Penalties:

Stringent penalties are provided in various sections for non-compliance with the above provisions. These are as under:

Section 271(1) provides for penalty in the cases where the Assessing Officer adjusts total income by determining arm‟s length price.

The penalty for such concealment is minimum 100% and maximum 300% of tax on such concealed income.

The penalty provisions in respect of international transaction are broadly covered under section 271BA providing for levy of penalty of ` 1 lakh in cases where any person fails to furnish a report from an accountant as required by section 92E, section 271AA providing for penalty for failure to keep and maintain information and document in respect of international transaction and section 271G which provides for penalty in case of failure to furnish information or document under section 92D.

In order to provide a check on such a practice and ensure compliance with the transfer pricing regulations, section 271AA provides that, the Assessing Officer or Commissioner (Appeals) may direct the person entering into a international transaction to pay a penalty@2% of the value of the international transaction entered into by him, if the person:

(1) fails to keep and maintain any such document and information as required by sec tion 92D(1) and section 92D(2);

(2) fails to report such international transaction which is required to be reported; or

(3) maintains or furnishes any incorrect information or document.

The penalty under section 271AA shall be in addition and not in substitution of penalty under section 271BA and 271.

In all the above cases, if the assessee can show that there was reasonable cause for the failure, no penalty will be leviable.