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TMI Blog2022 (6) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the instant case there was reasonable cause for non-maintaining the details, which were required in terms of Rule 10D of the Rules and accordingly we do not find any error in the order of Ld. CIT(A) and uphold the order of the Ld. CIT(A) on the issue-in-dispute. The grounds raised by the Revenue are accordingly dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Ld. Assessing Officer and submitted that due to failure on the part of the assessee, the Ld. TPO could not examine the arm's length price of the transaction and accordingly no adjustment was made. He accordingly submitted that the assessee has failed to substantiate reasonable cause for not maintaining the required details. 5. The Ld. counsel of the assessee on the other hand relied on the order of the Ld. CIT(A). He also relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Navindhandra Exports P. Ltd., wherein the order of the Tribunal, Mumbai Bench, deleting the penalty u/s 271G in case of diamond trader/manufacturer, has been upheld. 6. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that the issue in dispute in the case of the assessee is whether in case of the diamond manufacturer, can any penalty be levied under section 271G of the Act for non-maintenance of segment profitability between AEs and non-AEs transactions. We find that coordinate Bench of the Tribunal in the case of Navin Chandra exports Private Limited in ITA No. 6304/Mum/2016 and other appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with that entered into by the third party in comparable situation with independent parties, had therein 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, and further directed it 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, therein concluded that it was prevented from benchmarking various transactions, and for the said failure of the assessee to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rough diamond happened to be of exceptionally high carat value , therein making the tracing out 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 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. 19. We find that the assessee had in the backdrop of the very nature of its business, viz. manufacturing of diamonds, had though explained to the TPO the practical difficulty 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 Income-tax Rules, 1962, and instead of determining the arms length price in respect of the international transactions of the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 AEs, the same would had revealed the gross profit margins and levels of profitability earned by the AEs in their businesses, and as such any abnormal variation in their gross profitability would had revealed the aberrations in the international transactions. 20. We further find that as stands gathered from the records, the nature and level of business of the assessee during the year under consideration had increased almost two fold. We find that while for the gross profits of the assessee had also increased from 7.42% for A.Y. 2010-11 to 8.71% for the year under consideration, viz. A.Y. 2011-12, the Net profit had also witnessed a growth from 3.9% in the immediate preceding year to 4.9% during the year under consideration. We further find that as observed by the CIT(A) that in the preceding year, i.e A.Y. 2010-11 the TPO did not propose any adjustment in the ALP. We are not inspired by the fault finding approach adopted by the TPO without understanding the intricacies of the diamond m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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