Section 442 — Penalty for failure to keep and maintain information and document, etc , in respect of certain transactions. Successor to s.271AA of the 1961 Act.
Section 442 is in Chapter XXI — Penalties, which runs from section 439 to section 472.
Sub-section (1) empowers the Assessing Officer or the Commissioner (Appeals) to impose a penalty of 2% of the value of each international transaction or specified domestic transaction where, in respect of that transaction, the person fails to keep and maintain the information and document required by section 171(1), fails to report the transaction, or maintains or furnishes incorrect information or a document. The penalty is transaction-by-transaction, so it is computed on the value of each affected transaction rather than once for the year. Sub-section (2) is a separate charge: the prescribed income-tax authority referred to in section 171(4) may impose a penalty of Rs. 5,00,000 on a person who fails to furnish the information and document required under that sub-section.
Transfer pricing documentation is the raw material for testing arm's length pricing, so the section prices its absence, its non-reporting and its inaccuracy at a proportion of the transaction value rather than at a flat sum. Sub-section (2) keeps a separate fixed penalty for the section 171(4) filing, which is not transaction-specific.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Penalty for documentation, reporting or accuracy failures | 2% of the value of each international transaction or specified domestic transaction | Imposed in respect of each transaction affected by a failure under clause (a), (b) or (c) | 442(1) |
| Penalty for failure to furnish under section 171(4) | Rs. 5,00,000 | Imposed by the prescribed income-tax authority referred to in section 171(4), not by the Assessing Officer | 442(2) |
Because the 2% runs on the value of each transaction, exposure scales with the size of the dealings and can be multiplied across a group of transactions in one year — a single missing document set on high-value transactions is expensive. Note that maintaining or furnishing incorrect information is penalised on the same footing as maintaining nothing, so an inaccurate study is not a safer position than a missing one. The Rs. 5,00,000 charge under sub-section (2) is a different failure, judged by a different authority, and can sit alongside the 2% penalty.
A company enters into three international transactions in a tax year, of Rs. 40 crore, Rs. 25 crore and Rs. 10 crore, and has kept no section 171(1) information and document for the first two. The penalty runs transaction by transaction — 2% of Rs. 40 crore and 2% of Rs. 25 crore, Rs. 1.30 crore in all, not a single charge for the year — and an inaccurate study would have been no safer, clause (c) treating incorrect information or a document on the same footing as none. If it also failed to furnish what section 171(4) requires, the prescribed income-tax authority referred to in that sub-section, and not the Assessing Officer, may impose a further Rs. 5,00,000.
As a penalty order of the Assessing Officer or the Commissioner (Appeals), made alongside or after a transfer pricing assessment, and separately as an order of the prescribed income-tax authority referred to in section 171(4) for the Rs. 5,00,000 charge. The show-cause that precedes it is where the reasonable cause defence in section 470, whose list includes this section, has to be proved.
may impose a penalty of 2% of the value of each international transaction or specified domestic transaction entered into by a person
See the full 1961 to 2025 concordance.