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2019 (10) TMI 290

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..... by us in the preceding paragraphs. The Ld. first appellate authority, while deleting the penalty, relied upon the binding judicial decision of Hon’ble Delhi High Court rendered in CIT Vs. M/s. Leroy Somer & Controls (India) Pvt. Ltd. [2013 (9) TMI 761 - DELHI HIGH COURT] and other decision of the Tribunal rendered on similar factual matrix. We also find that similar factual matrix stood covered in assessee’s case by the recent decision of coordinate bench of this Tribunal rendered in DCIT V/s Leo Schachter Diamonds India Pvt. Ltd [2019 (3) TMI 690 - ITAT MUMBAI] - no infirmity in the impugned order in deleting the penalty u/s 271G. - Decided in favour of assessee. - IT(TP)A. No.6446/Mum/2016 - Dated:- 3-10-2019 - Shri Saktijit Dey, JM And Shri Manoj Kumar Aggarwal, AM For the Appellant : Shri Jayant Kumar-Ld. CIT-DR For the Respondent : Dr. K.Sivaram and Shri Shashank Dundu ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. By way of this appeal, the revenue is contesting the correctness of decision of Learned Commissioner of Income Tax (Appeals)-56, Mumbai, [in short referred to as CIT(A) ], Appeal No. CIT(A)-56/ACIT 5(2)(1)/2015- 16/112-K dated 20/07/2016 in del .....

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..... nds. During the process of manufacturing, a semi manufactured diamond would be assorted many times and handled by many craftsmen. Various direct and indirect expenditure would be incurred at various stages of manufacturing process and the rough diamond would ultimately lose its identity as to source of purchase due to inherent nature of diamond manufacturing process. Therefore, due to peculiar nature of the product and constant mixing and re-mixing of diamonds obtained from AEs and non-AEs, it would not be feasible to maintain records to determine segmental profitability to work out internal TNMM. Reliance was placed on several judicial pronouncements, as extracted in the impugned order, to submit that the penalty was unjustified. 3.2 The learned CIT(A), concurring with assessee s submissions, deleted the penalty by observing as under: - 6. Decision: I have carefully considered the facts of the case, contentions of the TPO and submissions of the appellant & the detailed analysis is discussed herein below: The TPO levied penalty u/s.271G on the ground that the appellant failed to furnish information called for. The TPO mentioned that the appellant inappropriately applied the TNM .....

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..... nufacturing. Resultant, a rough diamond loses its identity as to source of purchases due to inherent nature of diamond manufacturing process. b. The Appellant humbly submits that due to the peculiar nature of the product and constant mixing and re-mixing of the diamonds obtained from AE/non-AE, it faces constant challenge of identifying the origin of that rough diamond from which the finished cut and polished diamond is obtained. Due to such factors, it is therefore not feasible to maintain records to determine segmental profitability to work out internal TNMM. Brief mention of such factors are given below: > Various categories of rough diamonds purchased and utilized for manufacturing. There is no uniformity in product classification of rough diamonds. Further, Assortment & mixing of rough diamonds result in non-feasibility to track the source of cost of each piece of rough diamond. > There is no defined standard input output ratio in manufacturing of polished diamonds from rough diamonds. Further, manufacturing processes result in multiple pieces of polished diamonds from single piece of rough diamond based on yield varied from 10% to 55%. Diamond manufacturing is a mul .....

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..... iamonds of varying sizes and shapes and colours and weights (carats). Diamonds are weighed in carats and one gram is equal to 5 carats. Thus diamonds get cut and polished lot wise and even if each lot of rough diamonds is presorted before giving it for cutting and polishing, the polished diamonds are likely to vary in size, shape, size, colour and weight. 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 one unique piece which may be required for the ring or for centre of the necklace. Hence a diamond manufacturer is continuously required to sort out rough diamonds before giving for cutting and polishing which is done in stages and also 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 polished diamonds. It is also worth mentioning here that normally polished diamonds of hi .....

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..... ifficult for the trader to identify each rough diamond piecewise unless the rough diamond is exceptionally of high carat value by weight and similarly, it is also difficult to identify each cut and polished diamond vis-a-vis the original rough diamond from which it was cut and polished. The TPO asked for details of PLI- Profit Level Indicator, that is, segment wise Profit and Loss Account of the AE segment and non-AE segment in respect of export of goods as well as local sales to arrive at arms-length price in respect of international transactions. Appellant explained the difficulties to the TPO in various letters described earlier, however, the TPO merely accepted the arms-length price as it is and initiated the penalty proceedings under section 271G of I.T.Act, 1961. The TPO could have tried to work out the gross profits and net profits by averaging the purchase prices and the expenses in proportion of export sales of each one of the three segments, as has been done by the appellant during penalty proceedings to arrive at average profitability of each segment and then to compare the same with the average profitability of other public/private companies whose details were made avai .....

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..... appeal on the subject of penalty u/s. 271G supports this stand fully. Inter alia, the Hon'ble High Court after discussing the provisions of 92D, 271G & Rule 10D states as under: "The tribunal has rightly concluded that with such a broad rule, which requires documentation and information voluminous and virtually unlimited, Section 271G has to be interpreted reasonably and in a rational manner..................................... When there is general and substantive compliance of the provisions of Rule 10D, it is sufficient.............................The documentation or information should be one specified in Rule 10D, which has been formulated in terms of section 92D(1) of the Act. Looking from any quarter and angle, the appeal of the Revenue is misconceived, totally lacking in merits and is, therefore, dismissed". The appellant has also cited the below mentioned decision of Hon'ble ITAT which is as under: The following observations of Hon'ble ITAT Bench "B", Chennai in the case of DCITvs. Magick Woods Exports (2012) 32 CCH 0422 Chen. Trib, which had concluded that penalty u/s. 271G cannot be imposed where assessee proves that there was reasona .....

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..... sis of levying impugned penalty against the assessee is the fact that the assessee did not furnish internal TNMM by providing segmental profitability of AE and non-AE transactions. The same stood explained by the inherent nature of business being carried out by the assessee which has already been enumerated by us in the preceding paragraphs. The Ld. first appellate authority, while deleting the penalty, relied upon the binding judicial decision of Hon ble Delhi High Court rendered in CIT Vs. M/s. Leroy Somer & Controls (India) Pvt. Ltd. (37 Taxmann.com 407) and other decision of the Tribunal rendered on similar factual matrix. We also find that similar factual matrix stood covered in assessee s case by the recent decision of coordinate bench of this Tribunal rendered in DCIT V/s Leo Schachter Diamonds India Pvt. Ltd. (ITA No.5931/Mum/2017 order dated 28/02/2019) which in turn, inter-alia, placed reliance on the decision rendered in DCIT V/s Firestone International Pvt. Ltd. (ITA No. 5304/Mum/2016 dated 01/12/2018) and the decision of Jaipur Tribunal in ACIT V/s Gillette India Ltd. (54 Taxmann.com 313). Similar is the ratio of following decisions: - 1. ACIT vs. SSL-TTK (2012) 52 .....

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