TMI Blog2017 (11) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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, 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 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 furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to note that under TNMM adopted by the assessee, the profit of the international transaction has to be furnished, whereas the assessee has only furnished the entity level margins which consists of overall profits on AE and significant non-AE transactions. 2. Whether the decision of the Ld. CIT(A) is not vitiated for the reasons that the Ld. CIT(A) has not given any finding on how the assessee has complied with clause (d), (g), (h) and (m) of Rule 100(1), that have been specifically invoked by the TPO. 3. Whether the Ld. CIT(A) was not correct in stating that the TPO should have asked for copies of profit and loss accounts and balance sheets of AE's to make an overall comparison with the gross profitability levels of the assessee with AE's to ascertain diversion of profits, if any ignoring the finding of the Hon 'ble ITA T in the case of Aztec Software Technology Services Ltd. vs. ACIT (ITA No. 584/Bang/2006), in which it has been held that there is no legal requirement for the AO to prima fade demonstrate tax avoidance before invoking the provisions of section 92 and 92CA of the Act. 4. The Id. Ld. CIT(A) erred in holding that there was reasonable cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Export of rough diamonds 1,12,87,163 3. Export of finished/polished diamonds 55,16,14,316 4. Purchase of polished Diamonds 8,34,997 Total 107,99,26,354 3. During the course of the proceedings it was noticed by the TPO that the assessee during the year under consideration had a total turnover of ₹ 532.97 Crores, out of which export sales amounted to ₹ 493.79 Crores. That out of total export sales the assessee had carried out sales to the AEs of ₹ 56.29 Crores. The TPO further observed that the assessee had made total purchases of ₹ 478.80 Crores during the year, which comprised of imports made by the assessee of ₹ 442.04 Crores. The TPO deliberating on the records observed that the assessee had during the year under consideration carried out purchase of rough/polished diamonds from the AEs to the extent of ₹ 59.70 Crores. Thus, in the backdrop of the aforesaid facts it was gathered by the TPO that the sales of the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not be imposed on it. 5. The TPO in the course of the penalty proceedings observed that the arms length price (for short ALP ) in relation to an international transaction was to be determined as per either of the methods contemplated in Sec. 92C(1) r.w Rule 10B, which in the backdrop of the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or other relevant factors as the Board may prescribe, namely: (i). Comparable Uncontrolled Price method; (ii). Resale Price Method; (iii).Cost Plus Method; (iv). Profit Split Method; (v). Transactional Net Margin Method; (vi). Such other method as may be prescribed by the Board. That in the backdrop of the fact that the assessee himself had selected the TNMM as the most appropriate method, the TPO therefore deliberated on Rule 10B(1)(e) which prescribed the methodology for determining the ALP as per the said method. The TPO observed that in order to find out 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, the separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of information and documents by persons entering into international transactions, therein observed that as per Sec. 92D(1) every person who had entered into an international transaction remained under a statutory obligation to keep and maintain such information and documents as are prescribed in Rule 10D. The TPO further observed that as per Sec. 92D(3) powers were vested with him to call for details in respect of international transactions and other relevant details from the assessee. 7. The assessee in its reply to the show cause notice issued by the TPO as to why penalty under Sec. 271G may not be imposed on it, therein objected to the same, as under: (1). That as per the assessee the maintaining of the details as per Clause (g) and (h) of Rule 10D was not called for in the case of the assessee, as the same would have been required only if the assessee would had followed CUP method for benchmarking the transactions; (2). That as per the assessee the Rule 10D nowhere required the assessee to have PLI working of AE segment and non AE segment and only prescribed the details of documents which were required to be maintained. It was the contention of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee adopting CUP basis, and there was no such requirement now when the assessee had benchmarked the transactions on TNMM basis, however, did not find favour with the TPO. The TPO observed that a perusal of Rule 10B(1)(e) wherein the methodology for benchmarking the transactions as per TNMM basis was prescribed, clearly provided that in order to find out 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, the separate segmental results of the assesses transactions with AEs and non-AEs were mandatorily required and could not be dispensed with. Rather, the TPO observed that the requirement to maintain