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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 ..... above, but in the backdrop of our aforesaid observations, we are of the considered view that the failure to the said extent on the part of the assessee to comply with the directions of the TPO can safely be held to be backed by a reasonable cause which would bring its case within the realm of Sec. 273B. We thus in the backdrop of our aforesaid observations find ourselves to be in agreement with the view taken by the CIT(A), and finding no reason to dislodge his well reasoned order, therefore, uphold the same. Accordingly, we uphold the deletion of the penalty by the CIT(A) - appeal of the revenue is dismissed - ITA No. 6523/Mum/2016 - - - Dated:- 7-8-2019 - Shri M. Balaganesh, Accountant Member And Shri Ravish Sood, Judicial Member For the Appellant : Shri M .C. Omi Ningsen, Sr. A.R For the Respondent : Shri Apurva R. Shah ORDER PER RAVISH SOOD, JM The present appeal filed by the revenue is directed against the order passed by the CIT(A)-56, Mumbai, dated 29.07.2016, which in turn arises from the order passed by the A.O under Sec. 271G of the Income Tax Act, 1961 (for short A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) was correct in deleting the penalty on the ground there is no adjustment made in the ALP even though adjustment to ALP is not a precondition for levy of penalty u/s 271G ? 8. The appellant prays that the order of the Learned CIT(A) on the above grounds be set side and that of the AO be restored. 9. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 2. Briefly stated, the assessee firm which is engaged in the business of importing and locally purchasing rough diamonds, getting them cut and polished, and finally exporting or locally selling the cut and polished diamonds had filed its return of income for A.Y. 2011-12 on 28.09.2011, declaring its total income at ₹ 27,97,05,690/-. The return of income filed by the assessee was processed as such under Sec.143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2). 3. During the course of the assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s failure to comply with the provisions of Sec.92D(3) and Rule 10D(1). The reply filed by the assessee, in order to impress upon the TPO that no penalty under Sec. 271G was liable to be imposed on it, however, did not find favour with him. Also, the TPO held a conviction that the assessee had failed to come up with a reasonable cause for explaining the failure on its part to maintain the documents prescribed under Rule 10D(1). It was observed by the TPO that the assessee had deliberately and wilfully withheld the information/documents pertaining to segmental accounts in respect of purchases and sales made with its AE Non- AEs, for which reason he was prevented from performing any comparability analysis to determine the ALP in a fair manner, as envisaged in Sec.92C of the Act. Accordingly, the TPO was of the view that the assessee who had wilfully withheld the information/documents which were required for determining of the ALP could not be allowed to take shelter of Sec.273B of the Act. On the basis of his aforesaid observations, the TPO being of the view that the assessee had violated the statutory requirement contemplated under Rule 10D(1), clause (g) and clause (h), and Rule 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts as were there in the case of the present assessee viz. manufacturing and trading of diamond, the Tribunal in the aforementioned cases had quashed the penalty that was imposed by the TPO under Sec.271G of the Act. 8. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. As is discernible from a perusal of the orders of the lower authorities, the TPO had imposed penalty under Sec. 271G of the Act, for the reason, that the assessee had failed to comply with the provisions of Sec. 92D(3) and Rule 10D(1). In fact, the TPO had observed that there were primarily two fold non-compliances on the part of the assessee viz. (i). that, the assessee who as per clause (g) of Rule 10D(1) was required to maintain a record of the uncontrolled transactions taken into account for analysing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transactions with third parties which may be of relevance to the pricing of the internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-), 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 whether the transactions entered into by the assessee with its AEs were at arms length, had called upon the assessee to submit documents mentioned as per Rule 10D(1) and 10D(3) of the Income tax Rules, 1962 along with other specific details. Also, the TPO had directed the assessee to furnish the documents specified under Sec. 92D and Sec. 92E of the Act. We find that the TPO after examining the details and documents available on record, had therein called upon the assessee to submit the segmental profitability for AE transactions and non-AE transactions. However, as the assessee had not maintained separate books of accounts for AE and non-AE segments, therefore, it expressed its inability to furnish the details in the manner the same were called for by the TPO. We find that the TPO in the absence of the segmental breakup of the AE and non-AE transactions, as was required by him, therein concluded that the failure of the assessee to furnish the requisite details had prevented him from benchmarking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 concluded that it was extremely difficult to identify which rough diamond got converted into which polished diamond, unless the single piece of rough diamond happened to be of exceptionally high carat value, therein making the tracing and identification of the polished diamond physically possible and convenient. We find that the aforesaid practical difficulties in providing the details being faced by the diamond industry can be well gathered from the letter of the GJEPC to the CIT-Transfer Pricing, Mumbai, wherein the aforesaid aspects involved in the diamond manufacturing business were explained. 12. We find that the assessee had in the backdrop of the very nature of its business, viz. manufacturing and trading of diamonds, had though explained to the TPO the practical difficulties in furnishing segment wise Profit loss account of the AE segment and the non-AE segment, however, the TPO insisted for the same and invoked Rule 10D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered 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 Balance Sheets of the AE, the same would had revealed the gross profit margins and levels of profitability earned by the AE in their businesses and any abnormal variation in their gross profitability would had revealed the aberrations in the international transactions. 13. We are not inspired by the fault finding approach adopted by the TPO without understanding the intricacies involved in the business of the diamond industry 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 Sheet of the AE and comparing the financial ratios in general, had rather hushed through the matter and imposed penalty under Sec. 271G of ₹ 90,98,948/- on the assessee. We also find that the assessee to the extent possible in the backdrop of the nature of its business had furnished several details on number of occasions with the TPO. We thus are of the considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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