ASST CIT 19(1), MUMBAI vs. D A JHAVERI, MUMBAI

The learned Assessing Officer has raised the following ground of appeal: - “1. Whether CIT(A) was correct in deleting the penalty levied u/s 271G by holding that the assessee had made substantial compliance, failing to note that under TNMM adopted by the assessee, the profit of the international transaction has to be furnished, whereas the assessee has only furnished the entity level margins which consists of overall profits on AE and significant non-AE transactions.

The Brief facts of the case shows that the assessee is a partnership firm engaged in the business of cutting and polishing of diamonds. It has entered into international transaction of purchases of rough diamonds and export of rough and polished diamonds. The assessee filed return of income and filed form No. 3CEB. The reference was made to the Transfer Pricing Officer to determine the arms length price of those international transactions. The learned Transfer Pricing Officer asked assessee to furnish the details and documents in respect of Transactional Net Margin Method (TNMM) to workout profitability of associate enterprises and non-associated enterprises. The assessee expressed his inability to submit the same in view of the practical difficulties between bifurcating the stock price and cost. Therefore, the LD Transfer Pricing Officer held that assessee has not maintained the relevant

Assessee aggrieved with the order preferred the appeal before the learned CIT (A), who after considering the facts of the case, the peculiar facts prevailing in the diamond industries and the nature of failure and lack of information in public domain about the manufacturer of diamond trade except general information, he deleted the penalty. Therefore, the learned Assessing Officer is aggrieved with that and has preferred this appeal.

The learned Departmental Representative supported the order of the learned Assessing Officer and submitted that despite assessee not maintaining the specified detail, the learned CIT(A) has deleted the penalty. Therefore, he submitted that the order of the learned CIT (A) is not sustainable.

The learned Authorised Representative appearing on the behalf of the assessee submitted case law paper book stating that on identical facts and circumstances as of the case of the assessee, in so many cases, penalty is

The learned Authorised Representative further stated that if the order of the learned CIT (A) is upheld, the cross objection of the assessee become infructuous.

We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly, the assessee at the time of filing of it return of income has filed form No. 3CEB, saying international transactions. The assessee has a total turnover of ₹342 crores, out of which export is ₹291 crores. The sale to the associate enterprises are ₹9.44 crores. The total purchase of the assessee is ₹ 332 crores out of which rough diamond purchases are of ₹180 crores out of which purchases from associated enterprises of ₹126.5 crores. In TP study report, the assessee followed Transactional Net Margin Method adopting profit level indicator of operating profit/ operating sales. Entity level margin of the assessee was 3.47% and margin of comparable companies was taken at 3.15% and thus, submitted that its international transactions are at arm’s length. Naturally, the entity

In view of our decision in appeal of the learned Assessing Officer, the appeal of assessee becomes infructuous and hence dismissed.

In the result, the appeal of Assessing Officer and CO of assessee is dismissed.