2023 (4) TMI 681 - AT - Income Tax

Tribunal upholds CIT(A) decision on penalty deletion under Section 271G, citing industry challenges. Revenue appeals dismissed.

The tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271G, citing practical difficulties in the diamond industry and substantial ... Penalty levied u/s 271G - failure to furnish information or documents as required by Sec. 92D(3) in respect of International Transactions - HELD THAT:- TPO arrived at a conclusion that assessee's arguments regarding industry practice and difficulty in maintaining documentation on that account cannot constitute reasonable cause. TPO found the contention of the assessee regarding many varieties of stock and its continuous mixing, resulting in stock losing identity contradictory with the claim that the each has a different price. It was therefore concluded that the assessee has failed to provide any authentic information, data or document in respect of segmental accounts with respect to transactions made with AEs and non-AEs, violating lawful requirement under clauses d, g, h, I and j of Rule 10D(1) r.w.s. 92D and under Rule 10D(3). Penalty was levied at 2% of value of the international transaction. On appeal, the ld CIT(A) observed that although the TPO has rejected the TNMM as MAM in the case, no adjustment to the Arm’s Length Price of the transaction of sale and purchase of Diamonds to the AE has been done. Peculiar facts related to the diamond business pose practical difficulties in maintaining segmental details and the same constitutes a reasonable cause. CIT(A) held that imposition of penalty u/s 271G of the Act is not sustainable under the facts and circumstances as well as under the law. CIT(A) deleted the penalty. As gone through the above order of ld CIT(A) and noted that there is no infirmity in the conclusion reached by ld CIT(A). We decline to interfere with the order of Id. CIT(A) in deleting the aforesaid penalty u/s 271G - Appeal of the Revenue are dismissed. Issues Involved:1. Deletion of penalty under Section 271G of the Income Tax Act.2. Practical difficulties in maintaining segmental details in the diamond business.3. Application of the Transactional Net Margin Method (TNMM) for benchmarking international transactions.Summary:Issue 1: Deletion of Penalty under Section 271GThe Revenue appealed against the deletion of a penalty of Rs. 5,23,62,122/- levied under Section 271G of the Income Tax Act for the assessee's failure to furnish documentation required by Section 92D(3) concerning international transactions. The Assessing Officer (AO) had imposed the penalty due to the assessee's inability to provide segmental accounts for transactions with associated enterprises (AEs) and non-AEs. The Learned Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty, citing practical difficulties in maintaining such details in the diamond business.Issue 2: Practical Difficulties in Maintaining Segmental DetailsThe CIT(A) observed that the peculiar nature of the diamond business posed practical difficulties in maintaining segmental details. This was supported by various tribunal decisions, including the case of Dharmanandan Diamonds (P.) Ltd., where it was held that the practical difficulties in furnishing segmental details constituted a reasonable cause under Section 273B, thus justifying the deletion of the penalty. The CIT(A) noted that the Transfer Pricing Officer (TPO) had not made any adjustments to the Arm's Length Price (ALP) of the transactions, further supporting the decision to delete the penalty.Issue 3: Application of TNMM for BenchmarkingThe assessee had used the Transactional Net Margin Method (TNMM) to benchmark its international transactions. The TPO had rejected the TNMM but did not make any adjustments to the ALP. The CIT(A) and the tribunal found that the assessee had substantially complied with the requirements by maintaining primary books of accounts and providing necessary documentation, except for segmental profitability, which was practically difficult due to the nature of the diamond business.Conclusion:The tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271G, citing practical difficulties in the diamond industry and substantial compliance by the assessee. The appeals filed by the Revenue were dismissed.Order pronounced on 21/03/2023.