9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (5) TMI 747 - AT - Income TaxPenalty u/s 271G - international transactions with its AE of import of rough diamonds which were sold to the third parties - HELD THAT - The assessee has not maintained segmental accounts of transactions with AE and non AE, however, the TPO has accepted the Arm Length Price of international transactions as submitted by the assessee and also the method of bench marking i.e. TNMM with certain observations that assessee has not maintained the documentation in terms of provisions of section 92D(3) of the Act and therefore he was not in a position to propose any adjustment to Arm Length Price to the international transactions and has to accept the version of the assessee and thus levied a penalty equal to 2% of the value of international transactions with the AE u/s 271G of the Act. The primary argument of the Ld. A.R. is that since the TPO has accepted the bench marking of the assessee under TNMM to be at Arm Length Price, the imposition of penalty under section 271G of the Act for non furnishing of segmental audited statement of AE and non AE was wrong and against the provisions of law. We find merit in the argument of the assessee as the TPO could have gone for its own determination of ALP of the international transactions by following one of the methods prescribed under the Act, however, the TPO has not done so. We find merit in the contentions of the assessee that once the TPO has accepted the bench marking of the assessee to be at Arm Length, the penalty under section 271G of the Act can not be levied. The case of the assessee finds support from the decision of the co-ordinate Bench of the Tribunal in the case of CIT v. Decent Dia Jewels (P.) Ltd. 2020 (3) TMI 603 - ITAT MUMBAI wherein the Tribunal has held that where the TPO having accepted the bench marking of the assessee under TNMM, the imposition of penalty under section 271G of the Act was to be deleted under similar facts. Appeal of the assessee is allowed.
Issues Involved:
1. Confirmation of penalty under section 271G of the Income Tax Act. 2. Failure to furnish required documentation for determining Arm's Length Price (ALP). 3. Non-furnishing of audited segmental accounts of AE (Associated Enterprises) and non-AE transactions. 4. Non-furnishing of relevant details for benchmarking under Comparable Uncontrolled Price (CUP) method. 5. Non-furnishing of information or documents under Rule 10D(1) and 10D(3). Issue-wise Detailed Analysis: 1. Confirmation of Penalty under Section 271G: The primary issue raised by the assessee was against the confirmation of a penalty amounting to ?1,25,62,633/- by the Commissioner of Income Tax (Appeals) [CIT(A)], which was initially levied by the Assessing Officer (AO) under section 271G of the Income Tax Act. The penalty was imposed due to the assessee's failure to furnish the required documentation for determining the Arm's Length Price (ALP) of international transactions. 2. Failure to Furnish Required Documentation for Determining ALP: The Transfer Pricing Officer (TPO) initiated penalty proceedings under section 271G for the assessee's failure to provide the necessary documentation. The TPO held that the assessee's failure to furnish the required documents prevented the Revenue from determining the ALP. Despite the TPO's acceptance of the ALP as per the assessee's version, the penalty was levied due to the lack of documentation. 3. Non-furnishing of Audited Segmental Accounts of AE and Non-AE Transactions: The CIT(A) upheld the penalty, noting that the assessee did not furnish audited segmental accounts for AE and non-AE transactions. The CIT(A) stated that the purpose of segmental results is to determine the profit or loss from transactions with AEs and non-AEs separately. The assessee's contention that it did not have sales transactions with AEs and thus was not required to maintain segmental accounts was deemed misconstrued by the CIT(A). 4. Non-furnishing of Relevant Details for Benchmarking under CUP Method: The CIT(A) noted that the assessee used the Transactional Net Margin Method (TNMM) at the entity level to benchmark transactions, which was found to be inappropriate. The CIT(A) held that the assessee failed to furnish satisfactory details for the application of TNMM and violated Rule 10B(1)(e). The TPO concluded that the assessee deliberately applied TNMM to prevent benchmarking under the CUP method by not furnishing relevant details. 5. Non-furnishing of Information or Documents under Rule 10D(1) and 10D(3): The CIT(A) observed that the assessee failed to furnish information under Rule 10D(1) and supporting documentation under Rule 10D(3). The assessee's argument that the failure to comply with specific clauses of Rule 10D(1) was due to industry practices and peculiarities was rejected. The CIT(A) concluded that the assessee violated documentation requirements under Rule 10D(1) and Rule 10D(3), thus justifying the penalty. Conclusion: The Tribunal found merit in the assessee's argument that once the TPO accepted the benchmarking of international transactions under TNMM as being at Arm's Length, the imposition of penalty under section 271G was not justified. The Tribunal noted that the TPO could have independently determined the ALP using any prescribed method if the benchmarking was not satisfactory. The Tribunal cited several decisions where penalties under similar circumstances were deleted. Consequently, the Tribunal set aside the order of the CIT(A) and directed the TPO to delete the penalty. Order: The appeal filed by the assessee was allowed, and the penalty under section 271G was ordered to be deleted. The Tribunal pronounced the order in the open court on 12.03.2021.
|
