TaxTMI 
TaxTMI 
2018 (8) TMI 1778
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....ave been specifically invoked by the TPO. 3. Whether the CIT(A) was not incorrect in stating that the TPO should have asked for copies of profit and loss accounts and balance sheets of AE's to make an overall comparison with the gross profitability levels of the assessee with AE's to ascertain diversion of profits, if any, ignoring the finding of the IT AT in the case of Aztec software Technology Services Ltd vs ACIT(ITA No 584/Bang/2006), in which it has been held that there in no legal requirement for the AO to primefacie demonstrate tax avoidance before invoking the provisions of section 92 and 92CA of the Act. 4. The Ld. CIT(A) erred in holding that there was reasonable cause for non-compliance of sec.92D r/w Rule 10D(1) without specifying the cause of such noncompliance or demonstrating how the same was reasonable. 5. The. Ld. CIT(A) erred in deleting the penalty for the reason that no adjustment was made to the ALP, failing to note that by not producing the material documents necessary to determine the ALP under any of the prescribed methods u/s 92C(1), the assesses effectively prevented the TPO to make any determination as recorded by the TPO in para 6 of the o....
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....able on record. e)In the absence of material the TPO was forced to accept the transactions to be at arm's length after initiating penalty proceedings under section 271G of Income Tax Act, 1961. 5. Aggrieved by the order of the TPO, assessee preferred appeal before the CIT(A), who deleted the penalty by observing as under: 13. I have gone through the above and found that the facts of the above case laws are similar to the facts of the assessee's case. In view of the above, I am of the opinion that levy of penalty u/s.271G of the I.T.Act, 1961 is neither fair nor reasonable and therefore it is not justified in facts of the case, viz., the nature of diamond trade, substantial compliance made by the assessee and the reasonable cause showed by the assessee and above all, when there is no adjustment made in the ALP. In nutshell, the levy of penalty of Rs. 56,72,162/- under section 271G of I.T.Act, 1961 is hereby deleted. In this regard, reliance is also placed on following decisions: 1) ITO V/S. Nets Soft India Ltd. - 2013/35/Taxmann.Com/579/Mumbai ITAT 2) ACIT V/S. Gillette India Ltd.- 2015/54/Taxmann.Com/313/Jaipur ITAT 14. In view of the fact that levy of penalty un....
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....to be in agreement with the view of the CIT(A) that now when the rough/polished diamonds were traded on lot wise basis, therefore, it was difficult to identify and say whether a polished diamond came out of a particular lot of rough diamonds or the other and/or out of the polished diamonds purchased locally by the assessee. We find that the export bills of the cut and polished diamonds exported to the AEs and the non-AEs revealed that the diamonds of varying size, quality, colour and carat weight were exported as was evident from the price per carat charged in each bill, and similar would have been the position in respect of cut and polished diamonds purchased and sold locally and/or purchased from abroad but sold locally. We are of the considered view that in the backdrop of the aforesaid peculiar nature of the trade of the assessee, it could safely or rather inescapably be concluded that it was extremely difficult to identify which rough diamond got converted into which polished diamond, unless the single piece rough diamond happened to be of exceptionally high carat value, therein making the tracing out and identification of the polished diamond physically possible and convenien....
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....d vary from diamond to diamond and lot to lot, and further, now when the entire lot of diamonds had a common price tag per carat for the whole lot, therefore, it was not possible to evaluate the price of each diamond. We also cannot be oblivious of the fact that even otherwise in the diamond trade line, unless a diamond would weigh half carat or more or one carat or more, the same would not be priced separately in the bill because it was not practical to price diamonds of weights of lower than half carat or one carat separately weight wise per diamond in the lot. We have deliberated on the aforesaid peculiar facts involved in the business of diamond trading and are of the considered view that the insistence of the TPO that the assessee should have followed CUP method was misconceived and impractical. We are in agreement with the CIT(A) that if the TPO would had carried out a comparison of the Profit & loss account and Balance Sheets of the AEs, the same would had revealed the gross profit margins and levels of profitability earned by the AEs in their businesses, and as such any abnormal variation in their gross profitability would had revealed the aberrations in the international t....