables having OPM at 6.95 per cent. names of comparables, their financial data, their working of OPM and details of their financial profile was not available in this document. working of operating profit margin of assessee was also not available in documentation submitted by assessee on 16-11-2005 In totality, approach is totally devoid of any merit whatsoever to draw any reasonable conclusion regarding justification of assessee having maintained arm's length standards in transactions it has proposed to cover under TNMM." (D) Assessing Officer's conclusion at Page 13, Para 29: "As seen from above paragraphs, assessee-company had not furnished proper documentation as required statutorily in section 92CD read with rule 10D. Hence, penalty under section 271G of Income-tax Act is attracted. reply furnished by assessee is highly unsatisfactory. I am, therefore, satisfied that it is fit case for imposition of penalty under section 271AA of Act. quantum of penalty leviable under section 271G of Income-tax Act is 2 per cent of value of international transaction for each such failure." Assessing Officer further observed that assessee-company had not furnished documentation as required statutorily with respect to transaction shown in chart prepared at page 14 of assessment order. total international transaction has been worked out in chart for Rs. 2,023.20 crore. (viii) On examination of evidences and after going through observation of Assessing Officer, I reached to conclusion that documents furnished beyond due date. i.e., after 21-11-2005 were not 'supporting documents', argued by ld. AR but same were vital for determination of arm's length of international transactions. I further find that these documents are prescribed under sub-rules G, H, I & J of rule 10D of Income-tax Rules. In substance, I find that appellant failed to furnish prescribed documents/informations within due date before TPO. Hence, it violated provision of section 92D(3) read with rule 10D, G, H, I & J of Income-tax Rules. (ix) ld. AR has argued about failure of non-furnishing document on account of reasonable cause being grey area in new provision of section 92D read with rule 10D of Income-tax Rules. However, I do not agree with ld. AR as assessee was required to furnish necessary documents/information as prescribed under rule 10D of Income-tax Rules within due date but it failed to furnish vital documents/information. I further find that appellant is well supported by CA & legal Advisors. Hence, plea of grey areas and ignorance of law is not sustainable in appellant's case. (x) ld. AR with alternative argument pleaded that penalty should not be levied on total turnover but it should be levied on international transaction of Rs. 2,023.20 crore. For sake of convenience, relevant portion of written submission at page 54 is reproduced below: "Without prejudice, it is submitted that assuming for sake of argument, but without admitting, that there was alleged default committed by assessee and penalty was rightly leviable, it could have been imposed only in respect of those international transactions forming part of value of international transactions of Rs. 2,023.20 crore, in respect of which there was alleged non compliance of clauses (g) to (j) of rule 10D of Income-tax Rules. It is thus evident that penalty has been imposed mechanically and without application of mind." On going through penalty order, I find that Assessing Officer has worked out international transaction vide chart given at page 14 of penalty order (under dispute). Thus, Assessing Officer after determining international transaction at Rs. 20,23,20,68,788, levied penalty at rate of 2 per cent against such transactions only. Thus, Assessing Officer has levied penalty on value of international transaction of Rs. 2,023.20 crore, as argued by ld. AR. Hence, there is neither any difference in transaction nor any scope to interfere with that. In substance, I find that appellant has committed default by not furnishing prescribed document/information within due date. Hence, there was violation of provision of section 92D(3) read with rule 10D of Income- tax Rules. With these observations, I hold that Assessing Officer was justified to levy penalty under section 271G amounting to Rs. 40,46,41,376 and, thus, action of Assessing Officer is upheld. In effect, appeal is dismissed." 4.1 It is clear from above that penalty of Rs. 40,46,41,376 has been imposed on taxpayer for not furnishing documents and information called from him by due date which has been taken as 16-11-2005. In other words, penalty has been levied for delay in furnishing 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 submission of documents claimed to have been called by TPO in terms of section 92D(3) of Act. 5.1 Before proceeding to consider legality and validity of aforesaid penalty on facts and circumstances of case, it would be necessary to refer to relevant provisions of Transfer Pricing Regulation under Income-tax Act. 5.2 Section 92(1) of Act enjoins that any income arising from 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 taxpayer and taxing authorities. Central Board of Direct Taxes vide Instruction No. 3, dated 20-5-2003 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 TPO for above purposes. Vide order dated 31-3-2006 TPO determined ALP and suggested adjustment to be made in assessment. Assessing Officer added suggested amount of adjustment in assessment. 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 sections 271AA and 271G should be taken by Assessing Officer. Accordingly, penalty proceedings under section 271G were taken and after hearing taxpayer and after obtaining report from TPO, penalty in question was imposed and upheld by ld. CIT(Appeals). 6. It is claim of tax authorities that TPO had called for certain information and documents under section 92D(3) which taxpayer failed to submit within specified period of 30 days as extended by another 30 days under proviso to above section. TPO, therefore, asked Assessing Officer to take action under sections 271AA and 271G of Income-tax Act. Information and documents prescribed under sub-section (1) of section 92D (rule 10D of Income-tax Rules) which taxpayer has to keep and maintain and which taxpayer can be asked to furnish as per sub-section (3) of section 92D were not furnished within specified time. But how these documents were summoned in 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 circumstances under which default, if any, was committed. We would, therefore, examine various notices issued by TPO and information furnished by taxpayer in reply from time to time. Although audit report is not information or document mentioned in rule 10D of Income-tax Rules, but report's connection with rule 10D is important and is to be seen under section 92F. report dated 27-11-2003 from RSM & Co., Chartered Accountant was duly furnished on prescribed Form 3CEB is not in dispute. report contained name and address of taxpayer, list of associated enterprises with whom 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 prescribed Form in respect of transactions were duly filled and information was given in Exhibits attached with report. It is running into 18 pages and its copy is available at page Nos. 8 to 25 of paper book Vol.1. report claims that goods and services were transferred at arm's length price. report further showed that taxpayer had carried transaction with its 17 foreign associated enterprises listed at pages 15 and 16 of 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 method used for determination of arm's length price which was either Comparable Uncontrolled Price (CUP) or Transactional Net Margin Method (TNMM). 6.1 Besides above report on Form 3CEB, taxpayer had furnished audit report on Form 3CA dated 8-10-2003 along with report on Form 3CD dated 28-8- 2003 which are running into 61 pages. Copies of same are available at page Nos. 153 to 214 of paper book of taxpayer. 7. On reference for determination of transfer price to him, TPO issued notice dated 22-9-2005 requesting assessee to furnish some information and documents. said notice/letter is referred to hereunder to appreciate contention that it was notice under section 92D(3) of Act: "A reference has been received under section 92CA(1) of Income-tax Act from Cir. 3(1), New Delhi, Assessing Officer, to determine under section 92CA(3) arm's length price in respect of 'international transactions' entered into by you during financial year 2002-03. You are, hereby required to attend my office on 10-10-2005 at 1.00 p.m. either in person or by representative duly authorized in writing in this behalf or produce or cause thereby to be produced at same time, any evidence and/or material, which has been relied upon by you in support of computation of arm's length price of aforesaid international transactions. Further, in accordance with rule 10D(2) of Income-tax Rules, please substantiate on basis of material available with you that income arising from aforesaid international transactions has been computed in accordance with section 92 of Income-tax Act. 2. For purpose of determination of 'arm's length price' under section 92CA(3) in respect of such international transactions, following information/documents may also be filed in my office on or before above mentioned date: (a) Balance sheet and profit and loss account for financial year 2002-03 along with copy of Audit Report and Tax Audit Report filed with Return. (b) Statement of Computation of income filed with Return for assessment year 2003-04. (c) Information and documents maintained as prescribed under section 92D of Income-tax Act, 1961 read with rule 10D of Income-tax Rules. If above requirements are not complied with arm's length price for 'international transactions' during financial year 2002-03 shall be determined under section 92CA(3) of Income-tax Act on merits and on basis of material on record." 8. taxpayer, vide application dated 10-10-2005 sought adjournment on ground that its representative was travelling and was not available. 9. TPO issued second notice on 13-10-2005 to taxpayer which is as under: "Sub: Notice under section 92CA(3) of Income-tax Act, 1961 Computation of Arm's Length Price - Assessment Year 2003-04 - regarding: Please refer to this office letter dated 22-9-2005 requesting you to submit documentation as prescribed under rule 10D of Income-tax Rules by 10-10- 2005. However, above said documentation is yet to be submitted by your company. Please submit desired documentation by 7-11-2005." 10. On 7-11-2005, taxpayer again sought adjournment as relevant person who was to collect information and documents had to rush home due to some personal matter. Thereafter TPO issued letter dated 8-11-2005 to taxpayer which stated as under: "Sub: Notice under section 92CA(3) of Income-tax Act, 1961 - Computation of Arm's Length Price - Assessment Year 2003-04 - regarding: Please refer to proceedings under section 92CA(3) of Income-tax Act, 1961 pending in office of undersigned. 2. This office letter dated 22-9-2005 requested you to submit documentation as prescribed under rule 10D of Income-tax Rules by 10-10- 2005. However, your company submitted no documentation on that date. 3. Another letter dated 13-10-2005 was issued requesting to submit desired documentation by 7-11-2005. 4. On 7-11-2005, RSM & Co. filed letter requesting for yet another date, it may be mentioned that as per provisions of section 92D maximum permitted period is 30 days and relevant section is reproduced below for ready reference: 92D. Maintenance and keeping of information and document by persons entering into international transaction.-(1) Every person who has entered into international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed. (2) Without prejudice to provisions contained in sub-section (1), Board may prescribe period for which information and document shall be kept and maintained under that sub-section. (3) Assessing Officer or Commissioner (Appeals) may, in course of any proceeding under this Act, require any person who has entered into international transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within period of thirty days from date of receipt of notice issued in this regard: Provided that Assessing Officer or Commissioner (Appeals) may, on application made by such person, extend period of thirty days by further period not exceeding thirty days. 5. It is reiterated that since time maximum permitted under 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 Income-tax Act read with rule 10D of Income-tax 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, learned counsel for taxpayer that TPO has himself extended time up to 21-11-2005 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 up to aforesaid date. This inference of no default can be drawn by what has been observed by TPO in his notice dated 8-11-2005 wherein it is clearly stated that filing of statutory documentation is extendable by another 30 days. 11.1 taxpayer has claimed that on 16-11-2005 it filed information and documents with covering letter from RSM & Co. with several annexures and Notes running into 54 pages (copies available at pages 95 to 145 of Paper Book Vol.I ). said information once again gave background of 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 taxpayer with its Associated Enterprises (AEs) was explained. It was further stated that taxpayer has maintained all prescribed information and documents. 