the details as contemplated under Rule 10D(1)(g) and Rule 10D(1)(h) were relevant for all five methods of benchmarking prescribed under Rule 10B(1) of the Income-tax rules, 1962. (2). That as regards the claim of the assessee that Rule 10D nowhere required the assessee to have PLI working of AE and non-AE segment, the TPO observed that the aforesaid rule only prescribed the details of documents to be maintained and did not prescribe the method by which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business solutions (supra), it was observed by the TPO that unlike the facts involved in the case of the present assessee, in the said case the information furnished by the assessee was sufficient for the authorities to conclude that the transactions of the assessee with its AE were within arms length. (7). That as regards the thrust of the assessee on the fact that as it had provided segmental details of the AE and non-AE transactions, therefore, no penalty under Sec. 271G was called for in its hands, the TPO observed that as the assessee had allocated the majority costs including the raw material cost on the basis of sales, therefore, there was hardly any variance between the margins shown in the case of the AE and non-AE transactions. The TPO thus not inspired by the basis of benchmarking adopted by the assessee, thus, declined to rely on the same. (8). That as regards the reliance placed by the assessee on the judgment of the Hon ble High Court of Delhi in the case of Cargill India Pvt. Ltd. Vs. Dy. CIT [300 ITR 223 (Del)], the TPO observed that in the said case the Tribunal had dealt with sub-clauses (e) and (k) of Rule 10D(1) and Rule 10D(3), which were distinguishable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by not providing the requisite details therein 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. The CIT(A) observed that the TPO had observed that the aforesaid failure of the assessee to provide requisite data/information as called for by him in order 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. The CIT(A) observed that the TPO on the basis of his aforesaid observations had imposed a penalty of ₹ 2,15,98,527/- @2% of the international transactions on the assessee. 10. The CIT(A) deliberated at length on the submissions raised by the assessee before him. The CIT(A) in all fairness in order to appreciate the contentions of the assessee, therein gave a thoughtful consideration to the nature of the diamond business, and observed as under: ( B). The Nature of Diamond Business world over: Diamond business involves fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spread across the globe to various customers who are mainly jewellery manufacturers. D. Peculiarities of Products and Business: ( a). In the diamond business world over , there are estimated to be 8000 to 10000 different qualities of diamonds. The price of a diamond depends on various factors such as shine, luster, size, color, clarity, purity, cluster, cartage etc. In fact, no two diamonds can have same price. Also no two diamonds businessman may value the same piece of diamond at the same price as valuation also depends upon the perception of individual businessman. In view of this one can say that normally there are no comparable prices and prices of diamonds. Also at each stage in diamond business i.e from mine owners to distributors to manufacturer/exporter and ultimately to customer or distributor of polished diamonds, the goods are assorted , mixed-remixed quite a number of times and hence each piece of diamond looses its identity as to the source. ( b). Diamonds are sold by their generic name and not by any brand. This product lacks homogeneity, Thus, ( i). Prima facie no transaction of purchase and sale of diamonds can be compared with any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lour and weight. The CIT(A) further deliberating on the peculiar nature of the trade, therein observed that normally diamonds are exported and sold locally in lots and/or by weight of similar size and colour because these diamonds are then used by diamond jewellery manufacturers in the manufacture of diamond jewellery which requires diamonds of similar size, shape and colour while designing and making jewellery, except for in a case where one unique piece may be required to be embedded in a ring or in the centre of a necklace. Thus, in the backdrop of the aforesaid facts the CIT(A) observed that a diamond manufacturer is continuously required to sort out rough diamonds before giving for cutting and polishing which is done in stages, as well as sort out polished diamonds when the lots of cut and polished diamonds are received from the cutters and polishers to make lots of similar sizes, colours, shapes and weight before selling/exporting the same. The CIT(A) in the backdrop of the aforesaid facts, coupled with certain other facts, viz. diamonds of higher carat weight command higher prices if other factors like size, colour and shape are same and/or similar and if there is variation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said factual position as so emerged, the CIT(A) observed that a similar position would had prevailed in respect of cut and polished diamonds purchased and sold locally and/or purchased from abroad but sold locally. The CIT(A) on the basis of his aforesaid observations concluded that the crux of the matter was 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 making the tracing out and identification of the polished diamond physically possible and convenient. Thus, the CIT(A)observed that it was extremely difficult for a diamond trader to identify each rough diamond piece wise, unless the rough diamond is of exceptionally high carat value by weight and similarly, it was also difficult to identify each cut and polished diamond vis- -vis the original rough diamond from which it was cut and polished. 