PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), SURAT vs. M/S D NAVINCHANDRA EXPORTS PVT LTD

TAXAP/788/2018HC GujaratGJHC24040334201809 July 2018Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE A.Y. KOGJE7 pages
AI SummaryDismissed

What were the facts?

The Principal Commissioner of Income Tax (Central), Surat, appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2011-12. The ITAT had dismissed the revenue's appeal, upholding the deletion of a penalty of Rs. 2,15,98,527/- imposed under Section 271G of the Income Tax Act. The penalty was levied by the Transfer Pricing Officer (TPO) for the assessee's alleged failure to provide documents related to international transactions, specifically segmental profits of Associated Enterprises (AE) and non-AE segments. The TPO had initially found the international transactions to be at Arm's Length Price (ALP) but initiated penalty proceedings due to the assessee's inability to furnish the requested segmental information, citing practical difficulties in the diamond trade. The Commissioner of Income Tax (Appeals) had deleted the penalty, deeming it unfair and unreasonable given the nature of the business, substantial compliance, and reasonable cause shown by the assessee. The revenue's appeal to the ITAT was also dismissed.

What did the High Court hold?

The High Court held that the learned Tribunal was justified in deleting the penalty imposed under Section 271G of the Income Tax Act. The Tribunal had noted the practical difficulties faced by the assessee in the diamond manufacturing business in furnishing segment-wise Profit & Loss accounts of AE and non-AE segments. The Tribunal found that the TPO's insistence on the assessee following the Comparable Uncontrolled Price (CUP) method was misconceived and impractical given the nature of diamond trading, where pricing varies significantly based on size, color, shape, and clarity, and individual pricing for smaller diamonds is not practical. The Tribunal agreed with the CIT(A) that the TPO should have explored alternative methods, such as comparing Profit & Loss accounts and balance sheets of AEs to ascertain gross profitability levels. Furthermore, the Court noted that the assessee had demonstrated substantial compliance and an increase in gross profit from 7.42% to 8.71% and net profit from 3.9% to 4.9% for the year under consideration. Therefore, the Court found no justification for the TPO to levy the penalty under Section 271G and agreed with the concurrent findings of the CIT(A) and the Tribunal. No substantial question of law arose.

What were the issues?

1. Whether the Appellate Tribunal has erred in law and on facts in deleting the penalty of Rs. 2,15,98,527/- levied under Section 271G of the Income Tax Act? Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The revenue, through its Senior Advocate Shri Manish Bhatt, argued that the learned Tribunal erred in deleting the penalty under Section 271G. The revenue contended that the assessee failed to provide information/documents regarding segmental accounts for transactions with AEs and non-AEs. Therefore, the provisions of Section 271G should be applicable, and the Tribunal ought to have confirmed the penalty order passed by the TPO. The revenue relied on the TPO's order and the fact that the assessee did not provide the required documents.

Which sections of the Income-tax Act were involved?

Section 271G,Section 92CA(3),Section 92D(3),Section 10D

AI-generated summary — verify with the full judgment below

C/TAXAP/788/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 788 of 2018

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE A.Y. KOGJE

====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ====================================== PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), SURAT Versus M/S D NAVINCHANDRA EXPORTS PVT LTD ====================================== Appearance: MR MANISH BHATT, SENIOR ADVOCATE with MRS MAUNA M BHATT(174) for the APPELLANT(s) No. 1 for the RESPONDENT(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE A.Y. KOGJE

Date : 09/07/2018

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) C/TAXAP/788

The order continues below.

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