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TMI Blog2019 (6) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law, the CIT(A) was right in arriving at the conclusion that 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 segments to arrive at average profitability of each segment and then to compare the same with the average profitability of other public companies whose details were available in public domain, when it was not possible to do so in the absence of proper documentation." 3. Brief facts are that the AO levied the penalty under section 271(1)(c) of the Act amounting to Rs. 5,90,73,838/- being calculated at the rate of 2% of the international transaction. The assessee has contended that the ratio of related party transaction is less than25% of the total transaction and thus segregation of transaction between AE and non AE shall not have significant impact on the operating margin. The assessee has relied on the decision of the ITAT in the case of Actis Advisors P. Ltd in ITA No. 5277/DeI/2011, wherein it is concluded that an entity can be taken as uncontrolled, if it is party transaction (RPT) do not exceed 25% of the total revenue. The contention of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such report does not have any data related to the AE on standalone basis. The assessee also claimed that external TNMM is the most appropriate method to benchmarking international transactions considering the nature of business of the assessee and such method being consistently followed by the company and the Tax Authorities. In this connection it is stated that the contention of the assessee is rejected as entity level profit in such cases does not represent the correct AE profit for the purpose of benchmarking the international transactions of the assessee and therefore comparison at entity level with other comparable is not justified because of which the assessee was asked to furnish segmental profitability of the AE and Non AE separately. 5. We noted that the CIT(A) has recorded the facts regarding the International transactions as under: - S. No. Nature of International Trasactions Amount in (Rs.) 1. Purchase/ sale of Rough diamonds 222,13,90,771/- 2. Purchase/ Sale of Polish Diamonds 72,23,01,139/- 3. Investment in shares 33,64,922/- 4. Loan given 54,87,169/- TPO issued notices under the TP provisions and asked the assessee to submit details and documents m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the assessee reflected a mixture of purchases and sales both from the AEs and the non-AEs. We are persuaded to be in agreement with the view of the CIT(A) that now when the rough/polished diamonds were traded on lot wise basis, therefore, it was difficult to identify and say whether a polished diamond came out of a particular lot of rough diamonds or the other and/or out of the polished diamonds purchased locally by the assessee. We find that the export bills of the cut and polished diamonds exported to the AEs and the non-AEs revealed that the diamonds of varying size, quality, colour and carat weight were exported as was evident from the price per carat charged in each bill, and similar would have been the position in respect of cut and polished diamonds purchased and sold locally and/or purchased from abroad but sold locally. We are of the considered view that in the backdrop of the aforesaid peculiar nature of the trade of the assessee, it could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onds 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. We also cannot be oblivious of the fact that even otherwise in the diamond trade line, unless a diamond would weigh half carat or more or one carat or more, the same would not be priced separately in the bill because it was not practical to price diamonds of weights of lower than half carat or one carat separately weight wise per diamond in the lot. We have deliberated on the aforesaid peculiar facts involved in the business of diamond trading and are of the considered view that the insistence of the TPO that the assessee should have followed CUP method was misconceived and impractical. We are in agreement with the CIT(A) that if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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