TaxTMI 
TaxTMI 
2019 (4) TMI 1978
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...."Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was not incorrect in stating that the TPO should have asked for copies of profit and loss accounts and balance sheets of AEs to make an overall comparison with the gross profitability levels of the assessee with the AEs to ascertain diversion f profits, if any ignoring the finding of the IT AT in the case of Aztec Software Technology services Ltd. vs. ACIT (ITA No. 5S4/Bang./2006) in which it has been held that there is no legal requirement for the Assessing Officer to prima fasciae de'-ionstrate fax avoidance before invoking the provisions of section 92 and 92CA of the Act" (iv) "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that there was reasonable cause for noncompliance of sec. 920 r.w.r. 10D(1) without specifying the cause of such non-compliance or demonstrating how the same was reasonable." (v) "Whether on the facts and circumstances of the case and in law, 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....
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...., 1962. Accordingly, a show cause notice dated 28-01-2016 was served and called upon the assessee to explain as to why penalty shall not be levied for non furnishing of documents that was specifically called for during the assessment proceedings. The assesse furnished its reply on 27-06-2016 and argued that it was unable to ascertain the corresponding cost when the assessee is in the business of importing rough diamonds and manufacture cut and polished diamonds. The assessee further contended that considering the technicalities involved and the nature of trade and practice prevailing in industry, each diamond pocket looses its individual identity when it gets mixed in the lots purchased from AE as well as non AEs. Therefore, considering the nature of trade, it is not possible for the assessee to prepare separate accounts for trading and manufacturing activities. The TPO, after considering relevant submissions of the assessee and also relying upon various judicial precedents, held that as per the provisions of clauses (d)(g)(h)(i) & (j) of Rule 10D(1), the assessee is required to maintain complete documentation in respect of international transactions with its AE and also further do....
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.... of penalty u/s 271G of the I.T. Act, 1961 under the given facts and circumstances of the case is neither fair nor reasonable, and therefore, it is not justified under the facts of the case because considering nature of diamond trade, the assessee has made substantial compliance and also showed reasonable cause for not fulfilling the requirement of the TPO in light of provisions of Rule 10D(1). Therefore, the AO was incorrect in levying penalty u/s 271G of the I.T. Act, 1961. The relevant observations of the Ld.CIT(A) are as under:- "8.15 I have gone through the above and found that the facts of the above case laws are similar to the facts of the appellant'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 appellant and the reasonable cause showed by the appellant and above all, when there is no adjustment made in the ALP. In nutshell, the levy of penalty of Rs. 1,50,00,000/- under section 271G of LT.Act, 1961 is hereby deleted. In this regard, reliance is also placed on fo....
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....ted that considering the nature of diamond industry and its complexity, it is difficult to maintain each item-wise documentation because each diamond pocket loses its individual identity when it gets mixed in the lots purchased from AE as well as non AE. Therefore, the Ld.CIT(A) has rightly apprised the facts in the light of complexity of the trade to come to the conclusion that it is not a fit case for levy of penalty u/s 271G and his order should be upheld. In this regard, he relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs Leroy Somer And Controls (India) P. Ltd (2014) 360 ITR 532 (Del). The Ld.AR for the assessee has also relied upon the decision of ITAT, Mumbai Bench in the case of ACIT vs D. Navinchandra Exports (P) Ltd (2017) 87 taxmann.com 306. 7. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. The AO levied penalty u/s 271G for failure to comply with the provisions of Rule 10D(1) (d)(g)(h)(i)(j) & (m) of I.T. Rules, 1962. According to the AO, the assessee even failed to file basic documentation in respect of profits split method selected for benchmarking its international....
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....tivities so as to compare its international transactions with its AE segment-wise. Therefore, assessee has chosen profits split method in order to benchmark its international transactions with AE. We further noted that the department has accepted profits split method adopted by the assessee to benchmark its international transaction in the past and during the year under consideration as there is no adjustment is made u/s 92C of the Income-tax Act, 1961. When there is no adjustment is made u/s 92CA in respect of international transactions with its AE, the AO was erred in levying penalty u/s 271G for not furnishing segmental profitability of AE transactions and non AE transactions even though the assessee has made out a case that it is difficult to furnish segment-wise P&L Account of AE segment and non AE segment considering the nature of industry and its complexity. Therefore, we are of the considered view that the AO was erred in levying penalty u/s 271G of the Income-tax Act, 1961. 9. Coming to the case laws relied upon by the assesse. The assessee has relied the decision of Hon'ble Delhi High Court in the case of CIT vs Leroy Somer And Controls (India) P. Ltd (supra). The Hon'bl....
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....a particular lot of rough diamonds or the other and/or out of the polished diamonds purchased locally by the assessee. 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. 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 convenient. The aforesaid practical difficulties in providing the details being faced by the industry can be well gathered from the letter of the GJEPC to the CIT-Transfer Pricing, wherein the aforesaid aspects involved in the diamond manufacturing business were e....