TaxTMI 
TaxTMI 
2026 (8) TMI 177
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....customers including the Associated Enterprises (AEs) of the assessee. During the transfer pricing proceeding, the Ld. TPO asked the assessee to furnish documents maintained in respect of segment profitability between the AEs and Non-AEs, but the assessee expressed his inability in view of the trade practice. Accordingly, the assessment was completed and the Ld. AO initiated the penalty proceeding u/sec. 271G for failure to furnish information or diamonds in respect of segmental accounts relating to transaction made with AEs and Non-AEs for determination of arm's length price of international transactions as required by the Ld. TPO under Rule 10D(1) of the Income Tax Rule, 1962 ('Rules') and the Rule 10D(3). Total value of relevant international transaction is Rs. 77,03,02,549/-. Finally the Ld. AO levied penalty @2% on the value of international transaction which comes out to be Rs. 1,54,06,051/-. Hence, the penalty u/sec. 271G was levied a sum of Rs. 1,54,06,051/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) relied on the order of Coordinate Bench of ITAT Mumbai, quashed the impugned penalty. Being aggrieved revenue filed an appeal before us. 3.....
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....and sales made to AE and non-AE segments under different activities. Therefore, it is clearly evident that the assessee has failed to furnish information called for under Rule 10D(1), and has also failed to furnish the supporting authentic documentation required to be furnished under Rule 10D(3). 33. Therefore, the assessee has clearly violated the lawful requirement under clauses "d", "g", "h", "i" and "j" of rule 10D(1) read with section 92D and under rule 10D(3) to maintain and produce documentation as called for by the TPO. 34. Therefore, the assessee's instant case is a fit case for levy of penalty u/s 271G for failure to furnish information or document in respect of segmental accounts relating to transactions made with AEs and non-AEs for determination of arms length price of international transactions as required by the TPO under Rule 10D(1) and Rule 10D(3), The total value of relevant international transactions in this case is Rs. 77,03,02,549/ The value of 2% of International transaction comes out to be Rs. 15406051/- Hence, I hereby levy a penalty of sum of Rs. 1,54,06,051/-." 5. The Ld. AR filed a paper book comprising pages 1 to 139 which has be....
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....r Pricing documentation, detailed method justification during assessment proceedings, and transparent explanation of practical constraints and that its evolution from CUP method declared in 3CEB to TNMM justification during assessment shows technical diligence rather than non-compliance. The appellant has claimed application of Section 273B i.e. existence of Reasonable Cause in its case for failure to submit complete details required by the TPO by citing similarity of facts with the decision of Hon'ble ITAT in D. Navinchandra case. As discussed above, it is noted that the appellant had cited practical difficulties in view of the peculiar nature of the diamond trade before the AO (which has been appreciated by Hon'ble ITAT also), but tried to submit the segmental details as mentioned by the AO in para 5.7 of the order u/s. 92CA(3) of the Act, which however were not considered as proper segmental accounts by the TPO. Hence, it can be said that the appellant had not evaded the issue, but attempted to cooperate in the TP proceedings by submitting certain details, which are found to be on similar lines as in the case of D Navinchandra as discussed above. The appellant has submit....
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....se of Navin Chandra exports Private Limited in ITA No. 6304/Mum/2016 and other appeals has after a detailed discussion, held that there was reasonable cause for non-maintaining the said details. The relevant finding of the Tribunal (supra) is reproduced as under: 16. We have heard the Id. D.R and perused the orders of the lower authorities. We have given a thoughtful consideration to the facts involved in the case before us and are of the considered view that it remains as a matter of fact borne from the records that the TPO had imposed penalty under Sec 271G for the reason that the assessee had failed to furnish the information as was called for by him. We find that the TPO held a conviction that the assessee had not only inappropriately applied the TNMM which patently suffered from serious irregularities, as the assessee had merely allocated the expenses on the basis of sales, in the backdrop of which the working of the margins involved in the transactions of the assessee with its AEs and non-AEs did hardly witness any variance. We have deliberated on the orders of the lower authorities and find that the TPO in the course of the penalty proceedings was driven by the fact....
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....t it was prevented from benchmarking various transactions, and for the said failure of the assessee to furnish the requisite details had initiated penalty proceedings under Sec. 271G in the hands of the assessee. We find that the TPO not finding favour with the explanation of the assessee that no penalty under Sec. 271G was liable to be imposed, therein proceeded with and imposed a penalty of Rs. 2,15,98,527/- le @2% of the aggregate value of the international transactions of Rs. 107,99,26,354/- in the hands of the assessee. 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 assessee. We are of the considered view that a careful perusal of the very nat....
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....1962, and instead of determining the arms length price in respect of the international transactions of the assessee 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 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 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 the assessee to its AEs. We are further unable to comprehend that as to on....
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..... 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. 21598527/- 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 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 had been deliberated by us at length hereinabove, but however, in the bac....
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.... In the result, the appeal filed by the Revenue is dismissed." 7. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee, engaged in the business of importing rough diamonds, manufacturing, cutting and polishing, and exporting polished diamonds, could not furnish separate segmental profitability for AE and non-AE transactions in the precise manner sought by the Ld. TPO owing to the peculiar nature of the diamond trade. However, the record clearly demonstrates that the assessee had furnished extensive transfer pricing documentation, including Form 3CEB, audit reports, and other relevant details, and had substantially cooperated with the transfer pricing proceedings to the extent practically possible. The penalty under section 271G was levied solely on the ground that the assessee failed to furnish separate segmental accounts as contemplated under Rule 10D. We find that the Ld. CIT(A), after an elaborate examination of the facts, has correctly appreciated that the assessee had established a reasonable cause within the meaning of section 273B of the Act. The Ld. CIT(A) also recorded a categorical finding that the....