2018 (7) TMI 2099 - HC - Income Tax

Penalty u/s 271G - failure to produce the documents which are required to be mentioned under Section 92D(3) with regard to the international transactions - HELD THAT - When the learned Tribunal was satisfied that there is substantial compliance of Section 92CA(3) of the Income Tax Act and when the Gross Profit of the assessee had increased from 7.42% for Assessment Year 2010-11 to 8.71% for the year under consideration the Net Profit had also witnessed growth from 3.9% to 4.9% and looking to the business of the assessee in diamond both the learned CIT(A) as well as the learned Tribunal have rightly observed and held that the TPO was not justified in levying the penalty under Section 271G of the Income Tax Act. We are in complete agreement with the view taken by the learned Tribunal. The findings of the fact recorded by the learned Tribunal are on appreciation of material on record. No substantial question of law arises.

Summary

Issues:
- Appeal against order confirming deletion of penalty under Section 271G of the Income Tax Act for Assessment Year 2011-12.

Analysis:
- Issue 1: Penalty under Section 271G
- The case involved an appeal against the order deleting the penalty imposed under Section 271G of the Income Tax Act for the Assessment Year 2011-12. The Tax Appellate Tribunal confirmed the order passed by the CIT(A) deleting the penalty, leading to the revenue filing the present appeal questioning the deletion of the penalty.

- Issue 2: Compliance with Documentation Requirements
- The dispute arose when the assessee failed to provide segmental profits and other necessary documents related to international transactions, leading to the initiation of penalty proceedings under Section 271G. The TPO imposed the penalty, but the CIT(A) later deleted it, citing substantial compliance, reasonable cause, and the nature of the diamond trade as justifications for the decision.

- Issue 3: Tribunal's Decision
- The Tribunal upheld the CIT(A)'s decision to delete the penalty, emphasizing the practical difficulties faced by the diamond industry in furnishing segment-wise accounts. The Tribunal criticized the TPO's insistence on certain documentation and highlighted the impracticality of the CUP method in the diamond trade. The Tribunal found substantial compliance with the Income Tax Act and noted the increase in gross and net profits, ultimately concluding that the penalty was unjustified.

- Judgment Summary:
- The High Court dismissed the appeal, affirming the Tribunal's decision to delete the penalty under Section 271G. The Court agreed with the Tribunal's findings on substantial compliance and the lack of justification for the penalty imposition. The Court emphasized the unique challenges in the diamond trade and upheld the reasoning behind the deletion of the penalty. As a result, the present appeal was deemed to fail and was accordingly dismissed.