2018 (7) TMI 2099

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.... has dismissed the said Appeal preferred by the revenue and has confirmed the order passed by the learned CIT(A) deleting the penalty imposed by the TPO imposed under Section 271G of the Income Tax Act, revenue has preferred the present Tax Appeal with the following proposed question of law; "Whether the Appellate Tribunal has erred in law and on facts in deleting the penalty of Rs. 2,15,98,527/- levied under Section 271G of the Income Tax Act?" [2.0] The facts leading to the present Tax Appeal in nutshell are as under; [2.1] The assessee's case was referred by the learned Assessing Officer for determining the Arm's Length Price (ALP) in respect of the international transactions on the assessee for the Assessment Year 2011-12....

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....eferred by the revenue and has confirmed the order passed by the learned CIT(A) deleting the penalty levied under Section 271G of the Income Tax Act.  Feeling aggrieved and dissatisfied with the impugned order passed by the learned Tribunal deleting the penalty levied under Section 271G of the Income Tax Act, revenue has preferred the present Appeal with the aforesaid proposed question of law. [3.0] We have heard Shri Manish Bhatt, learned Senior Advocate appearing on behalf of the revenue at length.  He has taken us to the order passed by the learned TPO as well as the orders passed by the learned CIT(A) and the learned Tribunal. [4.0] Shri Manish Bhatt, learned Senior Advocate appearing on behalf of the appellant - Depa....

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....t of the international transactions of the assessee with its AEs, rather went ahead and levied penalty under Section 271G in the hands of the assessee.  We are not impressed with the manner in which the assessee had proceeded with the matter and imposed penalty under Section 271G in the hands of the assessee.  We are of the considered view that in light of the aforesaid practical difficulties which were being faced by the diamond industry, the TPO should have exercised the viable option of determining the arms length price of the international transactions of the assessee, either by making some comparison of realisation of prices in respect of export sales to AEs and non-AEs by comparing prices of diamonds of similar size, quality....

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....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 transactions." [5.1] Considering  t....