Chapter XXI - Penalties
Section 457
Section 457: penalty for failure to furnish information or document under Section 171
Section 457 targets a person who has entered into an international transaction or specified domestic transaction but fails to furnish the transfer pricing information or documents required under section 171(2) - the penalty is set as a percentage of the value of the transaction itself, for each such failure.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
If any person who has entered into an international transaction or specified domestic transaction fails to furnish any such information or document as required under section 171(2), a penalty equal to 2% of the value of such transaction may be imposed upon him for each such failure by the Assessing Officer or the Transfer Pricing Officer as referred to in section 166 or the Commissioner (Appeals).
Introduction
Section 457 concerns a person who entered an international or specified domestic transaction but failed to furnish information or documents required by section 171(2). A possible penalty is measured at 2% of the value of that transaction for each failure.
Key takeaways
Furnishing requirement
The failure is tied to section 171(2), rather than the general maintenance duty in section 171(1).
Value-based measure
The possible penalty is 2% of the transaction value for each failure.
Named decision makers
The Assessing Officer, Transfer Pricing Officer or Commissioner (Appeals) may impose it.
What Section 457 says
"If any person who has entered into an international transaction or specified domestic transaction fails to furnish any such information or document as required under section 171(2), a penalty equal to 2% of the value of such transaction may be imposed upon him for each such failure by the Assessing Officer or the Transfer Pricing Officer as referred to in section 166 or the Commissioner (Appeals)."
How the penalty is calculated
The penalty is 2% of the value of the relevant international transaction or specified domestic transaction, and this 2% applies for each separate failure to furnish the required information or document under section 171(2).
It can be imposed by the Assessing Officer, the Transfer Pricing Officer referred to in section 166, or the Commissioner (Appeals).
Applying Section 457 in practice
Transaction-linked penalty. A person entering an international or specified domestic transaction who fails to furnish required section 171(2) information or documents can face 2% of the transaction value for each such failure. This is a furnishing default; section 442 addresses keeping, reporting and incorrect-material defaults.
Step-by-step flow for applying Section 457
- 1
Has the person entered into an international transaction or specified domestic transaction?
- No: Section 457 does not apply.
- Yes: Go to the next step.
- 2
Was the person required under section 171(2) to furnish information or documents?
Under section 171(2), the Assessing Officer or Commissioner (Appeals) may require them within ten days of receipt of the notice; section 171(3) allows an extension of up to thirty more days on application.
- No: Section 457 does not apply.
- Yes: Go to the next step.
- 3
Was the information or document furnished as required?
- Yes: No penalty under Section 457.
- No: Go to the next step.
- 4
Identify each failure and the value of the related transaction
The penalty applies "for each such failure", so treat each transaction separately.
- 5
Fix the penalty
The Assessing Officer, the Transfer Pricing Officer referred to in section 166, or the Commissioner (Appeals) may impose 2% of the value of the transaction for each failure.
Practical checklist
Do
- Keep each section 171(2) request, the documents sought and the submission acknowledgement.
- Map any alleged omission to the specific transaction and compute the transaction value.
- request, statutory authority, affected transaction, value, deadline, delivery proof and potential overlap.
Avoid
- Do not confuse a failure to furnish under section 457 with the documentation-maintenance failures in section 442.
Illustrative example
Worked example: documents not furnished for two transactions
Hypothetical facts (illustration only, not a real taxpayer): An Indian company bought goods worth ₹10 crore from its foreign parent and paid it ₹2.5 crore for services in the same tax year. During assessment, it receives a notice under section 171(2) but does not furnish the documents for either transaction. The values are assumed for illustration.
Coverage
Both are international transactions and the company was required to furnish documents under section 171(2).
First failure
2% of ₹10 crore = ₹20 lakh.
Second failure
2% of ₹2.5 crore = ₹5 lakh.
Total
₹20 lakh + ₹5 lakh = ₹25 lakh, at the discretion of the authority imposing it.
Outcome
- Possible penalty under Section 457: ₹25 lakh.
- The penalty is based on the value of each transaction, not on any adjustment to income.
Frequently asked questions
What triggers the Section 457 penalty?
Entering into an international transaction or specified domestic transaction and then failing to furnish the information or document required for it under section 171(2).
How much is the penalty?
2% of the value of the transaction, for each such failure.
Who can impose this penalty?
The Assessing Officer, the Transfer Pricing Officer referred to in section 166, or the Commissioner (Appeals).
Should all group transactions be aggregated automatically?
No; the provision uses the value of the transaction tied to the failure. Section 470 reasonable cause is relevant.
Need help applying this provision to your situation?
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