TaxTMI 
TaxTMI 
2023 (4) TMI 681
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....sse. 3. Grounds of appeal raised by the Revenue (in ITA No.176/SRT/2022 for AY.2012-13) are as follows: "[1] Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty levied under 271G of the Act of Rs.5,23,62,122/- on account of failure to furnish information or documents as required by Sec. 92D(3) of the Act in respect of International Transactions of Rs.261,81,06,063/- and as called for by the TPO? [2] Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing benefit of assessee that peculiar facts related to the diamond business pose practical difficulties in maintaining segmental detail ? [3] Whether on the facts and in the circumstances of the case and in law, the Ld. C1T(A) erred in holding that segregation of the transactions is allowed in TNMM method without appreciating the fact that each transactions is treated and benchmarked separately ? [4] It is, therefore, prayed that the order the Ld. CIT(A)-55, Mumbai may be set aside and that of the AO may be restored to the above extent. [5] The appellant craves leave to add, alter, amend and/or withdr....
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....se of the TP proceedings, the assessee justified the TNMM by comparing its profits margins with the margins earned by third parties engaged in similar activities. However, it was noted that assessee did not furnish the correct amount of profit earned from the two international transactions entered into with the AE. Despite the fact that the assessee was requested to provide the actual profits earned on AE transactions, the assessee did not produce the same. Therefore, the assessee failed to establish during the proceedings u/s.92CA(3) that its transactions with the AE on account of sale of polished diamond as well as purchase of polished diamond were at arm's length. As the assessee has transactions both on purchase as well as sales, neither RPM nor Cost Plus Method can be applied in its case. The assessee was also requested to produce complete breakup of both the transactions in terms of quality as well as price and provide evidences in respect of the same. This information was also not produced by the assessee. As a result, none of the methods provided under the Act viz. the TNMM or the CUP method, could be applied in this case. Under the circumstances, during the proceedings....
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.... proceedings, the TPO noticed that the assessee used TNMM as MAM for determining the ALP of the transaction of sale and purchase of diamonds to and from its AE. There was no segmental working of profits and operating cost was worked out pro rata. The TPO concluded that benchmarking cannot be properly done in the absence of such information and also that other methods could not be applied. It was also concluded that it cannot be said whether the transactions are at arm's length or not. Therefore, penalty proceedings u/s.271G were initiated for failure of the assessee to furnish the required documentation. In the penalty proceedings, the TPO arrived at a conclusion that assessee's arguments regarding industry practice and difficulty in maintaining documentation on that account cannot constitute reasonable cause. The 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 t....
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....be fastened with the assessee. 7. We find that similar issue of penalty u/s 271G for diamond industry has been adjudicated in assessee's favor in various decisions of this Tribunal. The coordinate bench of Mumbai Tribunal in the case of Asstt. CIT v. D. Navinchandra Exports (P.) Ltd. [2017] 87 taxmann.com 306 held that considering the practical difficulties in furnishing the segment wise details of AE segment and non-AE segment transactions in diamond industry, no penalty under Sec. 271G could justifiably be imposed for failure to furnish the said information. The relevant observations were as under: - "18. We find that the CIT(A) after deliberating at length on the nature of the business of manufacturing and trading of diamonds, therein concluded that in the backdrop of the intricacies involved in the said business it was practically difficult for the assessee to furnish the information in the manner the same was called for by the TPO. We find that the CIT(A) in the backdrop of an in depth study of the nature of activities involved in the business of manufacturing and trading of diamonds, had in a very well-reasoned manner culled out the peculiar nature of the trade of the....
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....TPO insisted for the same and invoked Rule 10D of the Income-tax Rules, 1962, and instead of determining the arm's length price in respect of the international transactions of the assesses with its AEs, rather went ahead and levied penalty under sec. 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 sec. 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 arm's 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 and weight to the best extent possible, or in the alternative could have asked for the copies of the Profit & loss accounts and the Balance sheets of the AEs in order to make an overall comparison with the gross profitability levels of the assessee with its AEs, which would had clearly revealed diversion of profits, if any, by ....
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.... i.e. A.Y. 2010-11 the TPO did not propose any adjustment in the ALP. We are not inspired by the fault finding approach adopted by the TPO without understanding the intricacies of the diamond manufacture and trading business, and are of the considered view that he instead of determining the arms length price by asking for the Profit & loss a/c and Balance Sheets of the AEs and comparing the financial ratios in general, had rather hushed through the matter and imposed penalty under Sec. 271G of Rs.2,15,98,527/- on the assessee. We also find that the assessee to the extent possible in the backdrop of the nature of its trade had furnished several details on several occasions from time to time with the TPO. We thus are of the considered view that the assessee had substantially complied with the directions of the TPO and placed on his record the requisite information, to the extent the same was practically possible in light of the very nature of its trade. We though are not oblivious of the fact that the assessee may not have effected absolute compliance to the directions of the TPO and furnished all the requisite details as were called for by him on account of practical difficulties as....
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....constitutes a reasonable cause. The above mentioned decisions of the Hon'ble jurisdictional Tribunal and decisions relied upon by the learned Authorised Representative dealing with identical issue of imposition of penalty under section 271G of the Act are squarely applicable to the facts of the present appeal. Therefore, I find that imposition of penalty u/s 271G is not sustainable under the facts and circumstances as well as under the law and is hereby deleted." 8. Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 9. Learned Departmental Representative (Ld. DR) for the Revenue submitted that assessing officer has initiated penalty proceedings u/s 271G of the Act for failure of assessee to furnish the required documentation during the transfer pricing proceedings. Consequently, the TPO also levied penalty u/s.271G of the I.T. Act. The ld DR pointed out that Ld.CIT(A) was not justified in deleting the penalty of Rs.5,23,62,122/- on account of International Transactions of Rs.2,61,81,06,063/-. The Ld.CIT(A) was not justified in allowing benefit to assessee that peculiar facts related to the diamond business pose practical difficulties in maintaining segm....