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2021 (2) TMI 1132 - AT - Income TaxPenalty u/s 271G - assessee failed to furnish documents as required under the Rule 10D(1) and sub-section (3) of the section 92D in respect of the international transactions entered into by it - HELD THAT - Respectfully follow the view taken by the Tribunal in the case of Navinchandra Exports Pvt. Ltd. 2017 (11) TMI 1307 - ITAT MUMBAI wherein it was observed that considering the practical difficulties involved in furnishing the segmental details of AE transactions and non-AE transactions in the diamond industry, penalty under Sec. 271G could not be justifiably imposed. Before parting, we may herein observe, that the Tribunal in its aforesaid order had observed that considering the reasonable cause for non-furnishing of the segmental details of the AE transactions and non-AE transactions because of the peculiar nature of the trade in diamond industry, penalty u/s. 271G even otherwise could not have been imposed as per the mandate of Sec. 273B. No infirmity emerges from the order of the CIT(A) who had rightly vacated the penalty imposed by the TPO under Sec. 271G - Decided against revenue.
Issues Involved:
1. Deletion of penalty under Section 271G of the Income Tax Act, 1961. 2. Failure to furnish documents as required under Rule 10D(1) and Section 92D(3) of the Income Tax Act. 3. Difficulty in preparing segmental accounts in the diamond industry. 4. Whether the Transfer Pricing Officer (TPO) called for segmental accounts. 5. Whether the CIT(A) correctly vacated the penalty imposed by the TPO. Issue-wise Detailed Analysis: 1. Deletion of Penalty under Section 271G: The revenue challenged the CIT(A)'s decision to delete the penalty imposed under Section 271G of the Income Tax Act, 1961. The penalty was initially imposed by the TPO due to the assessee's failure to submit segmental accounts for AE and non-AE transactions. The CIT(A) vacated the penalty, concluding that the TPO had not established beyond doubt any default by the assessee and acknowledged the difficulties in preparing segmental details in the diamond industry. 2. Failure to Furnish Documents under Rule 10D(1) and Section 92D(3): The TPO observed that the assessee did not maintain the required documents under Section 92D(3) r.w. Rule 10D(3) of the Income Tax Rules, 1962, which led to the initiation of penalty proceedings under Section 271G. The TPO argued that the lack of segmental accounts thwarted the fair determination of the "Arms Length Price" (ALP), justifying the imposition of the penalty. 3. Difficulty in Preparing Segmental Accounts in the Diamond Industry: The assessee argued that preparing segmental accounts in the diamond industry is extremely difficult due to the nature of the business. This argument was supported by various judicial pronouncements, including the ITAT, Mumbai, and the Hon'ble High Court of Gujarat, which acknowledged the practical difficulties involved in furnishing such details in the diamond industry. 4. Whether the TPO Called for Segmental Accounts: The assessee contended that the TPO never explicitly called for segmental accounts during the transfer pricing proceedings. The CIT(A) and the Tribunal found substantial force in this argument, noting that the TPO's notices did not specifically request segmental details. The closest request was for details of diamond purchases and sales with AE and non-AE of diamonds of 1 carat and above, which did not amount to a clear call for segmental accounts. 5. Whether the CIT(A) Correctly Vacated the Penalty: The Tribunal upheld the CIT(A)'s decision to vacate the penalty, agreeing that the TPO did not clearly establish a default by the assessee. The Tribunal also concurred with the CIT(A)'s view on the practical difficulties in preparing segmental accounts in the diamond industry. The Tribunal referenced previous cases, such as ACIT Vs. D. Navinchandra Exports Pvt. Ltd., where similar difficulties were acknowledged, and penalties under Section 271G were not imposed. Conclusion: The appeal filed by the revenue was dismissed. The Tribunal found no infirmity in the CIT(A)'s order vacating the penalty imposed by the TPO under Section 271G. The Tribunal emphasized the practical difficulties in preparing segmental accounts in the diamond industry and the lack of a clear request for such details by the TPO. The Tribunal's decision was consistent with previous judicial pronouncements acknowledging these challenges.
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