11.2 On furnishing of information, taxpayer added following Note: "V. Furnishing of Information.-In your goodself's captioned notice, you have called upon assessee to produce any evidence and/or material which has been relied upon by it in support of computation of ALP of international transactions entered into during financial year 2002-03. In addition to above, your goodself has also called upon assessee to furnish following: 1. Balance sheet and Profit and Loss account for financial year 2002-03 along with copy of Audit Report and Tax Audit Report filed with return of income (ROI) for assessment year 2003-04. 2. Statement of computation of income filed with ROI for assessment year 2003-04. 3. Information and documents maintained as prescribed under section 92D of Act read with rule 10D of Rules. In connection with above, under instructions from, and for and on behalf of assessee, we submit as under: 1.In respect of item (1) above, as required by your goodself, we have attached herewith copies of Balance Sheet, Profit and Loss account, Audit Report and Tax Audit Report filed with ROI for captioned assessment year (refer Annexure 1). 2.In respect of item (2) above, as required by your goodself, we have attached herewith statement of computation of income filed with ROI for captioned assessment year (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 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 Power of Attorney executed by our client in our favour to represent before your goodself is attached herewith." 12. We ignore for purposes of this discussion Annexures 1 and 2 which were audit report and computation of income already filed by taxpayer and proceed to consider Annexure 3. With Annexure 3, taxpayer had tried to give information prescribed under rule 10D(1) as under: ANNEXURE 3 Information/documents as prescribed under section 92D of Act read with rule 10D of Rules: Nature of Information/Documents Nature of prescribed under rule 10D(1) International Transaction (a)Description of ownership structure of assessee Refer enterprise with details of shares or other ownership interest Annexure held therein by other enterprises. 3.1 (b)Profile of multinational group of which assessee Refer enterprise is part along with name, address, legal Annexure status and country of tax residence of each of 3.2 enterprises comprised in group with whom international transactions have been entered into by assessee, and ownership linkages among them. (c)Broad description of business of assessee and Refer industry in which assessee operates, and of Annexure business of associated enterprises with whom assessee 3.3 has transacted. (d)Nature and terms (including prices) of international Refer transactions entered into with each associated enterprise, Annexure details of property transferred or services provided and 3.4 quantum and value of each such transaction or class of such transaction. (e)Description of functions performed, risks assumed and Refer assets employed or to be employed by assessee and Annexure by associated enterprises involved in international 3.5 transaction. (f)Record of economic and market analysis, forecasts, Not relevant budgets or any other financial estimates prepared by assessee for business as whole and for each division or pro duct separately, which may have bearing on international transactions entered into by assessee. (g)Record of uncontrolled transactions taken into account Refer for analyzing their comparability with international Annexure transactions entered into, including record of nature, 3.6 terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to pricing of international transactions. (h)Record of analysis performed to evaluate comparability Refer of uncontrolled transactions with relevant international Annexure transaction. 3.6 (i)Description of methods considered for determining Refer ALP in relation to each international transaction or class Annexure of transaction, method selected as most appropriate 3.6 method along with explanations as to why such method was so selected and how such method was applied in each case. (j)Record of actual working carried out for determining Refer ALP, including details of comparable data and financial Annexure information used in applying most appropriate method, 3.7 and adjustments, if any, which were made to account for differences between international transaction and comparable uncontrolled transactions, or between enterprises entering into such transactions. (k)The assumptions, policies and price negotiations, if any, Refer which have critically affected determination of ALP. Annexure 3.7 (l)Details of adjustments, if any, made to transfer prices Not relevant to align them with ALPs determined under these rules and consequent adjustment made to total income for tax purposes. (m)Any other information, data or document, including Not relevant. information or data relating to associated enterprise, which may be relevant for determination of ALP. 12.1 In letter dated 21-11-2005, assessee made reference to information filed in TPO's office on 16-11-2005 and further stated as under: "We trust same (information) are in order. Should your good self require any further clarification/information, we shall be glad to furnish same." 12.2 During course of hearing, learned TPO instructed taxpayer to furnish further information documents as per letter dated 12-12-2005, which reads as under: "In your 10D documentation there is nothing in suggestion and justification of Comparative Uncontrolled Price wherever it is used in 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 case of payment of discounting charges which was not reported in Form 3CEB. Even in documentation of 10D at page 17 figures of payment is mentioned and it is justified at page 41 by averment that rate charged is LIBOR + 12.5 basis points and PLR is on higher side without actually demonstrating same. In view of above arguments please show cause why 10D documentation be not treated as insufficient and is requested that same be furnished according to rules." 12.3 taxpayer filed further information on 20-12-2005/ 23-12-2005 with covering letter which had following references: "With reference to personal hearing before your goodself today, we, under instructions from, and for and on behalf of assessee, attach herewith working of application of TNMM in respect of following international transactions: Export of wheat - Refer Annexures 1 to 7, Merchanting trade - Refer Annexures 8 to 15 Provision of support services - Refer Annexures 16 to 28. Provision of support agency services - Refer Annexures 29 to 39. Provision of distribution services - Refer Annexures 29 to 39. We crave leave to furnish remaining information/documents sought by your goodself on next date of hearing i.e., 23-12-2005." 12.4 In response to above show-cause notice, taxpayer submitted further documents in December, 2005. In doing so, taxpayer, according to TPO, committed default which he recorded as under: "3.3 In response to above show cause notice, no reply was submitted on merits, instead on 20-12-2005, assessee submitted 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). contents of this letter were supposed to be part of original statutory documentation. 3.4 Even at this stage documentation was not complete and on 23-12- 2005, CIPL submitted more backup papers in form of Annexures, 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 earlier documentation was complete and was adequate compliance requirements of rule 10D documentation. It may be seen that assessee-company, therefore, consumed all most 3 months in compliance of submission of statutory and contemporaneous documentation. documentation was submitted in piece meal manner spread over various dates. 3.5 CIPL has failed to file statutory documentation by due date as per provisions of section 92D of Income-tax Act read with rule 10D of Income-tax Rules. Apart from above 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. record of uncontrolled transactions taken into account for analyzing their comparability including record of nature, terms and conditions relating to any uncontrolled transaction with third parties; II. record of analysis performed to evaluate comparability of uncontrolled transactions with relevant international transaction; III. record of actual working carried out. 3.6 Assessing Officer may consider initiating proceeding under sections 271AA and 271G of Income-tax Act. 3.7 Further, it is worthwhile to mention that assessee did not report transaction related to "Payment of discounting charges". In documentation submitted on 16-11-2005 at page 17, 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 Form 3CEB no statutory documentation was maintained. Moreover, even in 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. total documentation submitted in respect of this international transaction is just one paragraph at page 41 of Document-I and one page in Document-III submitted on 23-12-2005. This page is list of discounting contracts entered into by assessee during year along with rate of interest charged. documentation is totally insufficient and qualifies to be characterized as no documentation. Hence it is case where action both under sections 271AA and 271G of Income-tax Act can be considered by Assessing Officer." 13. It appears that on basis of above order, Assessing Officer initiated penalty proceedings under section 271G by issuing show-cause notice to taxpayer on 13-4-2006 to explain why penalty be not imposed under above provision. taxpayer raised objection to show-cause notice vide its reply dated 18-5-2006 claiming that penalty proceedings were not initiated during course of assessment proceedings and, therefore, no penalty can now be levied. Assessing Officer rejected this contention, as according to him Scheme of section 271G was different from Scheme of section 271(1) and, therefore, it is not necessary to initiate penalty proceedings during course of assessment proceedings. contention was rejected. Assessing Officer further relied upon provision of section 92D which, according to him, was to be read along with provisions of section 271G. Both sections, according to Assessing Officer, are independent of assessment proceedings. decisions referred to and relied upon by taxpayer and noted by Assessing Officer in para 7 of impugned order were held to be not applicable. 13.1 Assessing Officer also rejected objection of taxpayer that no specific ground of initiation of penalty proceedings was mentioned in show-cause notice. According to Assessing Officer in show-cause notice, reference to penalty under section 271G was made and since taxpayer failed to furnish information or documents as required under sub- section (3) of section 92D of Act, requirements of provision were satisfied. He rejected this objection also. 13.2 Assessing Officer also considered claim of taxpayer on merit that it had maintained information and documents under rule 10D of Income-tax Rules read with section 92D of Income-tax Act and furnished them within prescribed time when called by TPO. Assessing Officer has recorded that report on submission of taxpayer was called from TPO with relevant record of proceedings. 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 report of TPO and objections were invited. These were submitted to Assessing Officer, vide submission dated 29-8-2006. 13.3 In para 13 of his order, Assessing Officer has briefly referred to various notices issued to taxpayer seeking information. Assessing Officer rejected taxpayer's claim that it had submitted all documents and information by 16-11-2005. According to Assessing Officer, documents and information filed by taxpayer by 16-11-2005 were quite inadequate and did not satisfy statutory requirement as envisaged in rule 10D. Assessing Officer has thereafter noted value of transactions of various description and method applied for evaluating their ALP. He noted that 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 (CUP) method 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 taxpayer with TPO on 16-11-2005 (wrongly recorded as 16-11-2006 by Assessing Officer). 13.4 After taking note of submissions made by taxpayer before TPO, Assessing Officer concluded that taxpayer, has not furnished any comparable data with respect to international transactions where 'CUP' method is used to determine arm's length price. actual working, details of comparable data and financial information used in applying CUP method was not furnished. Hence documentation filed by taxpayer on 16-11-2005 was quite inadequate and did not satisfy statutory requirement as per rule 10D. 13.5 taxpayer further failed to give backup documents/agreements on basis of which cost plus method was applied. It failed to furnish comparable data of similar transactions undertaken by comparable in similar industry. Hence documentation was incomplete. 