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Facts
The Revenue appealed against the deletion of penalty under Section 271G by the CIT(A). The penalty was imposed for failure to furnish documentation related to international transactions. The assessee argued that it had substantial cause for non-compliance.
Held
The Tribunal held that the assessee had a reasonable cause for not furnishing the details as required by Rule 10D, considering the complexities of the diamond trade. The Tribunal noted that similar penalties had been deleted in the assessee's own cases and by coordinate benches.
Key Issues
Whether the assessee had a reasonable cause for not furnishing required documentation under Section 271G and Rule 10D, and if the deletion of penalty by CIT(A) was justified.
Sections Cited
271G, 92D(3), 10D, 143(3), 92CA(3)
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Before: MS. KAVITHA RAJAGOPAL & SHRI PRABHASH SHANKAR
Date of Hearing 06.08.2025 Date of Pronouncement 11.08.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal is preferred by the Revenue against the order dated 04.02.2025 passed by the Learned Commissioner of Income-tax, Appeal, CIT(A) 56, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to a penalty order passed u/s. 271G of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 26.04.2019 for the Assessment Year [A.Y.] 2015-16. P a g e | 2 A.Y. 2015-16 Interjewel Private Limited, Mumbai 2. The grounds of appeal are as under:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the penalty under section 271G when the assessee failed to furnish documentation as required under the rule 10D(1) and sub section (3) of the sec 92D of the I.T. Act in respect of the international transactions entered into by it.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty under section 271G without appreciating that the benchmarking of the entity level profit by the assessee cannot substitute the requirement of benchmarking of the international transactions to determine the arm’s length price.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty under section 271G by accepting the assessee’s plea that it was difficult to link the purchase with the sales for computing net margin in respect international transactions without appreciating that there is no exception to the requirement to maintain documents and carrying out analysis by the most appropriate method to show that the international transactions entered into are at arm’s length and that several methods have been prescribed for this purpose.
4. Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) deleting the penalty on the ground of difficulty is justified, since it renders the provisions, of Rule 10D redundant in cases like that of the assessee which can never be the intention of the legislature.
5. Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) deleting the penalty on the ground that TPO has not examined segment-wise unaudited profit and loss account prepared and submitted by the assessee during penalty proceedings disregarding the fact that the assessee did not submit any supporting documents to support the segmental results and had admitted himself in the covering letter that the segments had been prepared to the extent possible on the basis of certain assumptions which were also not spelt out, and the TPO, P a g e | 3 A.Y. 2015-16 Interjewel Private Limited, Mumbai in his order under section 271G, has given a finding that segmental results of AE and non-AE on the basis of pro-rata allocation of ‘cost to AEs and non-AEs based on the sales made to AEs and non-AEs respectively is not correct and cannot be relied for the purpose of benchmarking.
6. Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) deleting the penalty on the ground there is no adjustment made in the ALP even though adjustment to ALP is not a precondition for levy of penalty u/s 271G.
7. The appellant prays that the order of the CIT(A) on the grounds be set aside and confirm the order of the AO.
Brief facts of the case are that the assesse is engaged mainly in the business of importing and/or locally purchasing rough diamonds, getting them cut and polished and exporting/reselling the same. During the year, it had international transactions in the form of import and export of diamonds and accordingly, it had furnished requisite Report in Form 3CEB. A reference u/s 92CA(1) was received by the Transfer Pricing Officer (TPO) from the AO for determination of arm’s length price (ALP) in respect of the international transactions entered into by the assessee with its associated enterprises (AEs) as reported in Form 3CEB filed by it. Subsequently, the TPO issued notice u/s 92CA(2) to the assessee requesting to file all the evidence and documents relied in support of the computation of ALP. Further, information/ documents were called for by TPO by issuing notice u/s 92D(3). During the year under consideration, the assessee entered into various international P a g e | 4 A.Y. 2015-16 Interjewel Private Limited, Mumbai transactions with its AEs aggregating to Rs. 497,84,56,261/-. In the course of Transfer Pricing proceedings, details and documents relating to international transactions as called for were filed and the same were examined by the TPO. Subsequently, the TPO issued notice u/s 274 r.w.s. 271G to the assessee asking to show cause as to why penalty u/s 271G should not be initiated as the assessee company without reasonable cause failed to furnish information and documents as required within the time allowed as per section 92D(3) of the Act and Rule 10D(1). In response, the assessee filed its submissions before the AO. However, the TPO viz. DCIT (TP) 2(3)(1), Mumbai did not accept the assessee’s contention and levied penalty u/s 271G of Rs.9,96,69,125/- being 2% of relevant transactions amounting to Rs.497,84,56,261/-.