13. The CIT(A) in the backdrop of the very nature of the business of the assessee, viz. manufacturing of diamonds, therein observed that the assessee had explained to the TPO the practical difficulty in furnishing segment wise Profit loss ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if the TPO should have carried out a comparison of the Profit loss account and Balance Sheets of the AEs, as 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. 14. The CIT(A) further observed that the nature and level of business of the assessee during the year under consideration had increased almost two fold, while for the gross profits had also increased from 7.42% for A.Y. 2010-11 to 8.71% for the year under consideration, viz. A.Y. 2011-12 and the Net profit of the assessee had also witnessed a growth from 3.9% in the immediate preceding year to 4.9% during the year under consideration. The CIT(A) also observed that in the preceding year, i.e A.Y. 2010-11 the TPO did not propose any adjustment in the ALP. The CIT(A) was also not inspired by the fault finding approach adopted by the TPO, without understanding the intricacies of the diamond manufacture and trading business. The CIT(A) observed that the TPO instead of determining the arms length price by asking for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sec. 271G had rightly been imposed. The ld. D.R submitted that as the CIT(A) had erred in deleting the penalty imposed by the TPO under Sec. 271G, therefore, the order passed by the CIT(A) may be set aside and that of the TPO be restored. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king various transactions, and for the said failure of the assessee to furnish the requisite details had initiated penalty proceedings under Sec. 271G in the hands of the assessee. We find that the TPO 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 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 manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the arms length price 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding approach adopted by 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 hereinabove, but however, in the backdrop of our aforesaid ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. 4. The Id. Ld. CIT(A) erred in holding that there was reasonable cause for non compliance of sec. 92D r/w Rule 10D(1) without specifying the cause of such non compliance or demonstrating how the same was reasonable. 5 . The Ld CIT(A) erred in deleting the penalty for the reason that no adjustment was made to the ALP, failing to note that by not producing the material documents necessary to determine the ALP under any of the prescribed methods u/s 92C(1), the assessee effectively prevented the TPO to make any determination as recorded by the TPO in para 5 of the order u/s 92CA (3). 6. Whether the order of Ld. C!T(A) is not vitiated due to inherent contradictions in the order, as the CIT(A) states at para (C) at page 20 of the order that only likes are to be compared whereas, at para 10, page 23, the Ld. CIT(A) blames the TPO for not having compared average realization per carat of AE and non-AE, when penal ty has in fact been imposed as assessee failed to make intensive comparison of AE and non- AE prices. 7. Whether the Ld. CIT(A) was correct in holding that the TPO could have worked out the profitability of AE segment by allocating all costs of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid facts it was gathered by the TPO that the sales of the assessee to its AE s were to the extent of 4% of its turnover, while for the purchases made from the AE s were to the tune of 40% of the total purchases. The TPO observed that the Transfer pricing study report (for short TPSR ) of the assessee revealed that it had followed the Transaction Net Margin Method (for short TNMM ) for the purpose of benchmarking the international transactions carried out with its AE s. The Operating profit/Operating cost was adopted by the assessee as the Profit Level Indicator (for short PLI ). The TPO observed that the assessee had for the purpose of comparison compared its entity level margins (5.81%) with that of comparable companies margin (3.44%), and in the backdrop of the said comparison claimed that the transactions were at arms length. The TPO observed that the entity level margins of the assessee included its combined profits in transactions with the Associate Enterprises (for short AEs ) and non Associate Enterprises (for short non-AEs ). 