ABC Ltd., operating in India, is the dealer for the goods manufactured by Ben Ltd. of Japan. Ben Ltd. owns 55% shares of ABC Ltd. and out of 7…

The facts of the case indicate that ABC Ltd. and Ben Ltd. of Japan are associated enterprises since Ben Ltd. holds 55% shares of ABC Ltd. and has appointed more than half of the board of directors of ABC Ltd. Since Ben Ltd. is a non-resident, any transaction between ABC Ltd. and Ben Ltd. would fall within the meaning of “international transaction" under section 92B. Therefore, the income arising from such transactions have to be computed having regard to the arm's length price. The action of the Assessing Officer in making addition to the declared income and issuing show cause notice for levy of various penalties is correct since ABC Ltd. had committed defaults, as listed hereunder, in respect of which penalty, as briefed hereunder, is imposable - (I) Failure to report any international transaction or any transaction, deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X applies, would attract penalty @ 200% of the amount of tax payable since it is a case of misreporting of income referred under section 270A (9) read with section 270A (8) . (II) Failure to maintain the requisite records as required under section 92D in relation to international transaction makes it liable for penalty under section 271AA which will be 2% of the value of each international transaction. (III) Failure to furnish report from an accountant as required under section 92E makes it liable for penalty under section 271BA i.e., a fixed penalty of 1lakh. The Assessing Officer shall give an opportunity of heard to the assessee with a notice as to why the arm's length price should not be determined on the basis of material or information or document in the possession of the Assessing Officer. Note: It is assumed that ABC Ltd. has not entered into an APA and has also not opted to be subject to Safe Harbour Rules.