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TMI Blog2021 (2) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... ity emerges from the order of the CIT(A) who had rightly vacated the penalty imposed by the TPO under Sec. 271G - Decided against revenue. - S. Rifaur Rahman, Member (A) And Ravish Sood, Member (J) For the Appellant : Sushil Kumar Mishra, D.R. For the Respondents : Nitesh Joshi, A.R. ORDER Ravish Sood, Member (J) The captioned appeal filed by the revenue is directed against the order passed by the CIT(A)-56, Mumbai, dated 09.01.2019, which in turn arises from the penalty order passed by the A.O. under Sec. 271G of the Income tax Act, 1961 (for short 'Act') for A.Y. 2013-14 dated 20.04.2017. The revenue has assailed the impugned order on the following grounds of appeal before us: 1. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the penalty u/s. 271G of the Income Tax Act, 1961 ignoring the facts that the assessee failed to furnish documents as required under the Rule 10D(1) and sub-section (3) of the section 92D of the IT. Act, 1961 in respect of the international transactions entered into by it? 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the penalty u/s. 271G without appreciating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had failed to submit the segmental accounts regarding its AE and non-AE transactions, for the reason, that it had not maintained the documents as required under Sec. 92D(3) r.w. Rule 10D(3) of the Income Tax Rules, 1962, initiated penalty proceedings under Sec. 271G of the Act. 4. After the culmination of the assessment proceedings, the TPO holding a strong conviction that the deliberate withholding of information/documents by the assessee had thwarted the determination of the Arms Length Price (for short ALP ) in a fair manner as envisaged in Sec. 92AC of the Act, therein called upon the assessee to explain as to why penalty under Sec. 271G may not be imposed on it. In reply, the assessee tried to impress upon the TPO that no penalty under Sec. 271G was liable to be imposed. However, not finding favour with the aforesaid claim of the assessee the TPO imposed a penalty of ₹ 67,19,310/- under Sec. 271G in the backdrop of observations summed up by him in his order, as under: a) The TPO has called for specific details pertaining to profitability between AE and non-AE segments within the meaning of section 92D(3) of Income Tax Act, 1961. b) The details were called fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments under Sec. 92D r.w. Rule 10D(1) of the Income Tax Rules, 1962. It was submitted by the Ld. D.R. that as per Rule 10D(1)(g), an assessee who had entered into a specified domestic transaction remained under a statutory obligation to keep and maintain a record of uncontrolled transactions taken into account for analysing their comparability with the specified domestic 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 such specified domestic transactions. It was further submitted by the Ld. D.R., that though the TPO had accepted the domestic transactions of the assessee as being at arm's length, however, a perusal of his order passed under Sec. 92CA(3), dated 31.10.2016 clearly revealed that the same came with a specific observation by him that as the assessee had failed to maintain the documents required under Sec. 92D(3) r.w. Rule 10D(3) of the Income Tax Rules, 1962, the segmental accounts regarding AE and non-AE transactions were not filed by it. In the backdrop of his aforesaid contentions, it was the claim of the Ld. D.R. that as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when no adjustment was made to the ALP of the specified domestic transactions entered into by the assessee with its AEs, no penalty under Sec. 271G could have justifiably been imposed. In support of his aforesaid contention reliance was placed by the Ld. A.R. on the order of the ITAT 'K' bench, Mumbai in CIT-5(2)(2) VS. Laxmi Diamond Pvt. Ltd. (ITA No. 2643/Mum/2017), dated 27.12.2018 AND DCIT-14(2)(1), Mumbai Vs. Leo Schachter Diamonds India P. Ltd. (2020) 116 taxman.com 994 (Mum). It was further submitted by the Ld. A.R. that no penalty under Sec. 271G could be imposed for failure to furnish information under Sec. 92D unless the notice was issued by the AO/TPO specifying the information to be produced with respect to the international transactions. In support of his aforesaid contention reliance was placed by the Ld. A.R. on the order of the ITAT, Mumbai bench 'B' in the case of ITO 8(2)(3) Vs. Netsoft India Ltd. (2014) 150 ITD 454 (Mum). On the basis of his aforesaid contentions, it was averred by the Ld. A.R. that the CIT(A) had rightly vacated the penalty imposed on the assessee under Sec. 271G of the Act. 8. We have heard the authorized representatives for bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal of the revenue had observed as under: 16. We have heard the Ld. D.R. and perused the orders of the lower authorities. We have given a thoughtful consideration to the facts involved in the case before us and are of the considered view that it remains as a matter of fact borne from the records that the TPO had imposed penalty under Sec. 271G for the reason that the assessee had failed to furnish the information as was called for by him. We find that the TPO held a conviction that the assessee had not only inappropriately applied the TNMM which patently suffered from serious irregularities, as the assessee had merely allocated the expenses on the basis of sales, in the backdrop of which the working of the margins involved in the transactions of the assessee with its AEs and non-AEs did hardly witness any variance. We have deliberated on the orders of the lower authorities and find that the TPO in the course of the penalty proceedings was driven by the fact that the assessee by not providing the requisite details, had thus not only failed to substantiate the basis for comparing the transactions of the AE with another AE and/or non-AE, but had also failed to provide any other basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO not finding favour with the explanation of the assessee that no penalty under Sec. 271G was liable to be imposed, therein proceeded with and imposed a penalty of ₹ 2,15,98,527/- i.e. @2% of the aggregate value of the international transactions of ₹ 107,99,26,354/- in the hands of the assessee. 18. We find that the CIT(A) after deliberating at length on the nature of the business of manufacturing and trading of diamonds, therein concluded that in the backdrop of the intricacies involved in the said business it was practically difficult for the assessee to furnish the information in the manner the same was called for by the TPO. We find that the CIT(A) in the backdrop of an in-depth study of the nature of activities involved in the business of manufacturing and trading of diamonds, had in a very well reasoned manner culled out the peculiar nature of the trade of the assessee. We are of the considered view that a careful perusal of the very nature of the business of manufacturing and trading of diamonds therein glaringly reveals that certain information which was called for by the TPO could not be furnished by the assessee. We find that the CIT(A) had observed that as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner in which the assessee had proceeded with the matter and imposed penalty under Sec. 271G in the hands of the assessee. We are of the considered view that in light of the aforesaid practical difficulties which were being faced by the diamond industry, the TPO should have exercised the viable option of determining the arms length price of the international transactions of the assessee, either by making some comparison of realisation of prices in respect of export sales to AEs and non-AEs by comparing prices of diamonds of similar size, quality and weight to the best extent possible, or in the alternative could have asked for the copies of the Profit loss accounts and the Balance sheets of the AEs in order to make an overall comparison with the gross profitability levels of the assessee with its AEs, which would had clearly revealed diversion of profits, if any, by the assessee to its AEs. We are further unable to comprehend that as to on what basis the TPO expected the assessee to have carried out the benchmarking by following CUP method. We are of the considered view that as the comparison by internal CUP method could only be made if two lots of diamonds were similar in size, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Profit loss a/c and Balance Sheets of the AEs and comparing the financial ratios in general, had rather hushed through the matter and imposed penalty under Sec. 271G of ₹ 2,15,98,527/- on the assessee. We also find that the assessee to the extent possible in the backdrop of the nature of its trade had furnished several details on several occasions from time to time with the TPO. We thus are of the considered view that the assessee had substantially complied with the directions of the TPO and placed on his record the requisite information, to the extent the same was practically possible in light of the very nature of its trade. We though are not oblivious of the fact that the assessee may not have effected absolute compliance to the directions of the TPO and furnished all the requisite details as were called for by him on account of practical difficulties as had been deliberated by us at length hereinabove, but however, 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 thus would bri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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