TMI Blog2019 (6) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... Act . - Decided against revenue. - ITA No. 6553/Mum/2017 - - - Dated:- 13-6-2019 - SRI MAHAVIR SINGH, JM AND SRI NK PRADHAN, AM For the Appellant : Shri G.L.V. Prasad, DR For the Respondent : Shri Subash Shetty, AR ORDER PER MAHAVIR SINGH, JM: This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)]-55, in short CIT(A), in appeal No. CIT(A)-55/IT-191/2016-17 dated 28.06.2017. The penalty was levied by DCIT-1(3)(1), Mumbai, under section 271G of the Act vide order dated 29.07.2016. 2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the penalty under section 271G of the Act. For this Revenue has raised the following two grounds: 1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the penalty under section 271G in the assessee case even when the assessee had clearly failed in maintaining he documentation as required under section 92D(3) of the act. 2. Whether in the facts and circumstances of the case and in law, the CIT(A) was right in arriving at the conclusion that the TPO could have tried to work out the gross profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO from determining the ALP in the assessee s case. 4. But, the assessee contended that nature of diamond industry and the difficulties faced in maintaining the segmental results in respect of AE Non AE can be analyzed. The assessee filed a note and in the said note the assessee has explained various technical aspects in respect of rough diamonds and polished diamonds, manufacturing process and aspects related to assortment of diamonds before and after manufacturing are discussed. The assessee has further stated that due to mixing and remixing of diamonds for the purpose of sales it is not possible to identify the source of diamond sold and exact cost of the product sold which prevents the assessee to bifurcate the transactions with third parties AE and also to prepare separate segmental accounts. It was contended, in the light of this note, the segment reporting as per AS 17 which are available in the Annual Report based on geographical segment. The segmental report based on geographical segment has no relevance in determining ALP of the international transactions as such report does not have any data related to the AE on standalone basis. The assessee also claimed that exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 02.08.2018. We noted that this issue has been deliberated by Hon ble in the case of Dilipkumar V. Lakhi (supra) vide Para 8 as under: 8. Having perused the material on record and after hearing both the parties vis- -vis the decision of the co-ordinate Bench of the Tribunal in the case of ACIT vs. D Navinchandra Exports Pvt. Ltd. (supra), we observe the identical issue has been decided by the Bench in favour of the assessee. The operative part of the decision is as under: 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 indepth 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 tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the international transactions of the assessee with its AEs, rather went ahead and levied penalty under Sec. 271G in the hands of the assessee. We are not impressed with the 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 carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the TPO without understanding the intricacies of the diamond manufacture and trading business, 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 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 here in above, but however, in the backdrop of our aforesaid observations, we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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