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TMI Blog2019 (8) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciating that the benchmarking of the entity level profit by the assessee cannot substitute the requirements of benchmarking of the international transactions to determine the arm length price ? 3. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was right in deleting the penalty u/s 271G when there was a willful failure of the assessee to furnish segmental accounts pertaining to transactions made with AEs and non-AEs ? 4. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the penalty u/s 271G by accepting the assessee's plea that it was difficult to link the purchases with the sales for computing net margin in respect of International transactions without appreciating that there is no exception to the requirement of maintaining documents and carrying out analysis by the most appropriate method to show that the international transactions entered into are at arm's length and that several methods have been prescribed for this purpose ? 5. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) deleting the penalty on the ground of difficulty was justified, since it renders th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs observed that the assessee had not maintained proper documentation to apply the TNM Method, CUP Method or any other prescribed method. It was observed by the TPO, that though the assessee had during the year carried out both AE and non-AE transactions, but no separate profitability of AE transactions and non-AE transactions was maintained by it. Also, it was observed by him, that as the assessee had not maintained qualitative details of the AE and Non-AE transactions, therefore, the CUP method could not be applied for benchmarking its international transactions. Observing, that the assessee had failed to maintain the documents as required under clause (g) of Rule 10D(1), and had further also failed to maintain a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction as required under clause (h) of Rule 10D(1), the TPO initiated penalty proceedings under Sec. 271G of the Act. 4. The TPO issued a 'Show Cause' notice (for short 'SCN'), dated 11.06.2015, and called upon the assessee to explain as to why penalty under Sec.271G may not be imposed for its failure to comply with the provisions of Sec.92D(3) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithheld information/documents pertaining to its segmental accounts in respect of the purchases and sales made with AE and Non-AEs, and by so doing had prevented the TPO from performing any comparability analysis for determining the ALP in a fair manner as envisaged under Sec.92C, therefore, it was rightly visited with penalty under Sec. 271G of the Act. It was submitted by the ld. D.R, that the CIT(A) was in error in setting aside the penalty which was rightly imposed by the TPO under Sec.271G of the Act. 7. Per contra, the ld. Authorized Representative (for short 'A.R') for the assessee relied on the order passed by the CIT(A). In order to impress upon us that the assessee was not liable to be visited with any penalty under Sec.271G, the ld. A.R had drawn support from the orders of the coordinate benches of the Tribunal viz. (i) ACIT-19(1), Mumbai Vs. Dilip Kumar V. Lakhi (IT) (TP)A. No. 2142/Mum/2017, dated 02.08.2018; and (ii) DCIT-5(2)(2) Vs. Laxmi Diamond Pvt. Ltd. (ITA No. 2643 of 2017, dated 27.12.2018). It was submitted by the ld. A.R, that involving identical facts as were there in the case of the present assessee viz. manufacturing and trading of diamond, the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s international transactions with the AE. We find that the TPO had in his penalty order observed that due to the failure of the assessee to provide requisite data/information, as was called for by him in the course of the proceedings to facilitate correct benchmarking of the international transactions of the assessee with its AE, he could not examine and determine the arms length price and had to accept it as reflected by the assessee in its TP study report We find that the TPO in order to benchmark the international transactions of the assessee, had as a matter of fact required the assessee to furnish separate profit level indicator (PLI), either by furnishing the AE and non-AE segment wise Profit & loss account, and/or some other evidence to show that the international transactions aggregating to Rs. 45,49,47,403/- of the assessee with its AEs, viz. (i). import of rough diamonds (Rs. 19,21,75,511/-); (ii). Export of rough diamonds (Rs. 7,79,09,391/-); and (iii). Export of polished diamonds (Rs. 18,48,62,501/-), were at arms length price. 10. We find that the TPO pursuant to the notice u/s 92CA(2) along with a questionnaire issued to the assessee, had in order to verify as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f imported rough diamonds from AE and non-AEs, and had also sold/exported rough and polished diamonds to AE as well as the non- AEs, therefore, the Profit & loss a/c of the assessee reflected a mixture of purchases and sales both from the AE and the non-AEs. We are persuaded to be in agreement with the view taken by the CIT(A), that now when the rough/polished diamonds were traded on lot wise basis, therefore, it was difficult to identify and say whether a polished diamond came out of a particular lot of rough diamonds or the other and/or out of the polished diamonds purchased locally or imported by the assessee. As observed by the CIT(A), the export bills of the rough and polished diamonds exported to the AE and the non-AE revealed that the diamonds of varying size, quality, colour and carat weight were exported as was evident from the price per carat charged in each bill, and similar would have been the position in respect of rough and polished diamonds purchased and sold locally and/or purchased from abroad but sold locally. We are of the considered view that in the backdrop of the aforesaid peculiar nature of the trade of the assessee, it could safely or rather inescapably be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, shape and clarity, which we are afraid, in light of the peculiar nature of the trade of the assessee would not be possible. We find ourselves to be in agreement with the CIT(A) that 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. We also cannot be oblivious of the fact that even otherwise in the diamond industry unless a diamond would weigh half carat or more or one carat or more the same would not be priced separately in the bill, because it was not practical to price diamonds of weights of lower than half carat or one carat separately weight wise per diamond in the lot. We have deliberated on the aforesaid peculiar facts involved in the business of diamond industry and are of the considered view that the insistence of the TPO that the assessee should have followed CUP method was misconceived and impractical. We are in agreement with the CIT(A) that if the TPO would had carried out a comparison of the Profit & loss account and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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