In the subsequent appeal, assessee has submitted that this very issue is squarely covered in its favour by the order of the CIT (A) deleting the penalty on identical facts and circumstances in its own case for the A Y 2011-12 which was subsequently upheld by the hon’ble ITAT in dated 01.11.2018 following several Tribunal decisions on identical issues involving several assessee’s engaged in the same line of business of diamonds. Copy of the said order of the ITAT was enclosed. The ld.CIT(A) observed that the penalty was P a g e | 5 A.Y. 2015-16 Interjewel Private Limited, Mumbai imposed on account of alleged default in complying with notice u/s 92D(3) of the Act. However, under similar facts and circumstances in the case of the appellant itself, the hon'ble ITAT has rendered decision(supra). The final finding of Hon'ble ITAT is as under:- “
After hearing both the sides and going through the facts and circumstances, we are of the view that the co-ordinate bench has elaborately dealt with this issue and finally held that the assessee has substantially complied with the directions of the TPO and placed on record the requisite information as observed by the CIT(A). The revenue could not dislodge the finding of the CIT(A). Hence, according to us, there is a reasonable cause in not complying with the provisions of section 92D(3) of the Act. Respectfully following the decision in the case of Dilip kumar V. Lakhi (supra), we confirm the order of CIT(A) and dismiss the appeal of revenue.” 4.1 The ld.CIT(A) further stated that in the assessee’s own case in AY 2013-14, his predecessor, vide appellate order dated 22.03.2019 had allowed assessee’s appeal in respect of penalty levied by TPO u/s 271G on similar facts and circumstances and ITAT had dismissed the Department’s appeal. As a result, the present penalty imposed by the TPO u/s 271G of Rs.9,96,69,125/- was deleted.
Before us, the ld.DR has relied on the penalty order. On the other hand, the ld.AR has contented that the issue involved is deletion of penalty u/s. 271G of the Act, for not furnishing segmental accounts for AE and Non AE transactions separately in terms of Rule 10D.He pointed out that identical issue was covered in appeals in assessee’s own case in AY 2011-12 and AY 2013-14 wherein in P a g e | 6 A.Y. 2015-16 Interjewel Private Limited, Mumbai and ITA No.4113/MUM/2019, the hon’ble ITAT, Mumbai has ruled in the favour of the assessee on the ground that considering the complexities of the diamond trade, there was reasonable cause for non- furnishing the details in terms of Rule 10D.It is further submitted that for this year as well, the assessee has fully discharged its burden of providing ALP of the reported international transactions by furnishing transfer pricing study report, PLI working of OP/Sales% and OP/Cost% of the assessee at the entity level with working and margins of comparables, individual transaction-wise details of purchases from and sales to AE and Non-AEs, invoice-wise realization, copies of invoices, audited PLI working bifurcating between AE segment and Non-AE segment, etc. which have been fully accepted by the ld. TPO after considering the details filed as well as the economic analysis carried out by him. In para 8 of the order u/s. 92CA(3), the TPO observed, thus “Considering the facts and circumstances of the case and documents furnished by the assessee, the value of the assessee’s international transactions with regards to the arm’s length price is not being disturbed.”The ALP of international transactions as reported by the assessee has been accepted by the TPO vide order dated 25.10.2018. Further, in support of the fact that no adjustment in ALP has been P a g e | 7 A.Y. 2015-16 Interjewel Private Limited, Mumbai made, copy of the assessment order u/s. 143(3) dated 20.12.2018 is also filed.
5.1 It is further submitted that apart from the assessee’s own case as mentioned above, the issue at hand is covered by several other orders of the hon’ble Tribunal, Mumbai. The Department’s appeal against order of the Tribunal in D. Navinchandra Exports Private Limited has been dismissed by the hon’ble Gujarat High Court in Tax Appeal No.788 dated 09.07.2018.
On careful consideration of the above facts we do not find any infirmity in the action of the ld.CIT(A)( in deleting the penalty as his decision is based on orders passed by the coordinate bench of ITAT, Mumbai in assessee’s own case on similar facts and circumstances. We further find that on identical facts, the coordinate bench of ITAT, Mumbai has deleted similar penalties in many of the assesses engaged in the same diamond business. Reliance could be placed on Kapu Gems in Diamond (2024) 165 taxmann.com608(Mum-ITAT),Ankit Gems P.Ltd in ITA No.2579/Mum/2024 etc.Respectfully following the orders(supra),we uphold the appellate order dismissing the grounds of appeal of the Revenue.
P a g e | 8 A.Y. 2015-16 Interjewel Private Limited, Mumbai 7. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 11.08.2025. KAVITHA RAJAGOPAL PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)