13.6 As regards Transactional Net Margin Method (TNMM) applied by taxpayer, Assessing Officer has recorded as under: "III. Transactional Net Margin Method (TNMM): 24. During year under reference there are major international transactions termed as Export of Wheat and Merchanting trade and 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. assessee has taken itself as tested party and has stated its transactions to be at arm's length by selection of comparable from Capitaline database. What assessee has mentioned is merely search process through which it has attempted to identify set of comparables. In conclusion at page 46 of document-I, 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 per cent which is better than 20 final set of comparables having OPM at - 6.95 per cent. names of comparables, their financial data, their working of OPM and details of their functional profile was not available in this document. working of operating profit margin of assessee was also not available in documentation submitted by assessee on 16-11-2005. In totality, approach is totally devoid of any merit whatsoever to draw any reasonable conclusion regarding justification of assessee having maintained arm's length standards in transactions it has proposed to cover under TNMM." 13.7 Assessing Officer also noted contention of 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'. Assessing Officer held 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 arm's length principle. These were basic documents. 13.8 In respect of certain other international transactions, 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 assessee to justify their arm's length nature. Even if, assessee considered that these transactions were outside purview of any benchmarking on any method prescribed under Act, reasonable and attributable justifications ought to have been brought out by it in Transfer Pricing Report. No such analysis was made and again, 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 following observations: "28. Though assessee has not furnished required documentation as prescribed under rule 10D, this issue ('Payment of discounting charges') was not considered for levy of penalty under section 271G since levy of penalty under section 271AA for non-maintenance of proper documentation was already considered against assessee vide order of even date." 13.10 Assessing Officer computed penalty under section 271G at Rs. 40,46,41,376, as under: "30. Hence, total value of international transaction on which penalty under section 271G is to be levied is Rs. 20,23,20,68,788 (excluding transaction relating to 'Payment of discounting charges' for which penalty under section 271AA is being levied). Amount of 2 per cent of same, amounting to Rs. 40,46,41,376 is levied on assessee-company under section 271G of Income-tax Act for non- furnishing information or document as required under section 92D of Act read with rule 10D of Income-tax Rules, 1962." 14. taxpayer challenged levy of above penalty in appeal before CIT(A) and reiterated submissions advanced before Assessing Officer which are summarized by learned CIT(A) in para 2 of impugned order. He has recorded his findings on various points in para 3 which are summarized hereunder:- (i) ld. CIT(A) has recorded that it is not necessary to initiate penalty proceedings during course of assessment proceedings. These can be initiated at any time. Assessing Officer can adjudicate and pass independent order under section 271G. (ii)That penalty imposed was not time barred as limitation was to commence from date of issue of show-cause notice. Dates are not recorded. (iii)That it was not necessary for Additional CIT to provide opportunity of being heard to taxpayer before granting approval for levy of penalty. (iv)That penalty proceedings under section 271G were different from penalty proceedings under section 271(1) where 'satisfaction' is required to be recorded during course of assessment proceedings. There was no such requirement under section 271G. (v)The learned CIT(A) further recorded that penalty proceedings under section 271G are different from penalty provisions of section 271AA. In appeal before him he was concerned with penalty imposed under section 271G only. (vi)On examination of various findings of Assessing Officer at pages 10, 11, 13 and in paras 21, 23, 24 and 29 of order imposing penalty, learned CIT(A) reached 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-rules (g), (h), (i) and (j) of rule 10D of Income-tax Rules. appellant had failed to furnish prescribed documents/information within due date and, therefore, penalty was rightly levied and worked out. penalty order was accordingly confirmed. 15. In these appellate proceedings, Shri C.S. Agarwal, learned counsel for 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 present case, no valid proceedings under section 271G of Income-tax Act were initiated. penalty proceedings could have been initiated during course of assessment proceedings. It was further necessary for Assessing Officer to record, during course of assessment proceedings and in assessment order, that assessee had committed default under section 271G of Income-tax Act. This, according to Mr. Agarwal, was implied requirement of law. learned Commissioner had also granted approval to levy of penalty in mechanical manner and, therefore, such mechanical approval vitiated entire proceeding. Shri Agarwal placed reliance on decision of Hon'ble Supreme Court in case of CIT v. D.P. Sandu Bros. Chembur (P.) Ltd. [2005] 273 ITR 1. 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 proceedings taken by him. 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 statutory regulations. There is nothing in section 271G to show that Assessing Officer could punish even for default committed in proceedings not before him. 15.1 Shri Agarwal stated that notice issued by Assessing Officer was invalid in law and otherwise vague. Shri Agarwal drew our attention to show-cause notice issued to taxpayer which is as under: "It is noticed that you have failed to furnish 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. show-cause notice issued is highly vague and non-specific of charge to which taxpayer was expected to respond. In fact two show-cause notices under sections 271AA and 271G contradicted each other were issued. Shri Agarwal relied upon decision of Supreme Court in Reckitt & Colman of India Ltd. v. Collector of Central Excise 1996 (88) ELT 641 wherein their Lordships have observed as under: "10. There is no allegation of respondents being parties to any arrangement. In any event, no material in that regard was placed on record. show-cause notice is foundation on which department has to build up its case. If allegations in show-cause notice are not specific and are on contrary, vague, lack details and/or unintelligible that is sufficient to hold that notice was not given proper opportunity to meet allegations indicated in show-cause notice. In instant case, what appellant has tried to highlight is alleged connection between various concerns. That is not sufficient to proceed against respondents unless it is shown that they were parties to arrangements, if any. As no sufficient material much less any material has been placed on record to substantiate stand of appellant, conclusions of Commissioner as affirmed by CEGAT cannot be faulted." 15.2 Shri Agarwal also relied upon decision of Supreme Court in case of Hindustan Polymers Co. Ltd. v. Collector of Central Excise 1999 (106) ELT 12. 15.3 Shri Agarwal also contended that penalty in present case was levied on different footing than what assessee was asked to respond as per show cause notice. 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 course of assessment proceedings, Shri Agarwal relied upon decision of jurisdictional High Court in case of CIT v. Sardar Amarjit Singh [1981] 132 ITR 365 (Delhi), wherein it has been held as under: "There is also another aspect to section 275. It also contains implicitly limitation that penalty proceedings should be commenced before completion of assessment....." He also relied upon decision of Ahmedabad High Court Bench of Income-tax Appellate Tribunal in case of H. Ajitbhai & Co. v. Asstt. CIT [1993] 45 ITD 262. 15.5 In support of contention that before initiation, no satisfaction was recorded that default in terms of section 271G was committed in assessment proceedings or in assessment order, Shri Agarwal drew our attention to assessment order and also 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 following decisions: (i) D.M. Manasvi v. CIT [1972] 86 ITR 557 (SC), (ii)CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC), (iii)CIT v. Mayar India Ltd. [2005] 142 TAXMAN 230 (Delhi) (iv)CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi), (v)Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi), (vi)CIT v. B.R. Sharma [2005] 275 ITR 303 (Delhi), (vii)CIT v. Vikas Promoters (P.) Ltd. [2005] 277 ITR 337 (Delhi), (viii)Saroop Lal Adlakha v. Dy. CIT [2005] 97 ITD 6 (Delhi), (ix)CIT v. Super Metal Re-Rollers (P.) Ltd. [2004] 265 ITR 82 (Delhi). He submitted that above mentioned decisions were in context of section 271(1)(c), yet ratio of these judgments was equally applicable under section 271G. 15.6 Shri Agarwal also attacked reference made by 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 Special Bench in case of Aztech Software & Technology Services Ltd. v. Asstt. CIT [2007] 107 ITD 141 (Bang.), he did not further address on this aspect. 15.7 show-cause notice is verbatim reproduction of penalty provision as laid in section 271G without application of mind and without specifying nature of default. Such notice is clearly illegal and for this proposition, Shri Agarwal relied upon decision of Hon'ble Supreme Court in case of Amrit Foods v. CCE 2005 (190) ELT 433, wherein Their Lordships observed as under: "The revenue has preferred appeal from order of Tribunal setting aside imposition of penalty under rule 173Q of Central Excise Rules, 1944. Tribunal has set aside order of Commissioner on ground that neither show-cause notice nor order of Commissioner specified which particular clause of rule 173Q had been allegedly contravened by appellant. We are of view that finding of Tribunal is correct. Rule 173Q contains six clauses, contents of which are not same. It was, therefore, necessary for assessee to be put on notice as to exact nature of contravention for which assessee was liable under provisions of rule 173Q. This not having been done, Tribunal's finding cannot be faulted. appeal is, accordingly, dismissed with no order as to costs." He also relied upon decision of Hon'ble Madras High Court in case of B. Lakshmichand v. Government of India 1983 (12) ELT 322 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 amount of duty payable. He also relied upon decision of Hon'ble Delhi High Court in case of CIT v. Ajay Hari Dalmia [1986] 157 ITR 145. 15.8 Shri Agarwal also argued that Assessing Officer contradicted himself by issuing notice under sections 271AA and 271G of Income-tax Act. If no accounts or documents were maintained as alleged, then there was no question of producing them. learned counsel's submission was as under: "(iii) It would be apparent from said two notices that ACIT without specifying, in respect whereof appellant had failed to furnish information or documents and in respect whereof assessee had failed to keep and maintain information and documents, has directed assessee to show cause, why penalty be not imposed under two independent different statutory provisions namely 271G and 271AA of Act and as such notices were vague and contradictory. Further it is submitted that order of assessment made by Assessing Officer (copy placed at pages 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 case of Smt. Ramilaben Ratilal Shah v. Asstt. CIT [1998] 100 TAXMAN 338 (Ahd.)(Mag.), decision of Ahmedabad Bench of Income-tax Appellate Tribunal wherein it was held as under: "if Assessing Officer is not precise about charge while issuing show- cause notice for initiating penalty proceedings, penalty levied is liable to be cancelled on this score alone, since very issuance of show-cause notice initiating penalty proceedings, is invalid." 16. Shri Agarwal stated that even on merit there was no justification to impose any penalty recording that taxpayer appellant had failed to furnish information or documents required by 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 show-cause notice. In this connection, Shri Agarwal in support of above contention has drawn our attention to following observations at page 14 of order under section 271G: ". . . .However as seen from documentation filed by assessee company vide submissions dated 16-11-2005 documentation filed was quite inadequate. . . ." It is clear from record that Assessing Officer was totally unspecific besides being unclear in respect of default allegedly committed by 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 opportunity of being heard must be real, effective and not illusionary. In 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 learned CIT (Appeals), he failed to address above contention regarding validity of show-cause notice. Shri Agarwal thus emphasized contradiction in penalty order and show-cause notice where it was time and again stated that documents filed by taxpayer by 16-11-2005 were inadequate (para 14 of penalty order under section 271G) whereas in para 29 of same order, it is stated as under: "As seen from above paragraphs, assessee company had not furnished proper documentation as required statutorily in section 92D read with rule 10D of Income-tax Rules." In support of contention that levy of penalty on different footing than one on which it is initiated would lead to inference that reasonable opportunity was not afforded to taxpayer and, therefore, penalty could not be sustained. Shri Agarwal also relied upon decision of Supreme Court in case of CCE v. Brindavan Beverages (P.) Ltd., 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 penalty order must have prior approval of Joint Commissioner where penalty exceeds Rs 20,000. In present case Additional Commissioner, Range-III granted approval in mechanical manner without affording any opportunity of being heard to assessee. Therefore, order was bad in law. In support of his contention, Shri Agarwal relied upon decision of Hon'ble Supreme Court in case of R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commissioner [1989] 176 ITR 169 where it has been observed as under: "The act in violation of principle of natural justice or quasi-judicial act is void or of no value. Hon'ble SC in so holding has relied on its judgment in case of State of Orissa v. Dr. (Miss) Binapani Dei (Reported at [1967] 2 SCR 625)." 