Reasonable cause defeats transfer-pricing penalty where diamond trading made full segmental documentation practically impossible.

Penalty under section 271G was not sustainable where the assessee, engaged in diamond trading, substantially complied with transfer-pricing documentation requirements but could not furnish full AE and non-AE segmental details because of the practical difficulty of linking lot-wise rough and polished diamonds and preparing exact segment-wise profitability. The Tribunal accepted that substantial information had been filed, that the remaining non-compliance arose from the peculiar nature of the business, and that this constituted reasonable cause under section 273B. On that basis, the penalty was deleted and the Revenue's appeals failed.

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Issues: Whether penalty under section 271G of the Income-tax Act, 1961 was leviable for failure to furnish AE and non-AE segmental documentation and whether the assessee had shown reasonable cause under section 273B.

Analysis: The Tribunal noted that the assessee was engaged in diamond trading, where lot-wise purchase, processing, and sale made it practically difficult to link each rough diamond with the corresponding polished diamond or to prepare exact segment-wise profitability in the manner demanded by the TPO. It accepted that the assessee had furnished substantial information and had attempted segmental working to the extent possible, and that the TPO had not effectively examined the material placed during penalty proceedings. Relying on the co-ordinate Bench view in an identical matter, the Tribunal held that the practical difficulties of the trade constituted reasonable cause and that the failure to make full compliance was covered by section 273B.

Conclusion: The penalty under section 271G was rightly deleted and the Revenue's appeals failed.

Ratio Decidendi: Where the assessee substantially complies with transfer-pricing documentation requirements and the remaining non-compliance is attributable to the practical impossibility of furnishing the information in the peculiar line of business, penalty under section 271G is not sustainable by reason of section 273B.

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