TMI Blog2019 (10) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gthy manufacturing process including assortment / re-assortment of rough diamonds and at initial stages, it would not be possible to forecast the final outcome of rough diamonds. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / re-assortment of rough diamonds as observed from the aforesaid flowchart. Thus, at the initial stage it is not possible to forecast the final outcome of rough diamond. During the process of manufacturing, a semi manufactured diamond is assorted many times and handled by many craftsmen. Various direct and indirect expenses are incurred during the course of manufacturing. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese are cut and polished. The process of cutting consists of pruning the edges, flattening the top and shaping the sides as to give the rough stone a final shape and then polish it. The entire process of cutting and polishing results in diamonds of different shapes and sizes depending upon the structure of the rough diamonds and the skills of the cutters and polishers of diamonds. Thus a lot of 100 carat of rough diamonds may usually yield 27% to 29% cut and polished diamonds 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tify which rough diamond got converted into which polished diamond specifically unless the single piece rough diamond happened to be of exceptionally high carat value and weight making the tracing out and identification of the polished diamond physically possible and convenient. Only indication about the size may come from the market price realised per carat unless each diamond is subjected to pre checking as done by the trader and manufacturer before selling and exporting to realise a better price per carat of the lot. Therefore, it is extremely difficult 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, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pliance with the requirements of filing all major information called for by the TPO for determination of the ALP and accordingly, the ALP was accepted by the TPO. Further, the appellant relied on the Hon'ble High Court of Delhi in the case of CIT vs. M/s. Leroy Somer Controls (India) Pvt. Ltd. which observed as under: The decision and observation of the Hon'ble High Court of Delhi in Income Tax Appeal No. 410/2012 (decided on 30.08,2013 in the case of CIT-2 vs. M/s. Leroy Somer Controls (India) Pvt. Ltd.), which confirmed the ITAT decision and dismissed the revenue 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the fact that levy of penalty under section 271G of I.T.Act, 1961 is itself deleted, other objections raised by the appellant before the TPO and in appeal are not considered relevant and are not discussed. In the result, the appeal of the appellant is Allowed. Aggrieved revenue is in further appeal before us. 4. We have heard and considered the rival submissions and deliberated on judicial pronouncements as cited before us. 5. Upon due consideration, the undisputed position that emerges is that the assessee has carried out certain international transactions during the year with its AE and benchmarked the same using TNMM method in its Transfer Pricing Study which has been accepted by Ld. TPO. The only basis 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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