16.3 Shri Agarwal also relied upon decision of Supreme Court in case of Rajesh Kumar v. Dy. CIT [2006] 287 ITR 91. He also relied upon Circular No. 12 dated 23-8-2001 of Central Board of Direct Taxes and drew our attention to following observations:- "However, this is new legislation. In 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 need to ensure that tax-payers are not put to avoidable hardship in implementation of these regulations." 16.4 Shri Agarwal reiterated that findings of 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 services, etc., no observations on deficiency on filing of documentation have been made by TPO. On other hand, Assessing Officer has not only commented upon maintenance of documentation even in respect of such transactions but has also levied penalty on same, which in any case should not have been levied. Shri Agarwal further submitted, that TPO while computing Arm's length price in respect of international transactions entered into by appellant has not considered any fresh evidence but has merely relied upon documents/records furnished by appellant during course of transfer pricing proceedings. This fact is conclusive enough to indicate that proper documentation, including supporting documentation, were maintained by appellant and same were made available to TPO as and when called for to enable him to compute arm's length price in respect of international transaction entered into by appellant. 16.5 Shri Agarwal further argued that provisions of section 271G can be invoked only in case where prescribed information and documents are not furnished within prescribed time. He drew our attention to provision of sections 92D(3) and 271G and argued that under section 92D(3), Assessing Officer or CIT (Appeals) has discretion to call for information, documents as prescribed under section 92D(1) read with rule 10D in course of any proceedings under Act. If taxpayer fails to furnish prescribed documents within prescribed period of 30 days or 60 days as envisaged in statutory provision, penalty can be imposed. Shri Agarwal argued that question of invoking above provision cannot arise as there was no default by taxpayer as TPO never exercised his power under section 92D(3). Shri Agarwal referred to TPO's first notice and detail of documents summoned from him. above notice, according to Shri Agarwal, was not in spirit of statutory provision. On information called, Shri Agarwal submitted that by Sl. No. 3 TPO has called for 'all' information which has been maintained by appellant in relation to international transactions. He submitted that documentation requirements under rule 10D are huge and cast onerous documentation responsibilities upon appellant. perusal of rule 10D of Rules would show that 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 sections 142(1)(ii) and 143(3) that even for purposes of regular assessment, Assessing Officer has to exercise his discretion in reasonable manner for assessment purposes. TPO adopted unreasonable and illegal approach. Shri Agarwal further argued that it is clear from order of TPO dated 22-3-2006 that all documents were filed by taxpayer. TPO has recorded as under: ". . .In response to notice under section 92CA, authorized representative of assessee appeared from time to time. documentation under rule 10D of 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 livable as all information and documentation, as per provision of rule 10D, were furnished. Shri Agarwal also provided us chart regarding happening on each date of hearing before TPO from 22-9-2005 to 23- 12-2005. Shri Agarwal referred to reply letter dated 16-11-2005 filed before TPO to show that there was bona fide attempt to comply with provision of section 92D read with rule 10D of 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 12-12-2005 and 23-12-2005. taxpayer from time to time co-operated with TPO. 16.7 Shri Agarwal in alternative and without prejudice to above submissions, submitted that implementation of transfer pricing policy is at initial stage and CBDT itself has stated that it would not put taxpayers to avoidable hardships in implementation of these regulations. It is submitted that documents were filed as per understanding of new law by taxpayer and as per advice received by taxpayer from time to time relating to transfer pricing regulations. There was no mala fide intention on part of assessee to commit any default. default, if any, of few days could not be said to be without reasonable cause. 16.8 Shri Agarwal further submitted that plea of reasonable cause before Assessing Officer was raised in letter dated 18-5-2006 as under: "Despite significant movement of its key finance/accounting personnel responsible for coordinating, collating and compiling information/documents maintained by various business departments, assessee extended complete co- operation in assessment proceedings. To place on record, Country Finance Controller left organization on 25-10-2005 and new Controller was hired who joined organization on 7-11-2005, and was thus uninitiated in respect of subject assessment proceedings. new Controller is based out of assessee's office in Pune. Further, position of Manager (Corporate Accounts) fell vacant, and was filled on 1-9-2005." It was again reiterated in reply dated 29-8-2006 that alleged delay had occurred on account of reasonable cause and in absence of country financial controller. However, Assessing Officer imposed penalty without making any adverse comment on pleaded cause. learned CIT (Appeals) in appellate proceedings also did not record any adverse finding on cause pleaded and explained by taxpayer. Therefore, even if alleged failure was proved, no penalty is exigible or sustainable as failure took place on account of reasonable cause. Assessing Officer and learned CIT (Appeals) have erred both on facts and in law in levying and upholding penalty without recording finding on reasonable cause. Shri Agarwal, in this connection, relied upon decision of Hon'ble Supreme Court in case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 wherein it has been observed as under: "Even if minimum penalty is prescribed, authority competent to impose penalty will be justified in refusing to impose penalty, when there is technical or venial breach of provisions of Act or where breach flows from bona fide belief that offender is not liable to act in manner prescribed by statute." In case of Woodward Governor India (P.) Ltd. v. CIT [2002] 253 ITR 745 (Delhi) wherein, in context of section 271C (penalty for failure to deduct tax at source), Hon'ble Court held as under: "Levy of penalty under section 271C. . . is not automatic. In order to bring in application of section 271C, in backdrop of overriding non obstanate clause in section 273B, absence of reasonable cause, existence of which has to be established, is sine qua non. Before levying penalty, concerned officer is required to find out that even if there was any failure to deduct tax at source, same was without reasonable cause. . . cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, would prescribed consequences follow." In Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471 (Delhi), it is explained that reasonable cause can be reasonably said to be cause which prevents man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides. Apex Court in Collector v. P. Mangamma [2003] 4 SCC 488, while interpreting word 'reasonable' has observed as follows (headnote): "It would be hard to give exact definition of word 'reasonable'. Reason varies in its conclusions according to idiosyncrasy of individual and times and circumstances in which he thinks. reasoning which built up old scholastic logic stands now like jingling of child's toy. But mankind must be satisfied with reasonableness within reach; and in cases not covered by authority, decision of Judge usually determines what is 'reasonable' in each particular case; but frequently reasonableness, 'belongs to knowledge of law, and therefore, to be decided by courts'. attempt to give specific meaning to word 'reasonable' is trying to count what is not number and measure what is not space. It means prima facie in law reasonable in regard to those circumstances of which actor, called upon to act reasonably, knows or out to know. It is impossible priori to state what is reasonable as such in all cases. You must have particular facts of each case established before you can ascertain what is reasonable under circumstances." 17. Shri Agarwal further submitted that keeping above principles in mind, it is evident in instant case, appellant had explained that despite significant movement of its key finance/accounting personnel responsible for coordinating, collating and compiling information/documents maintained by various business departments, appellant extended complete co-operation in assessment proceedings. Country Finance Controller left organization on 25- 10-2005 and new Controller was appointed who joined organization on 7-11- 2005 and was thus unfamiliar with instant assessment proceedings. new Controller is based out of appellant's office in Pune. Further, position of Manager (Corporate Accounts) fell vacant, and was filled on 1-9-2005. Thus, even for sake of argument it is presumed that appellant furnished part of prescribed information/documents only after statutorily prescribed deadline of 60 days, above facts would, in terms of section 273B of Income-tax Act, would constitute reasonable cause for failure to do so. delay too was rectified within 10 days of intimation of same from TPO. 17.1 As such appellant humbly submits that, it has extended its full co-operation in Transfer Pricing assessment proceedings initiated in its case under section 92CA of Income-tax Act, by way of furnishing all information/documents/clarifications to TPO, (in spite of 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. submissions of counsel for assessee were opposed by Shri L.M. Pandey, learned Departmental Representative appearing for 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 Income- tax Act. He argued that Assessing Officer is within his jurisdiction to issue notice under above provision as assessment proceedings were finalized by him and assessment was made by him. He argued that legislative provision on above aspects was clear and unambiguous. Explanation to section 92CA clarifies that TPO would be Assessing Officer for purposes of section 92C and section 92D of Act. TPO is to compute ALP by application of most appropriate method. He further argued that sections 92C and 92CA make it clear that when ALP is determined by Assessing Officer under section 92C(3), Assessing Officer may recompute total income of taxpayer having regard to ALP so determined. Shri Pandey emphasized that, it is aptly clear that provisions of section 92C are expressly available to Assessing Officer and once reference is made these provisions up to determination of ALP is relayed to TPO. 18.1 Shri Pandey further argued that TPO has been given power under section 92CA to determine ALP only on reference made by Assessing Officer. TPO can use powers under section 92C and section 92D which are relayed to him for determining ALP. He has to record whether documents prescribed were 'filed' or 'not filed' within prescribed statutory period. penalty under section 271G is to be initiated by authority who is empowered to levy penalty which is Assessing Officer. 18.2 Shri Pandey further contended that it was not right on part of taxpayer to contend that taxpayer did not commit any default before 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 TPO and Assessing Officer to summon information and documents from 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 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 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 Assessing Officer's satisfaction and finding. TPO in order had made clear as to which documents taxpayer had failed to furnish. Besides taxpayer was provided adequate opportunity to appear before Assessing Officer and contest proposed penalty. According to Shri Pandey, specific documents and default attached thereto were explicitly explained to taxpayer which is clear from penalty order. Accordingly, it was submitted that there was no defect in show-cause notice. 18.4 Shri Pandey further submitted that it is not correct on part of taxpayer to contend that default in question was merely technical or venial default. taxpayer failed to comply with statutory provision and file documents within specified time and thus committed default under section 271G of Income-tax Act. taxpayer deliberately and in defiance of statutory provisions refused to file information and documents sought from taxpayer to show basis of its claim that international transactions were at arm's length. Thus from act and conduct of taxpayer mens rea on part of taxpayer is clearly established. 