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TMI Blog2023 (4) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... le and purchase of Diamonds to the AE has been done. Peculiar facts related to the diamond business pose practical difficulties in maintaining segmental details and the same constitutes a reasonable cause. CIT(A) held that imposition of penalty u/s 271G of the Act is not sustainable under the facts and circumstances as well as under the law. CIT(A) deleted the penalty. As gone through the above order of ld CIT(A) and noted that there is no infirmity in the conclusion reached by ld CIT(A). We decline to interfere with the order of Id. CIT(A) in deleting the aforesaid penalty u/s 271G - Appeal of the Revenue are dismissed. - ITA Nos. 176 to 178/SRT/2022 - - - Dated:- 21-3-2023 - Shri Pawan Singh, JM And Dr. A. L. Saini, AM For the Assessee : Ms Ekta Sanghvi, CA For the Revenue : Shri Ashok B. Koli, CIT(DR) ORDER PER DR. A. L. SAINI, AM: Captioned three appeals filed by the Revenue, pertaining to Assessment Years (AYs) 2012-13 to 2014-15, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals)-55, Mumbai [in short the ld. CIT(A) ], which in turn arise out of separate penalty orders passed by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in Form 3CEB filed by the assessee. A notice u/s 92CA(2) r.w.s. 92D(3) of the I.T. Act, 1961 was issued to the assessee on 09-09-2015 by then Jt.CIT(TP)-1(1) Mumbai. Thereafter, another notice u/s.92CA(2) r.w.s. 92D(3) of the I.T. Act, 1961 was issued by DCIT(TP)-1(1)(2), Mumbai [hereinafter referred to as the Transfer Pricing Officer or TPO ] to the assessee on 18.01.2016. In all these notices, the assessee was required to submit information/explanations to support the arm's length price with reference to the international transactions entered into by the assessee with its various non-resident associated enterprises during the previous year 2011-12 relevant to A.Y. 2012-13. 5. In response to the notices issued, the authorized representative of the assessee attended and filed details. The transfer pricing documentation and supporting details furnished by the assessee were examined during the course of the transfer pricing proceedings for determination of ALP of International transactions. The assessee is engaged in the business of manufacturing /converting of rough diamond into cut and polished diamonds. It is also engaged in the business of import/export of cut and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant documentation that resulted in the Revenue's inability to determine any ALP for the international transactions, penalty u/s.271G was initiated. 6. Based on the facts and circumstances of the case, it was held by the assessing officer that assessee has failed to provide any authentic information, data or document in respect of segmental accounts with regard to transactions made with AEs and non-AEs. Accordingly, AO observed that the assessee had failed to provide complete segmental accounts with regard to purchases made from AE and non-AE segments and sales made to AE and non-AE segments under different activities. Therefore, it is clearly evident that the assessee has failed to furnish information called for under Rule 10D(1), and has also failed to furnish the supporting authentic documentation required to be furnished under Rule 10D(3). Therefore, the assessee has clearly violated the lawful requirement under clauses d , g , h , I and j of rule 10D(1) read with section 92D and under rule 10D(3) to maintain and produce documentation as called for by the TPO. Therefore, AO held that assessee's instant case is a fit case for levy of penalty u/s 271G for fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M method at entity level was submitted from time to time along with all the required details, which was further updated based on the available data related to other comparable as suggested by the learned TPO. It is thus submitted that all details required in such benchmarking were maintained and submitted. Further, peculiar reasons related to diamond business because of which it is not possible to apply internal TNMM as explained in submission before the TPO are also reiterated before me. 4.2 The Hon'ble jurisdictional Tribunal has decided similar issue in favour of the assessee in a recent decision in the case of ACIT, Circle-5(1)(2), Mumbai v. Dharmanandan Diamonds (P.) Ltd. [2021] 132 taxmann.com 209 (Mumbai - Trib.) pertaining to AY 2012-13. The Hon'ble bench held: 6. After due consideration of factual matrix, it could be gathered that the assessee has maintained primary books of account/documents in respect of its business activity. The international transactions carried out by the assessee with its AEs has also been well documented which is supported by benchmarking done by the assessee under TNMM method. Further, the assessee has made substantial complianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. This decision has been followed subsequently in various other decision of the tribunal rendered on similar factual matrix. Few of the recent decisions are Dy. CIT v. Decent Dia Jewels (P.) Ltd. [2020] 117 taxmann.com 358/183 ITD 492 and Dy. CIT v. Kama Schachter Jewellery (P.) Ltd. [2021] 127 taxmann.com 677/189 ITD 21'. We find that fact in the appeal before us are quite identical to facts in all these decisions. Therefore, respectfully following these decisions, we confirm the impugned order deleting the penalty u/s 271 G. The issue is similarly decided in favour of the assessee in the case of Deputy Commissioner of Income-tax, Circle-5(1)(1) vs Ankit Gems (P.) Ltd Mumbai [2019] 106 taxmann.com 243 (Mumbai - Trib.) and Deputy Commissioner of Income-tax-CC-2(3), Mumbai vs Asian Star Company Ltd [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 271G of the Act should be sustained. 10. On the other hand, Ld. Counsel for the assessee defended the order passed by the Ld. CIT(A). 11. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that ld TPO arrived at a conclusion that assessee's arguments regarding industry practice and difficulty in maintaining documentation on that account cannot constitute reasonable cause. The TPO found the contention of the assessee regarding many varieties of stock and its continuous mixing, resulting in stock losing identity contradictory with the claim that the each has a different price. It was therefore concluded that the assessee has failed to provide any authentic information, data or document in respect of segmental accounts with respect to transactions made with AEs and non-AEs, violating lawful requirement under clauses d, g, h, I and j of Rule 10D(1) r.w.s. 92D and under Rule 10D(3). Therefore, penalty of Rs.5,23,62,122/- was l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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