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Income Tax Appellate Tribunal, K BENCH, MUMBAI
Appearances For the Appellant/ Department : Shri Vivek A Perampurna For the Respondent/Assessee : Shri Apurva R Shah Date of conclusion of hearing : 06.04.2022 Date of pronouncement of order : 05.07.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal filed by the Department has challenged the order dated 03.09.2018, passed by the Ld. Commissioner of Income Tax (Appeals)-55, Mumbai, [hereinafter referred to as „the CIT(A)‟] appeal No. [CIT(A)- 55/IT-88/2017-18, for the Assessment Year 2012-13, whereby the Ld. CIT(A) had allowed the appeal filed by the Assessee Assessment Year: 2012-13 against the order, dated 29.07.2016, passed under section 271G of the Act.
2. The Revenue has raised the following grounds of appeal:
1. Whether in the facts and circumstances of the case and in law, the CIT(A) was right in deleting the penalty u/s 271G in the assessee‟s case even when the assessee had clearly failed in maintaining the documentation as required u/s 92D(3) of the Act.? 2. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored.
3. The brief facts are that the Assessee is engaged in the business of manufacturing/making of cut and polished diamonds and jewellery. A reference was made to the Transfer Pricing Officer (TPO) under Section 92CA(3) of the Act. TPO issued notices and asked the Assessee to submit details the document as per Rule 10D(1) and 10D(3) of the Income Tax Rules, 1962 along with other specific details which were furnished by the Assessee. After examining the same, the TPO asked the Assessee to submit segmental profitability statement pertaining to Associated Enterprises (AEs) and non-AEs. However, the Assessee expressed inability in the form/format desired by the TPO as the Assessee has not maintained separate books of accounts for transaction AEs and non-AEs. The Assessee had benchmarked the international transactions using the Transactional Net Margin Method (TNMM). The TPO held that aggregation of AE and non-AE transaction was not permissible under TNMM. Further, the TPO rejected the segmental workings provided by the Assessee by allocating the cost in the ratio Assessment Year: 2012-13 sales to AEs and non-AEs. Thereafter, the TPO proceeded to determine the arm‟s length price on the basis of information available on record. The TPO was of the view that since the Assessee has failed to maintain and furnish the basic information pertaining to AE and non-AE transaction, the TPO was prevented from making adjustment. Thus, the TPO initiated penalty proceedings under Section 271G of the Act which culminated into order dated 29.07.2016 whereby penalty of INR 1,65,65,934/-, being 2% of the international transaction amounting to INR 82,82,96,698/-, was levied on the Assessee
4. Being aggrieved, the Assessee filed appeal before CIT(A) against the assessment order. The CIT(A) allowed the appeal of the Assessee vide order dated 01.10.2021 holding as under:
“6. The appeal is filed …………. xx xx During the course of appellate proceedings, the AR of the appellant submitted following:
1. Form No.3CEB under rule 10E was furnished which contained details of information and documents kept and maintained by appellant u/s.92D read with section 10D(1)(a) to (m).
TPO has asked during the course of proceedings u/s.92CA audited segmental accounts. The appellant had submitted before the TPO that it is dealing in one business segments and therefore as per Accounting Standards 17 which governs the method by which the financial statements are prepared and audited, it is Assessment Year: 2012-13 not required to exhibit separate segments in the financial statements.
3. The TPO did not agree with the working of the appellant and though did not make any adjustment, imposed a penalty u/s.271G for not maintaining separate accounts for transactions with AE and non AE.
The appellant further submitted that penalty u/s.271G is leviable when the assessee fails to furnish any document and information that he is required to maintain u/s.92D(3) r.w.r.10D and not when the information submitted by the assessee is not acceptable to the TPO.
5. It was further submitted that even Rule 10D(g) and (h) does not stipulate that the said data as requested by the TPO be maintained on an audited basis and even when it is contrary to the requirement of Accounting Standards.
6. Reliance has been placed on following decision: Decision of Hyderabad Bench of ITAT in the case of Annapurna Business Solution vs. ACIT Circle 6(1) reported in 17 Taxman.com 125 in this regard.
After analysing the contention of the TPO and submissions of the appellant and relying on above case law, I am of the considered opinion that penalty u/s.2/1G is not warranted in the above case and I find that appellant cannot be held responsible for failure to furnish information or documents u/s.93 D(3). And so I find that the appellant has furnished all information and documents which it was required to produce as per Accounting Standards. Assessment Year: 2012-13 Hence, I delete the penalty imposed u/s.271G and allow the appellant's appeal.”
Being aggrieved, the Revenue is in appeal before us.