18.5 Shri Pandey also refuted claim of taxpayer that as documents were furnished before culmination of proceedings before TPO, no default was committed. It was stated that documents and information was to be furnished within time limit as fixed under Statute and, therefore, penal provisions would be attracted if statutory time limit is not complied with. burden to establish transactions were carried at arm's length is on taxpayer. It is for taxpayer to establish and furnish requisite details on application of appropriate method for determination of ALP and justify same by producing relevant information and documents. whole scheme relating to determination of tax liability, under transfer pricing are sequential steps of legislative process and, therefore, default in furnishing of documents have direct bearing. This has been emphasized by Special Bench of ITAT in case of Aztec Software & Technology Services Ltd. (supra). Shri Pandey, therefore, argued that intentions of Legislature in this issue are quite clear. 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 show-cause notice did not affect validity of notice. taxpayer was allowed opportunities and further hearings and all details were made known to taxpayer as is evident from penalty order. 18.7 Shri Pandey also argued that Assessing Officer considered all pleas advanced by taxpayer and its reply was found unsatisfactory. CIT (Appeals) also dealt in para 3(ix) of its order with plea of reasonable cause taken by taxpayer. It was, therefore, not correct that plea of taxpayer relating to reasonable cause was not discussed. 18.8 Shri Pandey also challenged argument of taxpayer that documents filed after 16-11-2005 were merely supporting documents. orders and annexures of TPO's order in uncertain terms spell out that documents filed later should have been filed within due time as in absence of these documents justification put forward by 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 quantum of penalty imposed as taxpayer has failed to furnish documents and information in respect of all 24 international transactions. Hence no fault could be found with basis of penalty. 19. Shri Pandey further referred to impugned order of CIT (Appeals) wherein he has pointed out that under provisions of section 274(2) of Act, no responsibility is cast on Assessing Officer to provide opportunity of being heard to taxpayer before making reference to TPO. Likewise, such opportunity is not to be provided to taxpayer before approval for levy of penalty is granted. arguments advanced on behalf of taxpayer were devoid of any substance, Shri Pandey added. 19.1 Shri Pandey further argued that it was wrong on part of taxpayer to contend that principles of natural justice were violated in this case. Here material relied upon by Assessing Officer for invoking provisions of section 271G was quoted from order and record of TPO. This material was duly put to taxpayer before levy of penalty. No material against taxpayer was used without reference to taxpayer. Thus all principles of natural justice were followed and fully satisfied. Shri Pandey relied upon Circular No. 12 dated 23-8-2001 of Central Board of Direct Taxes specifying 31-8-2001 as cut out date up to which leverage could be provided for formalities relating to transfer pricing. default in present case was committed after above date. There was no respite or privilege granted to taxpayer to take shelter and claim relief. 19.2 Shri Pandey also gave para wise reply to taxpayer's synopsis in written submissions contained in Volume-II of paper book. He argued that contention of assessee that only insufficient documents were given till time allowed and supporting documents were given later on and that penalty was levied without valid initiation, were all incorrect submissions. order of TPO had amalgamated in order under section 143(3) by clear remarks of Assessing Officer inasmuch as it became part of said order. Thus there was satisfaction of Assessing Officer relating to breach of time in submitting documents. 19.3 Shri Pandey further argued that section 275 of Act lays down time limit for passing penalty order and there is no time for initiation of penalty proceedings. He further relied upon decision in case of Asstt. 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 completion of assessment. Shri Pandey also referred to decision of Guwahati High Court in case of Assam State Warehousing Corpn. v. CIT [2007] 288 ITR 25. Shri Pandey also cited cases where penalty proceedings are initiated under section 271(1)(c) on 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 other penalty provision. 19.5 Shri Pandey also argued that show-cause notice issued by Assessing Officer under section 271G was quite valid. He submitted that no format of show-cause notice has been prescribed under Act. Therefore, Assessing Officer is only required to quote section under which show-cause notice is issued. In case default is not clear to taxpayer, he may make necessary correspondence with Assessing Officer to clarify any issue. In this case, copy of order of Assessing Officer and of TPO as also report of TPO was duly furnished to taxpayer. There is no material on record to show that taxpayer was unaware of nature of default he was required to meet. taxpayer raised plethora of arguments to support its contention on purported default. taxpayer was allowed personal hearings and after considering arguments and material on record, penalty was imposed. Therefore, technical objection of taxpayer was devoid of merit. 20. Shri Pandey also challenged taxpayer's submissions that findings of Assessing Officer were beyond jurisdiction. As stated earlier, Transfer Pricing Officer and Assessing Officer had found that statutory documentations were not filed in time and, therefore, taxpayer committed default under section 271G in respect of international transactions carried by taxpayer with its AEs. It was wrong on part of 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 TPO. All these were international transactions and ought to have been benchmarked on particular method for determination of ALP. Even in respect of these transactions, taxpayer failed to furnish information and documents within prescribed time. As late as on 20-12-2005 it supplied working of TNMM in respect of support agency services which were required to be given in 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 transactions and contention of taxpayer that only in respect of part of 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 Income-tax Act and, therefore, committed default under section 271G. learned Departmental Representative also distinguished cases cited by taxpayer. 21. We have given careful thought to rival submissions of parties. We have also examined relevant statutory provisions and case law cited before us. In case of Aztec Software & Technology Services Ltd. (supra), Special Bench of Tribunal, after considering parallel transfer pricing regulations in large number of countries, as also Indian Regulations on subject, observed as under: "132. dispassionate study of provisions of various countries on Burden of Proof, would show, following fundamental features: (i) That burden to establish that international transaction is carried at ALP, is on taxpayer who is to disclose all relevant information and documents relating to prices charged and profit earned with related and unrelated customer. (ii) If Assessing Officer has determined ALP, other than price declared by assessee, Assessing Officer has to prove that price determined by him is reliable and reasonable and confirms statutory requirement unless case is covered by situation No. (iii) below: (iii) In case of failure on part of taxpayer to comply with statutory provisions, tax authorities would have to determine ALP. In such situation, burden of proof on tax authorities is much reduced. 133. Having regard to statutory provisions, particularly mandate of sections 92(1) and 92D read with relevant rules, we hold that it is obligatory on part of taxpayer to furnish information relating to controlled international transactions, select 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. Taxpayer has further to co-operate in determination of ALP by tax authorities by furnishing all relevant information. tax authorities in cases where they are of opinion that ALP has not been correctly determined by taxpayer, can substitute their own ALP on basis of material or information furnished by 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 taxpayer. Any material collected to be used against taxpayer is to be put to taxpayer to explain. Having regard to purpose of 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 appellate authorities are satisfied and records finding that ALP submitted by assessee is fair and reasonable. Merely by finding faults with transfer price determined by revenue authorities (Assessing Officer/TPO), addition on account of 'adjustments' cannot be deleted. This is because 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 taxpayer is specifically accepted, appellate authorities on 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. matter cannot be left hanging in between. ALP of international transaction has to be determined in every case. 134. ** ** ** 135. On consideration of relevant provisions, it is evident that in process of determining Arm's Length Price, first important factor to consider is specific characteristics of services rendered both in international transaction as also in 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 price or cost charge etc., in open market then reasonable and accurate evaluation is to be done and adjustment made. Reliability of uncontrolled transaction would depend upon degree of comparability. uncontrolled transaction may not be taken 'as comparable' if there are such material differences as cannot be adjusted. If data found satisfy above requirements then further proceedings to find most appropriate method, best suited to facts and circumstances of particular international transaction is to be selected. In other words, most appropriate method would be method which provides most reasonable results having regard to data available for determining arm's length price. If there are more than one ALPs determined on application of most appropriate method then arithmetical mean of such prices or price at option of assessee within 5 per cent variation is to be adopted [Proviso to section 92C(2)]." 22. As in 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 time specified in notice under section 92D(3) is under challenge, we will examine Scheme relating to maintenance of information and documents and their furnishing before revenue authorities for determining ALP. Assessing Officer/TPO needs information and documents on controlled and uncontrolled international transactions and other relevant evidence. taxpayer, under legislation, is rightly thought to be best person to supply relevant information being party to international transaction. information and documents are prescribed as per rule 10D of Income-tax Rules, quoted hereafter. In column No. 2 on right are 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 into international Time/form transaction shall keep and maintain following information when and documents, namely:- information is to be furnished as per clause. No. 1 No. 2 (a)a description of ownership structure of assessee (a) In enterprise with details of shares or other ownership interest audit report held therein by other enterprises; on Form 3CEB. (b)a profile of multinational group of which assessee (b)- same - enterprise is part along with name, address, legal status and country to tax residence of each of enterprises comprised in group with whom international transactions have been entered into by assessee, and ownership linkages among them; (c) broad description of business of assessee and (c)- same - industry in which assessee operates, and of business of associated enterprises with whom assessee has transacted; (d)the nature and terms (including prices) of international (d) In Form transactions entered into with each associated enterprise, 3CEB in details of property transferred or services provided and audit report quantum and value of each such transaction or class of or u/s 92D such transaction; (3) or u/s 92CA(2) (e)a description of functions performed, risks assumed (e)- same - and assets employed or to be employed by assessee and by associated enterprises involved in international transaction; (f) record of economic and market analyses, forecasts, (f) - same - budgets or any other financial estimates prepared by assessee for business as whole and for each division or product separately, which may have bearing on international transactions entered into by assessee; (g)a record of uncontrolled transactions taken into account (g)- same - for analyzing their comparability with international transactions entered into, including record of nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to pricing of international transactions; (h)a record of analysis performed to evaluate comparability (h)- same - of uncontrolled transactions with relevant international transaction; (i)a description of methods considered for determining (i)- same - arm's length price in relation to each international transaction or class of transactions, method selected as