ACIT 23(1), MUMBAI, MUMBAI vs. D A JHAVERI, MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER:

CIT(A), Mumbai for AY 2012-13 and 2015-16. In both the appeals the

CIT(A) has deleted the penalty levied under section 271G. In both the

appeals certain facts are common, Revenue has raised certain common

grounds of appeal in deleting the penalty levied under section 271G. Thus

with the consent of both the parties, both the appeals were clubbed

together and are decided by common order to avoid conflicting decision.

assessee has raised following grounds of appeal:

i. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied u/s 271G of the I.T. Act, 1961 of Rs. 2,42,14,214/- without appreciating the facts that the assessee deliberately avoided the production of T.P. documentation as required u/s 92D?"

ii. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied u/s 271G of the I.T. Act, 1961 of Rs. 2,42,14,214/- without considering the facts that as per the provisions of section 271G of the Income Tax Act, 1961, the assessee should have submitted the required documentation within the specified timeframe, and the TPO's penalty order highlighted the assessee's failure to furnish documentation as per Rule 10B to 10D within the meaning of section 92D(3) of the Act, on the specified timelines of dated 25.03.2015, 15.10.2015, 02.12.2015 and 10.12.2015, in direct contravention of the provisions of section 271G? Reliance on this is placed on the ratio laid down by the Hon'ble Supreme Court for imposing penalty u/s 271G in CIT Vs Gillette India Ltd.(2018)259(Taxman 352(SC) that these should be a specific date recorded by which the assessee was required to furnish documents and that the documents were not furnished by the said specified time."

iii. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was corrected in deleting the penalty levied u/s 271G even when the TPO explicitly mentioned the dates on which the assessee was required to furnish documents, as evidenced by notices dated 25.03.2015, 15.10.2015, 02.12.2015 and 10.12.2015 and the TPO's order provides clear and specific findings regarding the non-compliance of the assessee?"

manufacturing, cutting, polishing and trading in diamonds. The assessee

while filing return of income reported certain international transaction with

its associated enterprises (AE) and furnished Form-3CEB. Consequent

upon reporting of international transaction, a reference was made to

Transfer Prising Officer (TPO) for computation of Arms Length Price,

however, during the transfer pricing proceedings before Transfer Prising

Officer the assessee took plea that Form-3CEB was filed only out of abandoned action and the entity which the assessee made transaction is

not associated enterprise.

alleged associated enterprise without any variation. However, the TPO

initiated penalty under section 271G for failure to furnish the required

documentation as per section 92D(3). The TPO issued show cause notice

for levy of penalty under section 271G. In response to such show cause

notice the assessee submitted that transaction to which the assessee

made is not its AE. The reply of assessee was not accepted by TPO. The

TPO levied penalty at the rate of 2.00 % of international transaction

reported by assessee in its Form3CEB. The TOP levied penalty of Rs. 2.24

crores (2.00% of Rs. 121.7 crores) vide order dated 29.07.2016.

CIT(A). Before ld. CIT(A) the assessee challenged the action of Assessing

Officer in levying penalty on the ground that transaction between

assessee firm and D. A. Jhaveri BVBA (DAJ Belgium) do not qualified for

the internal transaction which is a condition precedent for levying penalty

under section 271G. The documents prescribed under section 92D(3) have

been furnished during the assessment, no adjustment was made by TPO.

There is no order of TPO that no submissions or no details were furnished

for computing Arm Length Price. The assessee also made various factual

and legal submissions, the assessee again furnished the written

submission as recorded in para 5.2 of order of CIT(A). To substantiate the

fact that the entity with whom the assessee made transaction, is not its AE, the assessee furnished percentage of shareholding of various partners

in assessee’s firm wherein it was contended that Mr. Dilip A Jhaveri is

having 10.00%, Mrs. Smita D Jhaveri having 5.00%, Mr. Milin D Jhaveri

having 50.00%, Ms. Pooja M Jhaveri having 5.00%, Mrs. Ila S. Jhaveri

having 20.00 % and Mr. Karan S. Jhaveri having 10.00%. Whereas, Mr

Shalin Jhaveri holding 100% shareholding in D. A. Jhaveri BVBA (DAJ

Belgium). Certificate from DAJ Belgium was also furnished. The assessee

also explained the provision of section 92A(1) which defines “associated

enterprises”.

as per the provision of section 92A(2)(a), if one enterprise hold directly ir

indirectly 20.00% or more voting power in any other enterprises, the

enterprises are called associated enterprises. From the details of partners

of assessee firm it could be seen that partners of assessee firms are

individual and none of the partner and having any share in the enterprises

with whom the assessee made transaction. As per provision of section

92A(2)(b) any person or enterprises hold 26% or more of the voting

power in each of the enterprises, directly or indirectly both, the enterprise

should be deemed to be associated enterprises. In case of assessee no

enterprise had any share either in assessee firm or in D. A. Jhaveri BVBA.

