Reasonable cause for missing transfer pricing records justified deletion of section 271G penalty; Shatrunjay Diamonds was held inapplicable.

Penalty under section 271G may be deleted where the assessee shows reasonable cause for not maintaining or furnishing transfer pricing documentation and segmental results, particularly when business operations make separate records impracticable. The Tribunal accepted the assessee's explanation that diamonds of varying size, quality, colour and weight from AEs and non-AEs were mixed in the manufacturing and export process, and treated the facts as identical to the earlier year where section 273B relief had been accepted. It also held that Shatrunjay Diamonds, decided in the context of section 40A(2)(b) and a different burden-of-proof issue, did not govern section 271G penalty.

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Issues: Whether penalty under section 271G for failure to maintain and furnish transfer pricing documentation and segmental results was liable to be deleted on the ground of reasonable cause, and whether the decision in Shatrunjay Diamonds was applicable to sustain the penalty.

Analysis: The assessee was engaged in diamond trade and explained that, due to the nature of the business, diamonds of different size, quality, colour and weight purchased from AEs and non-AEs were mixed in the manufacturing and export process, making separate segmental records impracticable. The Tribunal noted that the facts for the year under appeal were identical to those accepted for assessment year 2015-16, where the failure to maintain the prescribed records had been treated as backed by reasonable cause within the meaning of section 273B. The Tribunal also held that the Bombay High Court ruling in Shatrunjay Diamonds was rendered in the context of section 40A(2)(b) and concerned a different burden-of-proof issue, and therefore did not govern the penalty under section 271G.

Conclusion: The deletion of penalty was upheld and the Revenue's appeal failed.

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