TMI Blog2021 (5) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... f law. We find merit in the argument of the assessee as the TPO could have gone for its own determination of ALP of the international transactions by following one of the methods prescribed under the Act, however, the TPO has not done so. We find merit in the contentions of the assessee that once the TPO has accepted the bench marking of the assessee to be at Arm Length, the penalty under section 271G of the Act can not be levied. The case of the assessee finds support from the decision of the co-ordinate Bench of the Tribunal in the case of CIT v. Decent Dia Jewels (P.) Ltd. [ 2020 (3) TMI 603 - ITAT MUMBAI] wherein the Tribunal has held that where the TPO having accepted the bench marking of the assessee under TNMM, the imposition of penalty under section 271G of the Act was to be deleted under similar facts. Appeal of the assessee is allowed. - ITA No.3334/M/2019 - - - Dated:- 12-3-2021 - Shri Rajesh Kumar, Accountant Member And Shri Ram Lal Negi, Judicial Member For the Assessee : Dr. K. Shivaram, A.R. For the Revenue : Shri S. Desh Pande, D.R. ORDER PER RAJESH KUMAR, ACCOUNTANT MEMBER: The present appeal has been preferred by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the third parties during the year were out of rough diamonds purchased from the AE. According to the TPO the assessee has not prepared the audited segmental of AE and non AE based on actual transactions with the AE and non AE and thus the assessee has failed to prove that the diamonds sold to third parties were exclusively from rough diamonds purchased from the AEs. The assessee is carrying on the business of trading of rough diamonds. During the penalty proceedings a show cause notice under section 271G of the Act was issued to the assessee on 27.01.2016 calling upon the assessee as to why the penalty should not be levied for failure to furnish the documents called for under section 92CA read with section 92D(3) of the Act which was followed by another show cause notice dated 16.06.2016 calling upon the assessee as to why the penalty should not be levied for failure to comply with the provisions of section 92D(3) read with rule 10D(1) which was replied by the assessee vide written submission dated 19.07.2016 which are extracted by the TPO in para 7 of the penalty order. The TPO thereafter rejected the submissions of the assessee and came to conclusion that assessee has failed to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase and sale. If the assessee has transaction of purchases with the AE and sales are to non AE, then what is the operating profit margin, earned by the assessee vis-a-vis the profit earned in a situation when both purchase and sale are with non AE. Thus in the instant case the assessee has failed to produce segmental P/L A/c AE and non AE wise. b. Non furnishing of relevant details from benchmarking under CUP The appellant has used TNMM method at entity level to benchmark the transactions. The rule 10B(1)( e) indicates that for the purpose of application of TNMM, profit from the International Transactions alone has to be considered. The appellant has not furnished satisfactory details with evidence for the application of TNMM and has thus violated the rule 10B(1)(e). In the instant case CUP method should have been adopted to benchmark the assessee's transaction. However the qualitative details of AEs and non-AEs transactions and separate records of different quality have not been maintained by the appellant. The TPO has correctly concluded that the appellant, has applied TNMM deliberately and prevented the department from the benchmarking under CUP by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he international transactions and consequently proposed no adjustment to the international transactions. The Ld. A.R. also submitted that in case the TPO has not accepted the method for bench marking the transactions, the TPO could have gone for independent bench marking of international transactions with the AEs. The Ld. A.R. submitted that assessee has maintained all primary books of accounts/documents in respect of its business transactions with AEs and non AEs and it is due to practical difficulty in preparing the segment-wise profit and loss with AEs and non AEs in diamond industry and therefore the same could not furnished before the TPO as desired. Without prejudice to the above, the Ld. A.R. submitted that if the TPO was not satisfied with the bench marking of international transactions under TNMM, the TPO could have rejected the assessee s bench marking and determined the Arm Length Price of international transactions with the AEs independently by applying any of the prescribed methods, however, TPO has accepted the bench marking of the assessee under TNMM. The Ld. A.R. argued that when the TPO has accepted the bench marking of international transactions and also the metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arm Length Price and also the method followed in bench marking the international transactions as submitted by the assessee. The Ld. D.R. submitted that the assessee is under obligation to maintain its accounts in a prescribed format so that the information which placed before the TPO in that format and only then the TPO can make analysis and determine whether the Arm Length Price of international transactions by the assessee is correct or not. But in the present case the assessee has failed to maintain these records in terms of the provisions of the Act under section 92D(3) of the Act. The Ld. D.R., therefore, prayed that the appeals of the assessee may kindly be dismissed and order of Ld. CIT(A) may kindly be affirmed. 7. We have heard the rival submissions and perused the material on record including the order of TPO passed under section 271G of the Act as well as the appellate order passed by Ld. CIT(A). We find that in this case the assessee has entered into international transactions with its AE of import of rough diamonds which were sold to the third parties. The assessee has not maintained segmental accounts of transactions with AE and non AE, however, the TPO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee has made substantial compliance by furnishing transfer pricing study report as well as many other documents. What the assessee has failed to furnish is, the segmental profitability of the AE and non-AE transactions. The inability to furnish the aforesaid details was also well explained by the assessee before the Transfer Pricing Officer and learned Commissioner (Appeals) by demonstrating the practical difficulty in maintaining those details considering the nature of business carried on. Notably, though, the Transfer Pricing Officer has alleged that non-furnishing of segmental profitability makes it difficult for him to correctly ascertain the arm's length price, however, ultimately the Transfer Pricing Officer has accepted the transaction with the AE to be at arm's length. If the Transfer Pricing Officer was not satisfied with the benchmarking of the assessee under TNMM, nothing prevented him from rejecting assessee' benchmarking and determining the arm's length price of the transaction with the AE independently by applying any one of the prescribed methods. The blame for failure on the part of the Transfer Pricing Officer to determine the arm's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation as required under section 92D(1) r/w rule 10D(1). The facts on record clearly indicate that the assessee indeed has maintained a number of information/documents as required under the statutory provisions. Further, the assessee has also explained why it is not possible to furnish certain information sought by the Transfer Pricing Officer qua applicability of CUP method. In this regard, detailed written submission has been filed by the assessee before the Transfer Pricing Officer which has been properly evaluated by the learned Commissioner (Appeals) and the difficulty in maintaining the information sought by the Transfer Pricing Officer has been well explained and analysed. It is also necessary to observe, ultimately the Transfer Pricing Officer had accepted the benchmarking done by the assessee under TNMM and no variation/adjustment was made by him to the arm's length price. Even, assuming that the assessee has not maintained documents as required or was unable to support the benchmarking done by it under TNMM, nothing prevented the Transfer Pricing Officer in discarding the benchmarking done by the assessee and determining the arm's length price of the internation ..... 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