most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case; (j) record of actual working carried out for determining (j)- same - arm's length price, including details of comparable data and financial information used in applying most appropriate method, and adjustments, if any, which were made to account for differences between international transaction and comparable uncontrolled transactions, or between enterprises entering into such transactions; (k)the assumptions, policies and price negotiations, if any, which (k)- same - have critically affected determination of arm's length price; (l) details of adjustments, if any, made to transfer prices to (l)- same - align them with arm's length prices determined under these rules and consequent adjustment made to total income for tax purposes; (m)any other information, data or document, including information (m)- same- or data relating to associated enterprise, which may be relevant for determination of arm's length price. (2) Nothing contained in sub-rule (1) shall apply in case where aggregate value, as recorded in books of account, of international transactions entered into by assessee does not exceed one crore rupees: Provided that assessee shall be required to substantiate, on 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) information specified in sub-rule (1) shall be supported by authentic documents, which may include following: (a) official publications, reports, studies and data bases from Government of country of residence of 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 business affairs of associated enterprises; (e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to international transactions; (f) letters and other correspondence documenting any terms negotiated between assessee and associated enterprise; (g) documents normally issued in connection with various transactions under accounting practices followed. (4) information and documents specified under sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by specified date referred to in clause (iv) of section 92F: Provided that where 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 nature or terms of international transaction, in assumptions made, or in any other factor which could influence transfer price, and in case of such significant change, fresh documentation as may be necessary under sub-rules (1) and (2) shall be maintained bringing out impact of change on pricing of international transaction. (5) information and documents specified in sub-rules (1) and (2) shall be kept and maintained for period of eight years from end of 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 taxpayer did not exceed one crore rupees. Proviso to above sub-rule requires assessee to substantiate on 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 documents which would be needed to support information. Here different clauses require different type of supporting documents as briefly discussed herein below: (a)refers to official publications, reports, studies and data bases from Government of 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 business affairs of AEs. Similar types of information are also mentioned in clauses (e), (f) and (g). 22.3 Sub-rule (4) enjoins that information and documents specified in sub-rules (1) and (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) prescribes period for which information and documents specified in sub-rules (1) and (2) are to be maintained. period specified is 8 years from end of relevant assessment year. 22.5 It is clear from consideration of rule 10D and its various sub- rules, that documents and information prescribed under above rule is voluminous and it would only be in rarest cases that all clauses of sub-rules would be attracted. It is not possible to casually ask for information under all clauses. It is likely that in some cases taxpayer need not carry any analysis of functions performed, risk assumed and assets employed; there may be exactly similar uncontrolled transaction with independent unconnected party to establish that transaction was Arm's length transaction. In such 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 nature that analysis and forecasts etc., mentioned above have no connection or relevance for determination of ALP. Depending upon nature of 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 said clause by use of words 'if any'. It is, therefore, clear that one or more clauses of sub-rule (1) are applicable and not all clauses of Rule in given case. It would all depend upon facts and circumstances of case more particularly 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 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 international transactions. Further, if official publications are needed in case, other documents like report, studies, and data from Government agencies mentioned in same clause might not be required. Information even in same clause may be alternative in some cases. It is evident from information/documents prescribed in sub-rules of rule 10D that taxpayer and tax authorities are to see what information and documents and from which particular clause is relevant and therefore, needed for determining ALP. consideration of above aspect is material before issuing notice under section 92D(3), if it is to serve its purpose. abovesaid prescribed information is gathered from taxpayer through various means and at different stages of assessment proceedings. initial or first information relating to international transactions is gathered from taxpayer in prescribed audit report in Form 3CEB. This report is required to be submitted along with return of income as per section 92E of Act which is as under:- "92E. Report from accountant to be furnished by persons entering into international transaction.-Every person who has entered into international transaction during previous year shall obtain report from accountant and furnish such report on or before specified date in prescribed form duly signed and verified in prescribed manner by such accountant and setting forth such particulars as may be prescribed." 23. Further information gathered through prescribed Tax Audit Report under above section is as under: 3CEB. Report from accountant to be furnished under section 92E relating to International Transaction(s) "Form No. 3CEB [See rule 10E] Report from accountant to be furnished under section 92E relating to international transaction(s) 1. I/We have examined accounts and records of ............. (name and address of assessee with PAN) relating to international transactions entered into by assessee during previous year ending on 31st March........ 2. In my/our opinion proper information and documents as are prescribed have been kept by assessee in respect of international transaction(s) entered into so far as appears from my/our examination of records of assessee. 3. particulars required to be furnished under section 92E are given in annexure to this Form. In my/our opinion and to best of my/our information and according to explanations given to me/us, particulars given in annexure are true and correct. ................... Signed Name ............................ Address ........................... .................................... Membership No. ............... Place: ............ Date: ............. Notes: 1. Delete whichever is not applicable. 2. This report has to be signed by- (i)a chartered accountant within meaning of Chartered Accountants Act, 1949 (38 of 1949); or (ii)any person who, in relation to any State, is, by virtue of provisions in sub-section (2) of section 226 of Companies Act, 1956 (1 of 1956), entitled to be appointed to act as auditor of companies registered in that State. ANNEXURE TO FORM NO. 3CEB Particulars relating to international transactions required to be furnished under section 92E of Income-tax Act, 1961 Part 1. Name of assessee: 2. Address: 3. Permanent account number: 4. Status: 5. Previous year ended: 6. Assessment year: Part B 7. List of associated enterprises with whom assessee has entered into international transactions, with following details: (a)Name of associated enterprise. (b)Nature of relationship with associated enterprise as referred to in section 92A(2). (c)Brief description of business carried on by associated enterprise. 8. Particulars in respect of transactions in tangible property: A. Has 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 following details in respect of each associated enterprise and each transaction or class of transactions: (a)Name and address of associated enterprise with whom international transaction has been entered into; (b)Description of transaction and quantity purchased/sold. (c)Total amount paid/received or payable/receivable in transaction- (i) as per books of account; (ii) as computed by assessee having regard to arm's length price. (d)Method used for determining arm's length price [see section 92C(1)] B. Has assessee entered into any international Yes/No transaction(s) in respect of purchase/sale of traded/finished goods? If 'yes' provide following details in respect of each associated enterprise and each transaction or class of transactions: (a)Name and address of associated enterprise with whom international transaction has been entered into. (b)Description of transaction and quantity purchased/sold. (c)Total amount paid/received or payable/receivable in transaction- (i) as per books of account. (ii) as computed by assessee having regard to arm's length price. (d)Method used for determining arm's length price [see section 92C(1)] C. Has assessee entered into any international Yes/No transaction(s) in respect of purchase/sale of any other tangible movable/immovable property or lease of such property? If 'yes' provide following details in respect of each associated enterprise and each transaction or class of transactions: (a)Name and address of associated enterprise with whom international transaction has been entered into. (b)Description of property and nature of transaction. (c)Number of units of each category of moveable/immovable property involved in 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- (i) as per books of account. (ii) as computed by assessee having regard to arm's length price, (e)Method used for determining arm's length price [see section 92C(1)] 9. Particulars in respect of transactions in intangible property: Has assessee entered into any international transaction(s) Yes/No in respect of purchase/sale/use of intangible property such as know how, patents; copyrights, licenses, etc.? If 'yes' provide following details in respect of each associated enterprise and each category of intangible property: (a)Name and address of associated enterprise with whom international transaction has been entered into. (b)Description of intangible property and nature of transaction. (c)Amount paid/received or payable/receivable for purchase/sale/use of each category of intangible property- (i) as per books of account. (ii) as computed by assessee having regard to arm's length price. (d)Method used for determining arm's length price [see section 92C(1)] 10. Particulars in respect of providing of services: Has assessee entered into any international transaction(s) Yes/No in respect of services such as financial, administrative, technical, commercial services, etc.? If 'yes' provide following details in respect of each associated enterprise and each category of service: (a)Name and address of associated enterprise with whom international transaction has been entered into. (b)Description of services provided/availed of/from associated enterprise. (c)Amount paid/received or payable/receivable for services provided/taken- (i) as per books of account. (ii) as computed by assessee having regard to arm's length price. (d)Method used for determining arm's length price [see section 92C(1)] 11. Particulars in respect of lending or borrowing money: Has assessee entered into any international transaction(s) Yes/No in respect of granting/receiving loans/advances to or from associated enterprise? If 'yes' provide following details in respect of each associated enterprise and each loan/advance: (a)Name and address of associated enterprise with whom international transaction has been entered into. (b)Nature of financing agreement. (c)Currency in which loan/advance granted/received. (d)Interest rate charged/paid in respect of each loan/advance. (e)Amount paid/received or payable/receivable in transaction- (i) as per books of account. (ii) as computed by assessee having regard to arm's length price. (f)Method used for determining arm's length price [see section 92C(1)] 12. Particulars in respect of mutual agreement or arrangement: Has assessee entered into any international transaction with Yes/No associated enterprise or enterprises by way of mutual agreement or arrangement for allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with benefit, service or facility provided or to be provided to any one or more of such enterprises? If 'yes' provide following details in respect of each agreement/arrangement: (a)Name and address of associated enterprise with whom international transaction has been entered into. (b)Description of such mutual agreement or arrangement. (c)Amount paid/received or payable/receivable in each such transaction- (i) as per books of account. (ii) as computed by assessee having regard to arm's length price. (d)Method used for determining arm's length price [see section 92C(1)]. 