TMI Blog2021 (5) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... n a dispute. On this plank itself the order of learned CIT(A) is not sustainable. Moreover the issue of case laws will arise after learned CIT(A) duly deals with facts and issues, which he has failed to do. In this connection we refer to the decision of Hon'ble Supreme Court in the case of Kapurchand Shrimal [ 1981 (8) TMI 2 - SUPREME COURT] wherein held that it is the duty of the appellate authority to correct the error in the order of the authorities below and remit the matter with or without direction unless probable by law. Hence in the interest of justice, we vacate the order of learned CIT(A) and set aside the issue to the learned CIT(A). CIT(A) shall pass a proper and speaking order after giving the assessee proper opportunity of being heard. Assessee is at liberty to canvas the issue at it deems fit - Appeal by the Revenue stand allowed for statistical purpose. - I.T.A. No. 3104/Mum/2019 - - - Dated:- 1-2-2021 - Shri Shamim Yahya (AM) And Shri Ramlal Negi (JM) For the Assessee : Shri K Vaidya Lingam For the Department : Shri Gurbinder Singh ORDER PER SHAMIM YAHYA (AM) :- This is an appeal by the Revenue against the order of learned Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 351,32,76,616 TNMM 2 Import of cut and polished diamonds Kapu Gems Ltd. 58,58,340 TNMM 331,91,34,956 The Assessing Officer noted that it is seen from the following are the total purchases and sales effected by the assessee with AE during A.Y. 2013-14 :- Total Sale of Cut Polished Diamonds = ₹ 718,74 crores Sale of Cut Polished Diamonds (AE) = ₹ 331.33 crores Purchase of Cut Polished Diamonds = ₹ 690.71 crores Purchase of Cut Polished Diamonds(AE) = ₹ 0.58 crores That the sale of assessee to AE is about 46% of turnover and purchase of assessee from AE is about 0.08% of total purchase. The assessee m its transfer pricing study report has followed TNNM method for the purpose of benchmarking. Operating profit/Total Cost has been used as Profit Level Indicator (PM). For the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions is adjusted to take into account the differences, if any, between the international transaction 55c[or the specified domestic transaction] and the comparative uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive 3t an arm's length price in relation to the international transaction 55c[ or the specified domestic Transaction]; 5. The Assessing Officer was of the opinion that as per above rule, the net profit margin realized by the assessee from international transactions has to be ascertained in relation to cost incurred or sale or any other relevant base. That this net profit margin can be compared with the net profit margin realized by the assessee itself in its transaction with unrelated parties or with the transactions entered into by the unrelated parties in comparable uncontrolled transactions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That with this background in mind, the TPO vide questionnaire issued along with notice u/s 92CA(2)dated 01.02.2016 had at query no.2 called for details of transfer pricing study documentation as prescribed under rule 10D(l). Also notice u/s 92D(3) was issued on U.06.2016 requesting assessee to file the relevant details regarding Transfer pricing as called for vide notice u/s. 92CA(2) Of the I.T. Act. But, the assessee had failed to furnish the same not only in its Transfer Pricing study report but also failed to provide details of such comparable transactions even during subsequent Hearings. Therefore, during the course of TP proceedings the TPO had required the assessee s aurthorised representative to furnish per carat purchase price and sale price separately for AE and non-AE segments alongwith complete tabulation of purchases and sales made with AEs and non-AEs with carats and volume and also invoice copies for purchases arid sales made with non-AEs. Besides, the assessee was also required to provide separate segmental profit for AE and non-AE segments. In response, the authorized representative of the assessee furnished a written submission giving separate AE and non-AE segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be applied. Hence, the TPO was constrained from benchmarking the transactions properly and has to admit the transactions of assessee to be at arm's length in its order. Hence, it was found that the assessee had failed to maintain the documentation as required under clause (g) and clause (hi) of Rule 10D(1) of the Income Tax Rules, 1962. Taking the above into consideration, penalty proceedings u/s 271G of the Income Tax Act. 1961 were initiated by the TPO vide notice dated 31-10-2016 and the same was mentioned at para 6 of the transfer pricing order passed u/s 92CA(3) dated 3l-10-2016. 12. Thereafter Assessing Officer referred to section 92D 92(3) and Rule 10D. Section 92D of Income Tax Act, 1961 deals with maintenance, keeping of information and document by persons entering into an international transaction. Section 92D(1) of Income Tax Act, 1961 prescribes that: Even person who has entered into an international transaction [or specified domestic transaction] shall keep and maintain such information and document in respect thereof, as may be prescribed. 13. The details of documents in this regard are prescribed in rule 10D of income Tax rules. Section 92C(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions [or the specified domestic transactions, as the case may be]; f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise; g) documents normally issued in connection with various transactions under the accounting practices followed. 14. Hence the Assessing Officer opined that the assesses is required to maintain as per sub rule 1(d), the details of property transferred 'or services provided and the quantum and value of each such transaction or class of transaction and as per Sub-Rule l(d), it is required to maintain data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arm's length price. That accordingly, the TPO had with notice u/s 92CA(2) dated 24-12-2015, required the assessee to submit the following information/documents: 2(i) Under Rule 10D(1) of the I.T. Rules, you are required to (maintain the information /documents listed as items (a) to (in) in Rule 10D(1). Please furnish copy of information/documents maintained by you for each of these items (a) to (m). If for any item, no information/documents have beer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0D(1), the assessee is required to maintain a record of the analysis performed to evaluate comparability of uncontrolled transaction with the relevant international transaction. But the assessee had failed to comply with the said provision. To support this the Assessing Officer observed that in submission dated 22-06- 2016, wherein at page 4 of the Report on Transfer Price Study and Related Documentation the assessee had submitted as follows:- b) Diamonds are sold by their generic name and not by any brand. This product lacks homogeneity. Thus (i) Prima facie no transaction of purchase of sale or diamonds can be compared with another Transaction. (ii) It is not possible and practicable to find out the exact cost of transaction and hence resultant markup or net profit margin of particular transaction. ' c) Also diamond business world over is being done in the form of partnership firm, proprietary concern or private limited companies There are way few public listed companies in India and abroad so it is not difficult but rather impossible to have reliable, comparable and publically available database. 19. That by giving the above reasoning, the assessee had faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not furnished within 30 days or even till passing of transfer pricing order or at any time subsequently. The details were essential for benchmarking the transaction of the assessee with AE. The assessee could also not provide any alternate method of benchmarking the transaction based on material available on record. In the absence of material the TPO was forced accept the transactions to be at arm s length after initiating penalty proceedings under section 271G of the Income Tax Act, 1961. Accordingly the Assessing Officer levied the penalty of ₹ 6,63,87,700/- under section 271G. 24. Against the above order, assessee appealed before learned CIT(A). Learned CIT(A) referred the provisions of section 271G and 273B of the Act. Thereafter without discussing the fact of the case, the Assessing Officer s finding, leave alone dealing with then, he laconically deleted the penalty by holing as under:- The appellant also cited orders of Hon. IT AT and to make a case against the imposition of penalty. They include (a) AQT-5(1)(2), Mumbai vs. M/s. D Navinchandra Exports Pvt. Ltd. (ITA No. 6303 and 6304/Mum/2016) dated 25.10.2017, DC1T-5(2)(1) vs. Inter Jewel Pvt. Ltd. (ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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