TaxTMI 
TaxTMI 
2019 (4) TMI 2196
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....ning the documentation as required u/s.92D(3) of the Income Tax Act, 1961. 2. That on the facts and circumstances of the case and in law, the decision of CIT(A) is vitiated for the reason that the CIT(A) has not given any findings on how the assessee has complied with the clauses (d), (g), (h) and (m) of rule 10D(1), that has been specifically invoked by the TPO. 3. That on the facts and circumstances of the case and in law, the CIT(A) was not justified 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 AE's to ascertain diversion of profits, if any, ignoring the findings of the ITAT in the case of Aztec Software Technology Services Ltd vs ACIT(ITA no. 584/Ban/2006), in which it has been held that there is no legal requirement for the AO to prima facie demonstrate tax avoidance before invoking the provisions of section 92 and 92CA of the Income Tax Act, 1961. 4. That 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 se....
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....rnishing of certain documents with regard to the RPM or CUP method to determine ALP of its international transactions. Therefore, he had accepted TNMM method selected by the assessee to benchmark its international transactions without any adjustment. 4. Thereafter, the TPO initiated penalty proceedings u/s 271G of the I.T. Act, 1961 and issued a show cause notice dated 27-01-2016 and asked as to why penalty shall not be levied for non furnishing of documents specified u/r 10D(1) of I.T. Rules, 1962. In response, the assessee, vide its letters dated 12 02-2016 and 18-02-2016 submitted that it has furnished necessary information in connection with TNMM method selected for benchmarking its international transactions. However, when the AO has asked for further documentation in respect of RPM and CPU, the information was not readily available including segment-wise P&L Account, therefore, it is not correct to say that there is no compliance to the provisions of Rule 10D(1), which warrants levy of penalty u/s 271G of the Act. 5. The AO, after considering submissions of the assessee and also on analysis of provisions of rule 10D(1) held that the assessee has failed to comply with th....
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....regard, reliance is also placed on following decisions: 1) ITQ-V/S. Nets Soft India Ltd. -2013/35/Taxmann.com/579/Mumba: ITAT 2) AC1TV/S. Gillette India Ltd.-2015/54/Taxman.com/313/Jaipur ITAT 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 l.T. Act,1961 is neither fair nor reasonable and therefore ii 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. 35,602,903/- under section 271G of I.T. Act, 1961 is hereby deleted. 7. In view of the fact that levy of penalty under section 271G of IT. Act, 1961 is itself deleted, other objections raised by the assessee before the TPO and in appeal are not considered relevant and are not discussed. In nutshell, levy of penalty under section 271G of I.T. Act, 1961 is hereby deleted." 7. The Ld. DR submitted that the Ld. CIT(A) was erred in deleti....
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....efore, it is incorrect on the part of the TPO to come to the conclusion that there was failure to comply with the provisions of Rule 10D(1) of the I.T. Rules, which warrants levy of penalty u/s 271G of the Act. 9. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. We find that an identical issue has been considered by the co-ordinate bench in the case of ACIT vs D Navinchandra Exports (P) Ltd (supra). The co-ordinate bench, after considering relevant facts and difficulties expressed by diamond trade industry for maintenance of documents as required by the TPO in view of Rule 10D(1) of I.T. Rules, 1962 and also after considering the provisions of section 271G, Rule 10D(1) and 10D(3), came to the conclusion that there is reasonable cause of the assessee for not maintaining specific informations / documentation in light of provisions of Rule 10D(1) and 10D(2) which comes within the ambit of 'reasonable cause' as provided u/s 273B and hence, the AO was erred in levying penalty u/s 271G for failure to file segment-wise P&L Account of AE segment and non AE segment when the assessee has expressed its difficulty by....
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....n 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 have clearly revealed diversion of profits, if any, by the assessee to its AEs. It cannot be comprehended as to on what basis the TPO expected the assessee to have carried out the benchmarking by following CUP method. As the comparison by internal CUP method could only be made if two lots of diamonds were 'similar in size, colour, shape and clarity, which in light of the peculiar nature of the trade of the assessee would not be possible. If one lot had diamonds of variety of size, colour, shape and clarity, the prices would 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 even otherwise in the diamond trade line, unless a diamond wo....
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....ons of the TPO can safely be held to be backed by a reasonable cause, which thus would bring the case of the assessee with the sweep of section 273B. Thus, in the backdrop of aforesaid observations the view taken by the Commissioner (Appeals) was to be agreed. [Para 20]" 8. A similar issue has been considered by the Hon'ble Delhi High Court in the case of CIT vs Leroy Somer And Controls (India) P. Ltd (supra). The Hon'ble Delhi High Court, after considering relevant facts and also provisions of section 271G, held that when the assessee has furnished specific information or documentation, the other documentation or information relating to data base or transactions entered into by third parties may require collection from time to time, therefore, when the assessee has furnished details, the AO was erred in levying penalty u/s 271G for non-compliance with provisions of Rule 10D without specifying which particular documentation was not furnished by the assessee. The relevant observations of the Court are as under:- "Held, dismissing the appeal, that the order passed by the Assessing Officer merely recorded that there was failure to file rule 10D documentation without specif....