13. Particulars in respect of any other transaction: Has assessee entered into any other international transaction Yes/No. Yes/No not specifically referred to above, with associated enterprise? If 'yes' provide following details in respect of each associated enterprise and each transaction: (a)Name and address of associated enterprise with whom international transaction has been entered into. (b)Description of transaction. (c)Amount paid/received or payable/receivable in transaction- (i) as per books of account. (ii) as computed by assessee having regard to arm's length price. (d)Method used for determining arm's length price [see section 92C(1)] ................... Signed Name .................... Address ................... Place: ............. Date: ............. Notes: This annexure has to be signed by- (i) chartered accountant within meaning of Chartered Accountants Act, 1949 (38 of 1949); or (ii) any person who, in relation to any State, is, by virtue of provisions in sub-section (2) of section 226 of Companies Act, 1956 (1 of 1956), entitled to be appointed to act as 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 associated enterprises, besides method used for determining ALP in respect of each international transaction is required to be given in report. 24.1 Assessing Officer must have above report (Form 3CEB) with him to determine question whether total value of transactions is more or less than Rs. 5 crore (now enhanced to Rs. 15 crore) to consider question whether determination of ALP is to be referred to Transfer Pricing Officer (TPO) or not. If total value exceeds prescribed limit, Assessing Officer has to refer matter to 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 basic and initial information of international transactions carried by taxpayer in 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 purpose of 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 facts of given case. Secondly, information from certain clauses of rule 10D is obtained in audit report on Form 3CEB required to be filed along with return. Thirdly, TPO before proceeding to determine ALP has above basic and initial information of international transactions carried by assessee. 24.4 Armed with above initial information and when knowing details of international transactions carried by taxpayer and method employed to determine ALPs of transactions, further proceedings are carried towards determination of ALP. relevant provisions of scheme of assessment are as under:- "92C. Computation of arm's length price.- (1)** ** ** (2)** ** ** (3) Where during course of any proceeding for assessment of income, Assessing Officer is, on basis of material or information or document in his possession, of opinion that- (a) price charged or paid in international transaction has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to international transaction have not been kept and maintained by assessee in accordance with provisions contained in sub-section (1) of section 92D and rules made in this behalf; or (c) information or data used in computation of arm's length price is not reliable or correct; or (d) assessee has failed to furnish, within specified time, any information or document which he was required to furnish by notice issued under sub-section (3) of section 92D, Assessing Officer may proceed to determine arm's length price in relation to said international transaction in accordance with sub-sections (1) and (2), on basis of such material or information or document available with him: Provided that opportunity shall be given by Assessing Officer by serving notice calling upon assessee to show cause, on date and time to be specified in notice, why arm's length price should not be so determined on basis of material or information or document in possession of Assessing Officer." 24.5 Where, on reference, TPO is to determine ALP of international transaction, sub-sections (2), (3) and (4) of section 92CA are relevant and are reproduced below: "92CA. Reference to Transfer Pricing Officer.- (1)** ** ** (2) Where reference is made under sub-section (1), Transfer Pricing Officer shall serve notice on assessee requiring him to produce or cause to be produced on date to be specified therein, any evidence on which assessee may rely in support of computation made by him of arm's length price in relation to international transaction referred to in sub-section (1). (3) On date specified in notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, Transfer Pricing Officer shall, by order in writing, determine arm's length price in relation to international transaction in accordance with sub-section (3) of section 92C and send copy of his order to Assessing Officer and to assessee. [(4) On receipt of order under sub-section (3), Assessing Officer shall proceed to compute total income of assessee under sub-section (4) of section 92C in conformity with arm's length price as so determined by Transfer Pricing Officer.] (The portion is highlighted to emphasize scheme of regulations) 92D. Maintenance and keeping of information and document by persons entering into international transaction.-(1) Every person who has entered into international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed. (2) Without prejudice to provisions contained in sub-section (1), Board may prescribe period for which information and document shall be kept and maintained under that sub-section. (3) Assessing Officer or Commissioner (Appeals) may, in course of any proceeding under this Act, require any person who has entered into international transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within period of thirty days from date of receipt of notice issued in this regard: Provided that Assessing Officer or Commissioner (Appeals) may, on application made by such person, extend period of thirty days by further period not exceeding thirty days. 271AA. Penalty for failure to keep and maintain information and document in respect of international transaction.-Without prejudice to 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, Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, sum equal to two per cent of value of each international transaction entered into by such person.] 271G. Penalty for failure to furnish information or document under section 92D.-If any person who has entered into international transaction fails to furnish any such information or document as required by sub-section (3) of section 92D, Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, sum equal to two per cent of value of international transaction for each such failure.] 273B. Penalty not to be imposed in certain cases.-Notwithstanding anything contained in provisions of [clause (b) of sub-section (1) of] [section 271, section 271A, [section 271AA,] section 271B [, section 271BA], [section 271BB,] section 271C, [section 271CA,] section 271D, section 271E, [section 271F, [section 271FA,] [section 271FB,] [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 [section 272B or] [sub-section (1) [or sub-section (1A)] of section 272BB or] [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 person or assessee, as case may be, for any failure referred to in said provisions if he proves that there was reasonable cause for said failure.]" 24.6 In 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 good look at said provision. On consideration of provisions of section 92D(3), we find that above provision can be applied in following circumstances:- (i) in course of proceedings under Act before Assessing Officer or 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 receipt of notice issued in this regard. Thus 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' documents prescribed under rule 10D. word "required" is important as it rules out option with taxpayer and makes it obligatory to furnish requisite information. It is clear from above that power under above section can be used in 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 provision connected with procedure to help 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 stage at which it is to be issued and purpose, which is required to be achieved through issuance of such notice. We have already noted what are implications and effect of prescribed rule 10D on 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 TPO under section 92CA(1). 24.7 TPO is thereafter required to serve notice under sub-section (2) of section 92CA of Act. statutory scheme envisages that TPO shall serve notice requiring taxpayer to produce evidence in support of his computation of ALP. Therefore, opportunity to prove that its ALP is correct has to be allowed to taxpayer. It is mandatory requirement of regulations. Thereafter notices under section 92D(3) may be issued requiring taxpayer to furnish information on "specified points", depending upon facts of 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 notice under section 92D(3) is complied, both in letter and in spirit of Statute. This conclusion is based on scheme and clear language used in regulations. Steps as per regulations are to be followed in sequence. Report in Form No. 3CEB in first instance, is obtained from taxpayer. Next step is to issue notice under section 92CA(2) to 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 taxpayer in response to notice under section 92CA(2) of Act. If on consideration of evidence produced by taxpayer TPO is satisfied that ALP has been properly and correctly determined by taxpayer, it is end of matter. There is no question of issuing further notice under any provision to taxpayer. However, if complete information is not furnished, or otherwise, TPO is of view that more information on specified points is required from taxpayer, TPO can issue notice under sub-section (3) of section 92D. TPO can also issue notice under section 92CA(3) of Act, depending upon facts of case and information needed. Only in case of failure of 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 taxpayer first under section 92D(3) and thereafter provide opportunity to taxpayer to support its ALP. Further having regard to purpose of regulations, notice under section 92D(3) must require specific information (or document) which taxpayer failed to furnish under section 92CA(2) but which according to TPO are necessary for determination of ALP of international transactions. Above view is fully supported by sub-section (3) of section 92CA of Act providing for determination of ALP by TPO. Besides evidence/material referred to in above sub-section, 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) cannot be vague but must require specific information. This is established from clear language and scheme of regulation. 26. In case of Barium Chemicals Ltd. v. A.J. Rana AIR 1972 SC 591, their Lordship of Supreme Court considered notice issued by competent authority under section 19(2) of Foreign Exchange Regulation Act, 1992, which is as under: "2. (a) In case said information, book or document is in possession of any person, Central Government or as case may be, Reserve Bank may by order in writing, require such person to furnish to Central Government or Reserve Bank or any person specified in order such information, book or other document. (b) In case, however, information, book or document is not in possession of person to whom order is addressed, but it is possible in opinion of Central Government or Reserve Bank, for such person to obtain and furnish that information, book or other document, Central Government or Reserve Bank may, by order in writing, require such person to obtain and furnish to Central Government or Reserve Bank or any person specified in 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 following pertinent observations on sub-section 19(2): "16. language of section 19(2) of Act points to conclusion while 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 order. This is apparent from concluding part of said sub-section wherein there is reference to 'such information, book or other document'. word 'such' points to necessity of specifying information, book or other documents in order. It is, no doubt, true that order can relate to large number of books, documents or informations, it is all same imperative that same should be particularized in order. According to sub-section (1A) of section 23 of Act, if any person contravenes any of provisions of this Act or of any rule, direction or order made there under, for contravention of which no penalty is expressly provided, he shall, upon conviction by Court, be punishable with imprisonment for term which may extend to two years, or with fine, or with both. fact that penal consequences follow from non-compliance with order made under sub-section (2) of section 19 also highlights importance of specifying information, book or other document in order." Above decision is fully applicable to case in hand. Slight difference in language of section 19(2) considered by their Lordship and section 92D(3) does not make any material difference. corporate body like 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 Assessing Officer or CIT (Appeals) are empowered to require from taxpayer or any person who has entered into international transaction to furnish any prescribed information or document. Notice under section 92D(3) has to be confined to furnishing of information or document as may be "prescribed". It is unauthorized to require noticee to furnish non- prescribed information. If in 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 Act irrespective of title or label given to such 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 Act to support computation of ALP by taxpayer. However, we do not see any authority under section 92D(3) with T.P.O. to require taxpayer to furnish non-specified information or such information or document already filed by taxpayer or use of provision without asking taxpayer to support first its ALP of International transactions. case of any person other than taxpayer for notice under section 92D(3) stands on different footing than of 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 information prescribed under rule 10D including supporting information and documents mentioned in sub-rule (3) in routine or casual manner without application of mind as to what specific information is required to achieve purpose of regulations. Information which has already been furnished by taxpayer either in audit report or in response to notice under section 92CA(2) would be of no use and, there is no point in requiring same information again or require unprescribed information under section 92D(3) and cast additional burden on taxpayer. In all such cases, it would no more remain valid notice under section 92D(3)/271G of 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 Act to taxpayer. notice is serious notice as non-compliance within specified time would lead to imposition of penalty, which may amount to several crores. It is not routine notice, which can be casually issued calling for any information or all prescribed information. Where taxpayer has "option" to select relevant information, it is not notice under section 92D(3) as "option" and word "require" do not go together. Having regard to scheme noted above, said notice is issued to get information on specified point needed on facts and circumstances of case for purposes of determining ALP. Penalty under section 271G. 29. We now proceed to consider conjunctively provisions of sections 92D, 271G and 273B of Income-tax Act quoted above. 