Section 457 of the Income-tax Act, 2025 — Penalty for Failure to Furnish Transfer Pricing Information or Documents under Section 171

In plain language

What Section 457 says in plain English

Businesses that deal with related parties abroad (or certain related parties within India) must keep detailed transfer pricing records and hand them over to the tax authorities when asked. Section 457 of the Income-tax Act, 2025 is the penalty that bites if you fail to furnish that information or those documents. The penalty is 2% of the value of the transaction for which you did not produce the required information or document — and it applies for each such failure.

In simple terms: if the Assessing Officer or Transfer Pricing Officer issues a notice asking for your transfer pricing documentation under section 171(2), and you do not supply it (or supply it incompletely) within the time allowed, you can be penalised at 2% of that transaction's value. This is the 2025 Act's re-lettered successor to the well-known Section 271G of the Income-tax Act, 1961.

Who does it apply to?

• Any person who has entered into an international transaction — for example, an Indian subsidiary buying/selling goods, services, royalties, loans or management fees from/to its foreign parent or group companies.
• Any person who has entered into a specified domestic transaction (SDT) — certain large-value transactions between related domestic parties that cross the prescribed monetary threshold.
• It does not apply to ordinary taxpayers with no cross-border or SDT dealings. If you have no international or specified domestic transactions, Section 457 simply cannot be triggered.

What triggers the penalty

• A formal requisition under section 171(2) — the officer must call for specific information or documents (the transfer pricing documentation / Rule-based records). The penalty is for failing to respond to that requisition, not merely for weak documentation.
• Failure to furnish within the time allowed. Under the old regime the taxpayer got 30 days (extendable by up to 30 more) to comply. The 2025 Act carries forward a similar prescribed-time framework via section 171 and the Rules.
• Each separate transaction that is not documented can attract its own 2% penalty, so the exposure can multiply quickly across many intercompany dealings.

Who can impose the penalty

The penalty under Section 457 may be levied by any of the following:

• the Assessing Officer (AO);
• the Transfer Pricing Officer (TPO) referred to in section 166; or
• the Commissioner (Appeals).

Key safeguards — you are not automatically penalised

• Reasonable cause defence: Under section 470 of the 2025 Act (the successor to section 273B of the 1961 Act), no penalty shall be imposed if the person proves there was a reasonable cause for the failure — for example, records seized by another agency, a genuine dispute over what was called for, or a bona fide interpretation issue.
• Opportunity of being heard: Under section 471, no penalty order can be passed without giving you a show-cause notice and a reasonable opportunity to explain. Higher penalties may also require prior approval of a senior officer.

How it interacts with related sections

• Section 171 creates the duty to keep and furnish transfer pricing documentation; Section 457 enforces it. Read them together.
• Failure to maintain documentation, and failure to file the accountant's report (the equivalent of the old Form 3CEB under section 92E), are penalised under separate provisions of Chapter XXI — do not confuse "failure to furnish on demand" (Section 457) with "failure to keep records" or "failure to file the report".
• Courts under the old Section 271G held that penalty is discretionary ("may be imposed"), and have deleted it where the assessee substantially cooperated or where the required data was practically impossible to generate (e.g., diamond trade cases). This reasoning is expected to carry over.

Practical implications for businesses

• Maintain contemporaneous transfer pricing documentation and be ready to produce it quickly once a section 171(2) notice arrives.
• Respond within the stated time; if you need more time, ask in writing before the deadline.
• Keep a clear audit trail of what was submitted and when — this is your best protection if the "reasonable cause" question ever arises.