Therefore, Shalin Jhaveri has no share in the assessee’s firm. Shalin

Jhaveri holds 100% shareholding in D. A. Jhaveri BVBA. No evidence has

brought by TPO as to how the share held by partners of assess were

directly or indirectly held by Shalin Jhaveri. Thus the assessee’s firms and D. A. Jhaveri BVBA cannot be said to be deemed associate enterprises

within the meaning of section 92A(2)(b). The observations of TPO

regarding 26% or more of assessee’s firm were hold by Shalin Jhaveri is

not based on the appreciation of fact. Once the ld. CIT(A) held that the

parties assessee’s firm and Belgium based entity D. A. Jhaveri BVBA are

not an associated enterprise, therefore, the transaction between the

entities do not qualified as international transaction within the meaning of

section 92(b) and no penalty could be levied with reference to failure on

the part of assessee to furnish information or document as per section

92D(3) and allowed the lawful relief to the assessee. The ld. CIT(A) also

held that once there is no international transaction, therefore, there was

no reason to maintain documents/information as per Rule 10D. Aggrieved

by the order of ld. CIT(A) the Revenue has filed present appeal before

Tribunal.

(Sr. DR) for the Revenue and the ld. Authorized Representative (ld AR) of

the assessee. The ld. Sr. DR for the Revenue supported the order of

TPO/AO. The ld. Sr. DR submits that assessee himself reported

international transaction with its AE and later on changes its stand that

there is no international transaction. The assessee violating the provision

of Rule 92D(3) as well as Rule 10D and violation thereon attract penalty

under 271G.

CIT(A). The Ld. AR submits that once it is held that there is no international transaction of the assessee’s entity namely D. A. Jhaveri

BVBA, there remains no need to maintain documents as required under

section 92D. The assessee furnished TPSR study report only for

abandoned caution. In alternative submission the ld. AR of the assessee

submits that when TPO has accepted bench marking the imposition of

penalty under section 271G is not sustainable. To support such view the

ld. AR relied upon the decision of Mumbai Tribunal in DCIT v. Ankit Jhaveri

(P) Ltd. 2019 106 taxmann.com 243 (Mumbai), DCIT v. Ashian Star

Company Ltd. 2020 116 taxmann.com 448 (Mumbai Tribunal). The ld. AR

of the assessee also relied upon the following decisions:

considered the order of the lower authorities carefully. We find that there

is no much dispute on the fact. It is an admitted fact that TPO has not

made any adjustment in respect of transaction reported in TPSR

furnished in Form-3CEB. We find that before the lower authorities the stand of assessee is that the assessee and Belgium bases entity i.e. DAJ

Belgium is not associated enterprises. We find that assessee furnished

complete shareholding of assessee’s firm as well as Belgium based entity,

we find that ld. CIT(A) on appreciation of fact made clear finding of facts

that Belgium based entity is not an associated enterprise of assessee

Company. Moreover, no adjustment has made in respect of transaction

with Belgium based entity; therefore, penalty under section 271G is not

attracted. Similar, view was taken by Coordinate Bench of Mumbai Tribunal

in DCIT v. Ankit Jhaveri (P) Ltd. (Supra) and DCIT v. Ashian Star Company

Ltd. (Supra) with which we do not find any merit in the various grounds of

appeal raised by the Revenue.

ITA No. 2207/MUM/2024 (AY: 2015-2016)

2012-13 as well as AY 2015-16 in his consolidated order. We have also

uphold the order of ld. CIT(A) in AY 2012-13, therefore, this appeals is

also dismissed for similar observation.

Order was pronounced on 20/05/2026 in open Court.

Sd/- Sd/

GIRISH AGRAWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, Dated: 20/05/2026 Ankit, P.S.

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant Registrar ITAT, Mumbai