TaxTMI 
TaxTMI 
2026 (6) TMI 481
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....71G of the Act, being dated 26.04.2017 for A.Y. 2013-14 and 25.04.2019 for A.Y. 2015-16. The penalty proceedings emanate from the transfer pricing proceedings undertaken under section 92CA(3) of the Act in the case of the assessee. Facts of the Case 2. The assessee is a private limited company engaged in the business of import/purchase of rough diamonds, cutting and polishing of diamonds, and export/sale of finished diamonds. The assessee had entered into international transactions with its Associated Enterprises and had benchmarked the same by adopting Transactional Net Margin Method (TNMM) as the most appropriate method. During the course of transfer pricing proceedings, the TPO required the assessee to furnish documentation as prescribed under section 92D read with Rule 10D. According to the TPO, the assessee failed to furnish certain information and documents, particularly those required under clauses (g), (h) and (i) of Rule 10D(1). Consequently, penalty proceedings under section 271G were initiated and penalty at the rate of 2% of the value of international transactions was levied. 3. The common facts, as emanating from the penalty orders and appellate orders, are th....
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....s and orders passed in its own case for earlier years. 6. The learned CIT(A), after considering the submissions, deleted the penalty. Year specific details are: Particulars A.Y. 2013-14 A.Y. 2015-16 Penalty Order Date 26.04.2017 25.04.2019 Originating Order u/s 92CA(3) dated 31.10.2016 u/s 92CA(3) dated 31.10.2018 Penalty Amount Rs. 2,08,07,996/- Rs. 1,77,77,097/- CIT(A) Order Date 29.05.2025 29.05.2025 7. Aggrieved by the orders of CIT(A), the Revenue is in appeal before us and has raised following grounds of appeal which are same for both the years: 1. Whether the CIT(A) was correct in deleting the penalty levied u/s.271G of the Act by holding that the assessee had made substantial compliance, failing to note that under TNMM adopted by the assessee, the profit of the international transaction has to be furnished, whereas the assessee has only furnished the entity level margins which consists of overall profits on AE and significant non-AE transactions? 2. Whether the decision of the CIT(A) is not vitiated for the reason that the CIT(A) has not given any finding on how the assessee has complied with clau....
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....d that the assessee itself had chosen TNMM as the most appropriate method and, having done so, it was under an obligation to maintain and furnish proper documentation to enable correct application of the method. According to the TPO, the stand of the assessee that it was not possible to compute separate profitability was contradictory to its claim of having maintained proper documentation and audited accounts. It was further submitted that the TPO has clearly concluded that the assessee, by not furnishing the required documentation and segmental details, has prevented the Revenue authorities from making any determination of the Arm's Length Price. 9. Accordingly, it was contended that the learned CIT(A) erred in overlooking these categorical findings of the TPO and in deleting the penalty merely on the ground that no adjustment was made to the ALP, without appreciating that the failure to furnish documentation itself constitutes an independent default under the provisions of section 271G. 10. On the other hand, the learned Authorised Representative, supporting the order of the learned CIT(A), submitted that the very foundation of the penalty under section 271G does not surviv....
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....practically possible in light of the very nature of its trade..." 14. It was further highlighted that the Co-ordinate Bench has also held that even if there was any shortfall in compliance, the same was attributable to practical difficulties inherent in the business and thus constituted a "reasonable cause" within the meaning of section 273B of the Act, thereby rendering the levy of penalty unsustainable. 15. The learned AR submitted that the Co-ordinate Bench, in the aforesaid decision, has categorically upheld the order of the CIT(A) deleting the penalty under section 271G, and the said decision has attained finality. It was thus contended that the issue being squarely covered in favour of the assessee in its own case on identical facts, the order of the learned CIT(A) for the years under consideration deserves to be upheld. 16. We have heard the rival submissions and perused the material available on record, including the penalty orders passed under section 271G, the orders of the learned CIT(A), and the judicial precedents relied upon by the parties. 17. At the outset, it is an undisputed position emerging from the record that the Transfer Pricing Officer, while com....
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....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... the failure to the said extent on the part of the assessee... can safely be held to be backed by a reasonable cause, which thus would bring the case of the assessee within the sweep of Sec. 273B of the Act..." (para 20 of ITA No. 6304/Mum/2016) 21. The bench, on identical facts, has upheld the deletion of penalty under section 271G. The Revenue has not brought on record any distinguishing feature in the facts of the present years vis-a-vis the earlier years decided by the Co-ordinate Bench. 22. We further note that the learned CIT(A), while deleting the penalty, has recorded a finding that the assessee had made substantial compliance with the requirements of section 92D and that any shortfall, if at all, was supported by reasonable cause within the meaning of section 273B. The learned CIT(A) has also taken note of the fact that no adjustment to ALP has been made by the TPO. 23. In our considered view, the findings recorded by the learned....
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....nishing of information, subject to the saving clause provided under section 273B. 26. We further find that the Coordinate Bench in the case of Kapu Gems LLP (ITA No.5438/Mum/2024) has examined this very argument of the Revenue and has categorically held that the decision in Shatrunjay Diamonds is rendered in the context of section 40A(2)(b) and cannot be applied to penalty proceedings under section 271G. The Bench has emphasised that in penalty proceedings, the relevant consideration is whether the assessee had a reasonable cause for the alleged failure. Similarly, in the case of Interjewel Pvt. Ltd. and connected matters(ITA No. 5628/Mum/2016), the Co-ordinate Bench has upheld the deletion of penalty under section 271G by taking into account the peculiar nature of the diamond trade and the practical difficulty in maintaining segment-wise details, thereby accepting the existence of reasonable cause within the meaning of section 273B. 27. In the present case, we have already recorded a finding that the assessee had furnished substantial documentation and that the alleged deficiency relates to inability to furnish precise segmental details between AE and non-AE transactions due....