24. The TPO in order to verify as to whether the transactions entered into by the assessee with its AEs were at arms length with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at arms length with that entered into by the third party in comparable situation with independent parties, the separate segmental results of the assesses transactions with AEs and non AEs were indispensably required. The TPO also not inspired by the benchmarking carried out by the assessee on the basis of entity level margins, observed that in such a case the loss in transactions with AE segment could easily be set off with the profits of the non-AE segment. The TPO thus held a conviction that a correct benchmarking could not be carried out unless the assessee submits correct margins in respect of transactions with AEs and non-AEs. Thus, in the absence of the segmental details in respect of AE and non-AE segments having been furnished by the assessee, it was observed by the TPO that the non-availability of the said data therein rendered the entire exercise of benchmarking the transactions futile. The TPO in order to drive home his aforesaid view that entity level benchmarking does not lead to correct results and the same will not stand the test of Rule 10B(1)(e), relied on the orders of the Tribunal in the case of (i). UCB India Vs. ACIT 121 ITD 131 (Mum); (ii). Aztec Software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein perused the nature of the business of manufacturing and trading of diamonds of the assessee, as well as certain other aspects, viz. (i) that the assessee had substantially complied with the directions of the TPO and had furnished requisite details, to the extent the same was practically possible in the backdrop of the very nature of its trade; (ii). it was not practicable for the assessee to have benchmarked its transactions by following CUP method; (iii). the TPO keeping in view the practical difficulties in the backdrop of the nature of trade of the assessee should have made a comparison of the Profit loss a/c, Balance sheets of the AEs, which would have revealed overall gross profit margins vis- -vis the gross profit margins earned in their businesses to reveal levels of profitability; and (iv). that the TPO had not made any adjustment to the arms length price in the case of the assessee for the immediate preceding year, therefore, concluded that no penalty under Sec. 271G was liable to be imposed in the hands of the assessee. The CIT(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the gross profitability levels of the assessee with AE's to ascertain diversion of profits, if any ignoring the finding of the Hon 'ble ITA T in the case of Aztec Software Technology Services Ltd. vs. ACIT (ITA No. 584/Bang/2006), in which it has been held that there is no legal requirement for the AO to prima fade demonstrate tax avoidance before invoking the provisions of section 92 and 92CA of the Act. 4. The Id. Ld. CIT(A) erred in holding that there was reasonable cause for non compliance of sec. 92D r/w Rule 19D(1) without specifying the cause of such non compliance or demonstrating how the same was reasonable. 5. The Ld CIT(A) erred in deleting the penalty for the reason that no adjustment was made to the ALP, failing to note that by not producing the material documents necessary to determine the ALP under any of the prescribed methods u/s 92C(1), the assessee effectively prevented the TPO to make any determination as recorded by the TPO in para 5 of the order u/s 92CA (3). 6. Whether the order of Ld. C!T(A) is not vitiated due to inherent contradictions in the order, as the CIT(A) states at para (C) at page 23 of the order that only likes are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th ₹ 8.46 Crores from its AEs. The TPO observed that the Transfer pricing study report (for short TPSR ) of the assessee revealed that it had followed the Transaction Net Margin Method (for short TNMM ) for the purpose of benchmarking the international transactions carried out with its AE s, and had submitted a list of 10 diamond manufacturing and trading companies with the OP/TC margins and had arrived at an average mean margin of 3.44% against its own OP/TC of 4.81%. The TPO observed that the assessee in the backdrop of the aforesaid comparison claimed that the transactions were at arms length. The TPO observed that the entity level margins of the assessee included its combined profits in transactions with the Associate Enterprises (for short AEs ) and non Associate Enterprises (for short non-AEs ). 33. The TPO 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, therein issued a notice u/s 92CA(2) along with a questionnaire to the assessee on 22.05.2012, therein calling upon it to submit documents mentioned as per R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egment. The TPO thus held a conviction that a correct benchmarking could not be carried out unless the assessee submits correct margins in respect of transactions with AEs and non-AEs. Thus, in the absence of the segmental details in respect of AE and non-AE segments having been furnished by the assessee, it was observed by the TPO that the non-availability of the said data had therein rendered the entire exercise of benchmarking the transactions futile. The TPO in order to drive home his aforesaid view that entity level benchmarking does not lead to correct results and the same will not stand the test of Rule 10B(1)(e) relied on the orders of the Tribunal in the case of (i). UCB India Vs. ACIT 121 ITD 131 (Mum); (ii). Aztec