29.1 It is evident from above provisions that penalty under section 271G can be imposed on any person who has entered into international transaction but fails to furnish information or document as required under sub- section (3) of section 92D. On account of above default (failure), defaulter is liable to pay penalty for sum equal to 2 per cent 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 person to furnish documents in time if such failure is proved to be due to reasonable cause". 30. With above legal background, we proceed to consider facts and circumstances of case. TPO in this case issued first notice on 22-9-2005 which has been reproduced in earlier part of this order. In para 1 of notice, he asked assessee to support and substantiate computation of ALP in international transactions. This is required by section 92CA(2). As per para No. 2 T.P.O. further required to furnish information including 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. aforesaid notice was notice under section 92CA(2) but TPO by asking further information made it 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 unprescribed. Such unspecific information could not be required under section 92D(3). Why and how information already furnished and could be obtained from Assessing Officer was required or needed is not clear from notice or other material available on record. notice was issued in casual manner. TPO had not examined records of 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 omnibus notice without any regard of unwarranted heavy burden it was likely to place on taxpayer not authorized under section 92D(3). It was unintelligible notice where all information and documents maintained under rule 10D of Income-tax Rules were required in addition to information referred to above. 31. second notice issued on similar lines on 13-10-2005 asking for submission of documents by 7-11-2005 did not improve situation. third notice dated 8-11-2005 was again issued quoting provision of section 92D and calling upon assessee to file information and documents latest by 21-11- 2005. said notice also had all infirmities noted in first notice. 32. In light of what we have discussed above relating to requirement of valid notice under section 92D(3) of Act, above mentioned notices cannot be treated as valid and legal to justify application of provision under section 271G of 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 taxpayer on record and without consideration as to which of 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), Assessing Officer or CIT (Appeals) is authorized to require prescribed information but here both prescribed and unprescribed information like balance sheet, profit and loss account, computation of income etc. was also required to be furnished from taxpayer before taxpayer could file evidence under section 92CA(2). Not only primary documents necessary to support 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 said sub-rule were available with taxpayer. burden of selection/relevancy of clauses applicable was shifted to taxpayer. notice only increased burden of taxpayer and confused noticee. Above notices issued without application of mind and without considering relevancy and requirement of all prescribed information and documents under rule 10D vitiated legality of notices. Above notices could not be treated as proper and legal notices in terms of section 92D(3) of Act. failure, therefore, of taxpayer to comply such notices in time cannot justify levy of penalty of Rs. 40,46,41,376. notice being illegal question of levy of penalty did not arise. 33. Apart from decisions cited by Shri Agarwal, learned counsel for taxpayer, our above view is supported by decision of Calcutta High Court in case of New Central Jute Mills Co. Ltd. v. Dwijendralal Brahmachari [1993] 90 ITR 467 where notice was issued by ITO asking for production of all books of account and documents of company lying in custody of Registrar of Company. Court found that books of account and documents summoned were not seized and not seen by ITO and, therefore, ITO had no knowledge and could not have any knowledge about contents of books and documents nor could determine relevancy or otherwise of said books and documents. Court held that notice clearly suggested that ITO had not applied his mind before issuing notice. It was also held to be vague and illegal. notice was, therefore, held to be beyond statutory powers, illegal and quashed accordingly. facts here are quite similar. 34. In light of above discussion, we hold that three notices referred to above issued by TPO could not be treated as valid notices issued in terms of section 92D(3) of Act and, therefore, did not attract penalty provisions of section 271G of Income-tax Act. 35. TPO's letter dated 12-12-2005, after considering documents filed by assessee pointed out certain defects in comparative uncontrolled price method employed by tax payer without any benchmark. Likewise TNMM method used was stated to be without providing documents used as comparable nor functional details of comparables was provided. Such like defects were pointed out. aforesaid notice relating to specific defects and calling for their rectification could be treated as notice under section 92D(3) of Income-tax Act although not so labelled by Assessing Officer. However, admittedly before end of December, 2005, all documents and information were furnished by taxpayer. So there was no default in not submitting documents and information within prescribed time to attract provisions of section 271G of Income-tax Act. Therefore, on facts we find no justification in levy of penalty in question. 36. We further find substance in arguments of learned counsel for assessee that not only notices as above were vague, non-specific and showed lack of application of mind, even show-cause notice issued under section 271G suffered from same defect. No specific clause of rule or detail of international transaction relating to which default was committed, were stated in show-cause notice issued by Assessing Officer. notices issued were prima facie illegal and bad in law. He relied upon decision in case of Reckitt & Colman of India Ltd. (supra) and on case of Hindustan Polymers Co. Ltd. (supra). In case of Amrit Foods (supra), wherein their Lordship observed as under: "The revenue has preferred appeal from order of Tribunal setting aside imposition of penalty under rule 173Q of Central Excise Rules, 1944. Tribunal has set aside order of Commissioner on ground that neither show cause notice nor order of Commissioner specified which particular clause of rule 173Q had been allegedly contravened by appellant. We are of view that finding of Tribunal is correct. Rule 173Q contains six clauses contents of which are not same. It was, therefore, necessary for assessee to be put on notice as to exact nature of contravention for which assessee was liable under provisions of Rule 173Q. This not having been done Tribunal's finding cannot be faulted. appeal is, accordingly, dismissed with no order as to costs." In above case Apex Court held that if allegations in 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. cited decisions are applicable to facts of case and arguments of Shri Agarwal are well taken. As penalty of 2 per cent under section 271G is imposable in respect of international transaction, it was necessary to specify in show-cause notice under section 271G, international transactions or documents/information with reference to which taxpayer committed default by failing to furnish requisite information in time. This would enable him to file proper reply in defence. Without detail of default, no adequate reply could be furnished. 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 penalty order is of no avail. mention of above detail in order is of no use. details were required to be mentioned in show-cause notice so as to afford reasonable and adequate opportunity to assessee to meet out case and serve purpose of notice. For above defect also, penalty proceedings are held to be vitiated and liable to be cancelled. 37. third submission of Shri Agarwal that assessee had explained that small delay in furnishing of information within prescribed time took place on account of 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 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 above and other circumstances duly given in reply to show-cause notice, taxpayer had claimed that delay, if any, was on account of reasonable cause and, therefore, no penalty was exigible. taxpayer had filed information bona fidely according to its understanding of regulations and legal guidance received by it. Assessing Officer failed to refute any of claim and recorded no finding on "reasonable cause" pleaded by taxpayer. In other words it was not held that delay was without reasonable cause. same position continue unaltered in appellate proceedings before learned CIT (Appeals). case pleaded by taxpayer was neither examined nor refuted before upholding levy of penalty. learned Departmental Representative tried to challenge above argument of Shri Agarwal. However, on facts we are of view that arguments of Shri Agarwal are well taken. As already discussed, provision of section 271G is to be read along with provision of section 273B of Income-tax Act. penalty under section 271G can be imposed only if default is held to be proved to be without reasonable cause. Once reasonable cause for delay is pleaded then it has to be examined in accordance with law. In present case, no attempt has been made by revenue to look into, examine or refute claim of reasonable cause put forth by taxpayer. case, therefore, cannot be taken to have been rejected. penalty has been imposed without considering application of section 273B of Income-tax Act which as noted earlier overrides provisions of section 271G of Income-tax Act. We are of view that present case is covered under section 273B. delay, if any, in submission of information or documents within prescribed time is held to be due to reasonable cause. Therefore, 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 month or so in 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 settled law that no penalty for technical or venial default is imposable, we find force in this alternative argument of Shri Agarwal. 38. learned counsel for assessee has also vehemently argued that no satisfaction in this case was recorded by Assessing Officer during 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 Act. Therefore, CIT (Appeals) was quite justified in holding that no satisfaction need be recorded before initiating proceedings under section 271G of Income-tax Act. Apart from above, in present case, TPO has specifically recorded details of alleged default committed by assessee in not furnishing information/documents which TPO thought he was competent to require under section 92D of Act. Therefore, there is no merit in contention that satisfaction was not recorded in this case, although we are cancelling penalty on some other ground and this finding does not materially affect ultimate result of appeal. There are several other grounds/arguments raised by parties, but in light of our decision recorded above, no useful purpose would be served in dealing with each of those grounds. Therefore, on facts of case, we hold that penalty imposed is not exigible and same is hereby cancelled. 39.In result, assessee's appeal is allowed. *** Cargill India (P.) Ltd. v. Deputy Commissioner of Income-tax, Cir. 3(1), New Delhi