Section 271AA — Failure to Keep and Maintain Information and Document re International / Specified Domestic Transactions
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live. A transfer-pricing documentation penalty: 2% of the value of each international transaction or specified domestic transaction (SDT) for failure to keep/maintain the section 92D documentation, to report such a transaction, or to maintain/furnish correct information or documents; with a separate, heavier penalty in sub-section (2) for failure to furnish information/document to the prescribed authority under section 92D(4).
Finance Act, 2026: No amendment by the Finance Act, 2026.
Mechanism: Failure to maintain the prescribed section 92D documentation, or to report an international transaction/SDT, or maintaining incorrect information/document → penalty of 2% of the value of the transaction; separately, failure to furnish the section 92D(4) information/document to the prescribed authority → penalty of 2% of the value of the international group transaction.
Litigation profile: Moderately litigated, mostly on (i) whether the documentation default is technical and covered by reasonable cause under section 273B; and (ii) the distinction between non-maintenance (271AA) and non-furnishing (271G).
A. COMMENTARY
A documentation, not a quantum, penalty
Section 271AA targets the integrity of transfer-pricing documentation rather than the correctness of the arm’s-length price. Its core trigger is the failure to keep and maintain the information and documents prescribed under section 92D and Rule 10D, the failure to report a transaction, or maintaining/furnishing incorrect information. The penalty is a flat 2% of the transaction value, which can be substantial.
271AA versus 271G
Section 271AA penalises non-maintenance and non-reporting; section 271G penalises the failure to furnish documentation already required, when called for under section 92D(3). The two must not be conflated: a taxpayer who maintained the documentation but delayed furnishing it on notice is in 271G territory, not 271AA.
Reasonable cause
Section 271AA is covered by section 273B; a bona fide and substantiated reasonable cause — for instance, a genuine and disclosed view that a transaction was not an international transaction/SDT requiring documentation — can defeat the penalty.
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Penalty for failure to keep, maintain or retain books of account, documents, etc.
(ii) fails to report such transaction which he is required to do so; or
(iii) maintains or furnishes an incorrect information or document,
the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a
sum equal to two per cent of the value of each international transaction or specified domestic transaction
entered into by such person.
(2) If any person fails to furnish the information and the document as required under sub-section (4) of
section 92D, the prescribed income-tax authority referred to in the said sub-section may direct that such
person shall pay, by way of penalty, a sum of five hundred thousand rupees.
C. AUTHORITIES
Direct authority on section 271AA is relatively sparse; the candour rule applies and cognate transfer-pricing-penalty learning is used where directly relevant.
1. Documentation default and reasonable cause
Principle — technical/bona fide documentation lapse
Proposition Where the documentation lapse is technical, the transaction is disclosed, and the assessee acted on a bona fide view, reasonable cause under section 273B is available and the 2% penalty is not exigible.
Use The principal defence to a 271AA levy on disclosed transactions.
Hindustan Steel Ltd v. State of Orissa (1972) 83 ITR 26 (SC)
Holding Penalty is not to be imposed for a technical or venial breach or one flowing from a bona fide belief; the discretion must be exercised judicially.
Use Applied to resist mechanical documentation penalties.
2. Distinguishing non-furnishing (271G)
Principle — maintenance versus furnishing
Proposition Failure to furnish maintained documentation on a section 92D(3) notice is penalised under section 271G; section 271AA is confined to non-maintenance, non-reporting and incorrect information.
Use Ensures the correct charging section is identified before the penalty is contested.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.
CHAPTER XXI — PENALTIES IMPOSABLE
Section 271AA — Failure to Keep and Maintain Information and Document re International / Specified Domestic Transactions
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live. A transfer-pricing documentation penalty: 2% of the value of each international transaction or specified domestic transaction (SDT) for failure to keep/maintain the section 92D documentation, to report such a transaction, or to maintain/furnish correct information or documents; with a separate, heavier penalty in sub-section (2) for failure to furnish information/document to the prescribed authority under section 92D(4).
Finance Act, 2026: No amendment by the Finance Act, 2026.
Mechanism: Failure to maintain the prescribed section 92D documentation, or to report an international transaction/SDT, or maintaining incorrect information/document → penalty of 2% of the value of the transaction; separately, failure to furnish the section 92D(4) information/document to the prescribed authority → penalty of 2% of the value of the international group transaction.
Litigation profile: Moderately litigated, mostly on (i) whether the documentation default is technical and covered by reasonable cause under section 273B; and (ii) the distinction between non-maintenance (271AA) and non-furnishing (271G).
A. COMMENTARY
A documentation, not a quantum, penalty
Section 271AA targets the integrity of transfer-pricing documentation rather than the correctness of the arm’s-length price. Its core trigger is the failure to keep and maintain the information and documents prescribed under section 92D and Rule 10D, the failure to report a transaction, or maintaining/furnishing incorrect information. The penalty is a flat 2% of the transaction value, which can be substantial.
271AA versus 271G
Section 271AA penalises non-maintenance and non-reporting; section 271G penalises the failure to furnish documentation already required, when called for under section 92D(3). The two must not be conflated: a taxpayer who maintained the documentation but delayed furnishing it on notice is in 271G territory, not 271AA.
Reasonable cause
Section 271AA is covered by section 273B; a bona fide and substantiated reasonable cause — for instance, a genuine and disclosed view that a transaction was not an international transaction/SDT requiring documentation — can defeat the penalty.
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Penalty for failure to keep, maintain or retain books of account, documents, etc.
271AA. (1) Without prejudice to the provisions of section 270A or section 271 or section 271BA, if any
person in respect of an international transaction or specified domestic transaction,—
(i) fails to keep and maintain any such information and document as required by sub-section (1) or
sub-section (2) of section 92D;
(ii) fails to report such transaction which he is required to do so; or
(iii) maintains or furnishes an incorrect information or document,
the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a
sum equal to two per cent of the value of each international transaction or specified domestic transaction
entered into by such person.
(2) If any person fails to furnish the information and the document as required under sub-section (4) of
section 92D, the prescribed income-tax authority referred to in the said sub-section may direct that such
person shall pay, by way of penalty, a sum of five hundred thousand rupees.
C. AUTHORITIES
Direct authority on section 271AA is relatively sparse; the candour rule applies and cognate transfer-pricing-penalty learning is used where directly relevant.
1. Documentation default and reasonable cause
Principle — technical/bona fide documentation lapse
Proposition Where the documentation lapse is technical, the transaction is disclosed, and the assessee acted on a bona fide view, reasonable cause under section 273B is available and the 2% penalty is not exigible.
Use The principal defence to a 271AA levy on disclosed transactions.
Hindustan Steel Ltd v. State of Orissa (1972) 83 ITR 26 (SC)
Holding Penalty is not to be imposed for a technical or venial breach or one flowing from a bona fide belief; the discretion must be exercised judicially.
Use Applied to resist mechanical documentation penalties.
2. Distinguishing non-furnishing (271G)
Principle — maintenance versus furnishing
Proposition Failure to furnish maintained documentation on a section 92D(3) notice is penalised under section 271G; section 271AA is confined to non-maintenance, non-reporting and incorrect information.
Use Ensures the correct charging section is identified before the penalty is contested.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.