Software Technology Services Ltd. (2007) 107 ITD 141 (Bang) (SB) and OECD TP guidelines. Thus, the TPO in the backdrop of his aforesaid observations called upon the assessee to furnish the requisite details in terms of Sec. 92D(3). However, the assessee once again expressed its inability to furnish the requisite information for certain reasons, viz. (i). that no separate books of accounts for AE and non-AE transactions were maintained; (ii). functions perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the backdrop of the nature of trade of the assessee should have made a comparison of the Profit loss a/c, Balance sheets of the AEs, which would have revealed overall gross profit margins vis- -vis the gross profit margins earned in their businesses to reveal levels of profitability; and (iv). that the TPO had not made any adjustment to the arms length price in the case of the assessee for the immediate preceding year, therefore, concluded that no penalty under Sec. 271G was liable to be imposed in the hands of the assessee. The CIT(A) on the basis of his aforesaid observations deleted the penalty of ₹ 66,62,528/- imposed by the TPO under Sec. 271G. 38. The revenue being aggrieved with the order of the CIT(A) deleting the penalty of ₹ 66,62,528/- imposed by the TPO under Sec. 271G in the hands of the assessee, had carried the matter in appeal before us. We find that as the facts and the issue involved in the present case before us are the same as were involved in the appeal of the revenue in the case of M/s Navinchandra Exports Pvt. Ltd., Mumbai, for A.Y. 2011-12, marked as ITA No. 6304/Mum/2016, therefore, our order passed while disposing of the said appeal, viz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 92D r/w Rule 10D(1) without specifying the cause of such non compliance or demonstrating how the same was reasonable. 5. The Ld CIT(A) erred in deleting the penalty for the reason that no adjustment was made to the ALP, failing to note that by not producing the material documents necessary to determine the ALP under any of the prescribed methods u/s 92C(1), the assessee effectively prevented the TPO to make any determination as recorded by the TPO in para 5 of the order u/s 92CA (3). 6. Whether the order of Ld. C!T(A) is not vitiated due to inherent contradictions in the order, as the CIT(A) states at para (C) at page 20 of the order that only likes are to be compared whereas, at para 10, page 23, the Ld. CIT(A) blames the TPO for not having compared average realization per carat of AE and non-AE, when penal ty has in fact been imposed as assessee failed to make intensive comparison of AE and non- AE prices. 7. Whether the Ld. CIT(A) was correct in holding that the TPO could have worked out the profitability of AE segment by allocating all costs of expenses to AE and non-AE segment in the ratio of AE sales to non AE sales failing to note that such a determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 issued a notice u/s 92CA(2) along with a questionnaire to the assessee on 24.07.2014, therein calling upon it to submit documents mentioned as per Rule 10D(1) and 10D(3) of the Income tax Rules, 1962 along with other specific details. That on change of incumbent a fresh notice was issued by the TPO vide his letter dated 16.09.2014. The TPO further examining the details and documents available on record, called upon the assessee to submit the segmental profitability for AE transactions and non-AE transactions, and in case if the same was not available then to furnish per carat realization for AE and non-AE. The assessee expressed its inability to furnish details in the manner the same were called upon by the TPO, for the reason that it had not maintained separate books of accounts for AE and non-AE segments. The assessee further submitted that only a wide range of profit was available for per carat realization and not actual figures. The TPO in the absence of the aforesaid information concluded that he was prevent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of benchmarking the transactions futile. 44. That on the failure on the part of the assessee to furnish the requisite details, the TPO issued a Show cause notice (for short SCN ), dated. 13.07.201, to the assessee, therein calling upon it explain as to why penalty under Sec. 271G may not be imposed on it for nondocumentation of data relevant to determination of ALP, which thus had resulted to violations of clauses (g) (h) of Rule 10D of the Income-tax Rules, 1962. The assessee submitted its replies vide letters dated. 20.07.2015 and 22.07.2015. The TPO deliberating on Sec. 92 of the Act which deals with maintenance, keeping of information and documents by persons entering into international transactions, therein observed that as per Sec. 92D(1) every person who had entered into an international transaction remains under a statutory obligation to keep and maintain such information and documents as are prescribed in Rule 10D. The TPO further observed that as per Sec. 92D(3) powers were vested with him to call for details in respect of international transactions and other relevant details from the assessee. 45. The TPO after deliberating on the explanation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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