6. The Ld. Departmental Representative appearing before us supported the levy of penalty under Section 271G of the Act and relied upon the order passed by the TPO in this regard. The Ld. Authorised Representative for the Appellant appearing before us supported the order passed by the CIT(A) and submitted that in the identical facts and circumstance, the Tribunal has deleted the penalty levied under Section 271G of the Act in the case of ACIT vs. M/s Fine Jewellery Manufacturing Ltd. (ITA No. 6854/Mum/2019, Assessment Year 2012-13, decided on 01.10.2021).
We have considered the rival submissions and perused the material on record. We note that the Tribunal has, in the identical facts and circumstances, deleted the penalty levied under Section 271G of the Act in the case of M/s Fine Jewellery Manufacturing Ltd. (supra). The relevant extract of the aforesaid decision read as under: “4. Facts leading to imposition of penalty are that assessee being resident corporate assessee is stated to be engaged in manufacturing and marketing of cut and polished diamonds / jewellery. Since the assessee carried out certain international transactions of sale and purchase with its Associated Enterprises (AE) during the year, the same were referred to Ld. Transfer Pricing Officer-2(1)(2), Mumbai (TPO) for determination of Arm‟s Length Price (ALP). The assessee had benchmarked the transactions using entity level TNMM Assessment Year: 2012-13 method and claimed the transactions to be at Arm‟s Length. However, Ld. TPO sought segmental profitability of AE and non-AE segment. The assessee submitted that it was not practical to identify and bifurcate the stock, cost and revenue under two segments. Though Ld. TPO accepted the transactions to be at Arm‟s Length but he initiated penalty u/s 271G for aforesaid failure on the part of the assessee. Finally, the assessee was saddled with impugned penalty u/s 271G vide order dated 29/07/2016. 5. The Ld. CIT(A), relying upon the order of Tribunal in for AY 2011-12 in the case of Interjewel Pvt. Ltd., deleted the penalty. Aggrieved, the revenue is in further appeal before us.
Upon due consideration, the undisputed position that emerges is that the assessee has carried out certain international transactions during the year with its AE and benchmarked the same using TNMM method in its Transfer Pricing Study which has been accepted by Ld. TPO. The only basis of levying impugned penalty against the assessee is the fact that the assessee did not furnish segmental profitability under the two segments owing to inherent nature of assessee‟s business. However, it was practically difficult to maintain the details as called for by Ld. TPO. If the Ld. Transfer Pricing Officer was not satisfied with the benchmarking of the assessee under TNMM, nothing prevented him from rejecting assessee' benchmarking and proceed to determine the ALP independently by applying any one of the prescribed methods. The blame for failure on the Assessment Year: 2012-13 part of the Transfer Pricing Officer to determine the arm's length price cannot be fastened with the assessee.
7. We find that similar issue of penalty u/s 271G for diamond industry has been adjudicated in assessee‟s favor in various decisions of this Tribunal. The co-ordinate bench of Mumbai Tribunal in the case of D. Navinchandra Exports (P.) Ltd. (87 Taxmann.com 306) held that considering the practical difficulties in furnishing the segment wise details of AE segment and non-AE segment transactions in diamond industry, no penalty under Sec. 271G could justifiably be imposed for failure to furnish the said information. Similar is the view in DCIT V/s Leo Schachter Diamonds India Pvt. Ltd. (ITA No.5931/Mum/2017 order dated 28/02/2019) which in turn, inter-alia, placed reliance on the decision rendered in DCIT V/s Firestone International Pvt. Ltd. (ITA No. 5304/Mum/2016 dated 01/12/2018) and the decision of Jaipur Tribunal in ACIT V/s Gillette India Ltd. (54 Taxmann.com 313). Similar is the ratio of following decisions: -
ACIT vs. SSL-TTK (2012) 52 SOT 20 (URO) (Chennai)(Trib.)
2. ITO vs. Netsoft India Ltd. (2014) 150 ITD 454 (Mum.)(Trib.)
ACIT vs. M/s. Dilipkumar V. Lakhi [ITA No.2142/M/2017, A.Y. 2011-12 dated 02.08.2018 (Mum.)(Trib.) Assessment Year: 2012-13 We find that facts are similar before us. Therefore, finding no infirmity in the impugned order, we dismiss the appeal.
Resultantly, the appeal stands dismissed.”
8. Respectfully following the above decision of the co-ordinate Bench of the Tribunal in the identical facts and circumstances, we decline to interfere with the order passed by the CIT(A). Accordingly, we dismissed the Ground No. 1 and 2 raised in the present appeal.
In the result, the appeal preferred by the Revenue is dismissed.