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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 ..... of the case and in law, the Ld. CIT (A) erred in deleting the penalty u/s. 271G without appreciating the fact 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's length price. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty on the grounds of difficulty, ignoring the facts that it renders the provisions of Rule 10D redundant in cases like that of the assessee which can never be the intention of the legislature. 4. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in holding that the segmental accounts were never called for, when it is seen that TPO had called for documents to be maintained as per Rule 10D(1) and Rule 10D(3) vide notice dated 04.02.2016. 5. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO be restored. 6. The appellant craves leave to amend or alter any grounds 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 Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for during transfer pricing proceedings and assessee was given opportunity to submit the same on 16.08.2016 but the same was not furnished within 30 days or even till passing of transfer pricing order u/s. 92CA(3) on 31.10.2016 or at any time subsequently. c) The details were essential for benchmarking the transaction of assessee with AE. d) The assessee could also not provide any alternate method of benchmarking the transaction based on material available on record. e) In the absence of material the TPO was forced to accept the transactions to be at arm's length after initiating penalty proceedings under section 271G of income Tax Act, 1961." 5. Aggrieved, the assessee assailed the penalty imposed by the TPO under Sec. 271G in appeal before the CIT(A). In the course of the appellate proceedings, it was submitted by the assessee that as the TPO had never called upon the assessee to furnish the segmental information, thus, no penalty could have been imposed on the assessee for the failure to furnish such det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, 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 the failure on the part of the assessee to comply with the statutory obligation of maintaining the requisite information and documents clearly invited penalty under Sec. 271G of the Act, the CIT(A), thus, was in error in vacating the same. 7. Per contra, the Ld. Authorized Representative (for short 'A.R.') for the assessee at the very outset submitted that the TPO had held the specified domestic transactions of the assessee as being at arm's length. It was submitted by the Ld. A.R., that though the TPO had imposed penalty under Sec. 271G for non-furnishing of the segmental details by the assessee, however, the fact as it so remained was that no such information was ever called for by him in the course of the transfer pricing proceedings. In order to buttress his aforesaid claim the Ld. A.R. took us through the relevant pages of the assessee's paper book (for short 'APB'), and drew our attention to the notices which were issued by the TPO under Sec. 92CA(2) r.w. 92D(3) seeking information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred 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 both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Insofar the claim of the Ld. A.R. that the assessee was never called upon by the TPO to furnish the segmental details of the AE and non-AE transactions is concerned, we find substantial force in the same. On a perusal of the notices dated 04.02.2016, 14.06.2016, 11.08.2016 and 26.09.2016 that were issued by the TPO during the course of the transfer pricing proceedings, we find, that at no stage he had called upon the assessee to furnish the segmental details of the AE and non-AE transactions for benchmarking the international transactions. As observed by the CIT(A), the details closest to the segmental information, if at all, that was sought for by the TPO was that as per his notice dated 26.09.2016, Item (xxii), as under: "(xxii) Details of diamond purchases, sales with AE a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisite 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 for benchmarking its international transactions with the AEs. 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 AEs, he could not examine and determine the arms length price and had to accept it as reflected by the assessee in its TPSR. 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. 1,07,99,26,354/- of the assessee with its AEs, viz. (i). Purchase of rough diamonds; (ii). Export of rough diamonds; (iii). Export of polished diamonds; and (v). Purchase of polished diamond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee had purchased a mix of imported rough and polished diamonds from AEs and non-AEs, and had also sold/exported rough and polished diamonds to AEs 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 AEs and the non-AEs. We are persuaded to be in agreement with the view of 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 by the assessee. We find that the export bills of the cut and polished diamonds exported to the AEs and the non-AEs 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 cut and polished diamonds purchased and sold locally and/or purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, colour, shape and clarity, which we are afraid, as observed by us at length hereinabove, 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 trade line, 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 trading and are of the considered view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red 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 bring the case of the assessee with the sweep of Sec. 273B of the 'Act'. 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. We thus uphold the order of the CIT(A) and the resultant deletion of the penalty of Rs. 2,15,98,527/- imposed by the TPO." We find, that the aforesaid order of the Tribunal had thereafter been upheld by the Hon'ble High Court of Gujarat in PCIT (Central), Surat Vs. D. Navinchandra Exports Pvt. Ltd. (ITA No. 788 of 2018, dated 09.07.2018). In the backdrop of the aforesaid facts, we herein respectfully follow the view taken by the Tribunal in the case of Navinchandra Exports Pvt. Ltd. (supra), 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 jus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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