TMI Blog2021 (2) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO under Sec. 271G - Decided against revenue. - ITA No. 2010/MUM/2019 - - - Dated:- 8-2-2021 - S. Rifaur Rahman, Member (A) And Ravish Sood, Member (J) For the Appellant : Sushil Kumar Mishra, D.R. For the Respondents : Nitesh Joshi, A.R. ORDER Ravish Sood, Member (J) The captioned appeal filed by the revenue is directed against the order passed by the CIT(A)-56, Mumbai, dated 09.01.2019, which in turn arises from the penalty order passed by the A.O. under Sec. 271G of the Income tax Act, 1961 (for short 'Act') for A.Y. 2013-14 dated 20.04.2017. The revenue has assailed the impugned order on the following grounds of appeal before us: 1. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the penalty u/s. 271G of the Income Tax Act, 1961 ignoring the facts that the assessee failed to furnish documents as required under the Rule 10D(1) and sub-section (3) of the section 92D of the IT. Act, 1961 in respect of the international transactions entered into by it? 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the penalty u/s. 271G without appreciating the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 4,93,611 6. Inter unit Transfer 122,94,52,678 Total 158,13,72,751 After considering the submissions of the assessee and the facts of the case, the TPO vide his order passed under Sec. 92CA(3), dated 31.10.2016 held the specified domestic transactions of the assessee as being at arm's length and did not make any adjustment. At the same time, the TPO observing that the assessee had failed to submit the segmental accounts regarding its AE and non-AE transactions, for the reason, that it had not maintained the documents as required under Sec. 92D(3) r.w. Rule 10D(3) of the Income Tax Rules, 1962, initiated penalty proceedings under Sec. 271G of the Act. 4. After the culmination of the assessment proceedings, the TPO holding a strong conviction that the deliberate withholding of information/documents by the assessee had thwarted the determination of the Arms Length Price (for short ALP ) in a fair manner as envisaged in Sec. 92AC of the Act, therein called upon the assessee to explain as to why penalty under Sec. 271G ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the TPO u/s. 271G of the Act. 6. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. Departmental Representative (for short 'D.R.') relied upon the penalty order passed by the TPO under Sec. 271G of the Act. It was averred by the Ld. D.R. that the fact that the specified domestic transactions of the assessee were accepted by the TPO as being at arm's length could not exonerate it from the penal provisions that were contemplated in the statute for non-maintenance of the information and documents under Sec. 92D r.w. Rule 10D(1) of the Income Tax Rules, 1962. It was submitted by the Ld. D.R. that as per Rule 10D(1)(g), an assessee who had entered into a specified domestic transaction remained under a statutory obligation to keep and maintain a record of uncontrolled transactions taken into account for analysing their comparability with the specified domestic transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transactions with third parties which may be of relevance to the pricing of such specified domestic transactions. It was further submitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be imposed under Sec. 271G of the Act. In support of his aforesaid contention the Ld. A.R. relied on the order of the ITAT, Mumbai, Bench 'K' in the case of ACIT, Mumbai, Vs. D. Navinchandra Exports Pvt. Ltd. (2017) 87 taxman.com 306 (Mum). It was submitted by the Ld. A.R. that the aforesaid order of the Tribunal had thereafter been upheld by the Hon'ble High Court of Gujarat in PCIT, (Central) Surat Vs. D. Naveen Chandra Exports P. Ltd. (ITA No. 788 of 2018, dated 09.07.2018). (copy placed on record). Further, it was submitted by the Ld. A.R. that now when no adjustment was made to the ALP of the specified domestic transactions entered into by the assessee with its AEs, no penalty under Sec. 271G could have justifiably been imposed. In support of his aforesaid contention reliance was placed by the Ld. A.R. on the order of the ITAT 'K' bench, Mumbai in CIT-5(2)(2) VS. Laxmi Diamond Pvt. Ltd. (ITA No. 2643/Mum/2017), dated 27.12.2018 AND DCIT-14(2)(1), Mumbai Vs. Leo Schachter Diamonds India P. Ltd. (2020) 116 taxman.com 994 (Mum). It was further submitted by the Ld. A.R. that no penalty under Sec. 271G could be imposed for failure to furnish information under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at length hereinabove, the aforesaid issue had came up before the Tribunal in the case of ACIT Vs. D. Navinchandra Exports Pvt. Ltd. (2017) 87 taxman.com 306 (Mum), wherein the Tribunal after exhaustive deliberations had inter alia observed that considering the practical difficulties in furnishing the segment wise details of AE segment and non-AE segment transactions in diamond industry, no penalty under Sec. 271G could justifiably be imposed for failure to furnish the said information. On a perusal of the order of the Tribunal, we find, that the Tribunal while dismissing the appeal of the revenue had observed as under: 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E transactions and non-AE transactions. However, as the assessee had not maintained separate books of accounts for AE and non-AE segments, therefore, it expressed its inability to furnish the details in the manner the same were called for by the TPO. We find that the TPO in the absence of the segmental breakup of the AE and non-AE transactions, therein concluded that it was prevented from benchmarking 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 informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re explained. 19. We find that the assessee had in the backdrop of the very nature of its business, viz. manufacturing of diamonds, had though explained to the TPO the practical difficulty in furnishing segment wise Profit loss account of the AE segment and the non-AE segment, however, the TPO insisted for the same and invoked Rule 10D of the Income-tax Rules, 1962, and instead of determining 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 pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed from 7.42% for A.Y. 2010-11 to 8.71% for the year under consideration, viz. A.Y. 2011-12, the Net profit had also witnessed a growth from 3.9% in the immediate preceding year to 4.9% during the year under consideration. We further find that as observed by the CIT(A) that in the preceding year, i.e. A.Y. 2010-11 the TPO did not propose any adjustment in the ALP. We are not inspired by the fault finding 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 sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
