TMI Blog2018 (8) TMI 1778X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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’. - Decided against revenue - IT(TP)A No.2142/Mum/2017 Assessment Year : 2011-12 - - - Dated:- 2-8-2018 - Shri Mahavir Singh And Shri Rajesh Kumar, JJ. Appellant By: Shri V Jenardhanan Respondent By: Shri Subhash S Shetty ORDER Per Rajesh Kumar, The aforesaid appeal has been filed by the Revenue against the impugned order, dated 30.11.2016, passed by the CIT(A)- 55, Mumbai, for the assessment year 2011-12. 2. The Revenue has raised the following grounds of appeal: 1. Whether CIT(A) was correct in deleting the penalty levied u/s 271G by holding that the assesses had made substantial compliance, failing 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 CIT(A) is not vitiated for the reason that the CIT(A) has not given any finding on how the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of comparison, the assessee has compared its entity level margins (14.72%) with that of comparable companies margin (9.55%) and claimed that the transactions are at arm s length. The entry level margins of assessee included its combined profit in transactions with AEs and non-AEs. The TPO called upon the assessee to submit segmental profitability separately from AE and non-AE segment. Accordingly, the details had been called for by the TPO within the meaning of section 92D(3) of the Income tax Act, 1961. The details are relevant within the provisions sub clauses (d), (g) and (h) of Rule 10D(1) of the I.T.Rules. The assessee failed to submit the details and, therefore, TPO came to the conclusion that it is a fit case for levy of penalty u/s 271G of the I.T.Act. He thus, levied penalty of ₹ 56,72,162/- being 2% of the international transaction with the AE by holding and observing as under: a)The TPO has called for specific details within the meaning of section 92D(3) of Income Tax Act, 1961. b)The details were not filed within 30 days or at any time subsequently. c)The details were essential for benchmarking the transaction of assessee with AE. d)The assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 trading of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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 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 agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 observations, we are of the considered view that the failure to the said extent on the part of the assessee to comply with the direct ions 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 find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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