DCIT 5(2)(1), MUMBAI vs. KIRAN GEMS P.LTD, MUMBAI

Brief facts are, the assessee, a resident company, is engaged in the business of importing rough diamond, getting them cut & polished and thereafter exporting to various parties outside the Country including the Associated Enterprise (AEs) of the assessee situated abroad. In the transfer pricing study report, the assessee benchmarked the international transaction with the AEs relating to sale of polished diamond adopting Transactional Net Margin Method (TNMM) as the most appropriate method with operating profit / sales as the profit level indicator (PLI). Since the margin shown by the assessee @ 6.00% was higher than the average margin of the comparables worked out @ 3.55%, the transaction with the AEs was claimed to be at arm's length. In course of proceeding the Transfer Pricing Officer called upon the assessee to furnish net profit margin of the AE and non–AE segments. In response to the query raised, the assessee furnished the net profit margin of AE and non–AE segments. The Transfer Pricing Officer, however, found fault with the segmental profit margin furnished by the assessee by stating that such profit margin is on the basis of cost of goods sold (COGS) in proportion of sales. He observed, non–furnishing of information called for prevented him from evaluating the correctness of the arm’s length price of the transaction with AEs. Though, ultimately, he accepted the transactions with AEs to be at arm’s length. Having done so, alleging non–

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) observed, though the Transfer Pricing Officer objected to the COGS method adopted by the assessee, however, he himself has not stated in which method it was required to be furnished. Further, he observed, the Transfer Pricing Officer has not sated whether the data sought for really exists considering the nature of assessee’s business. He observed, the Transfer Pricing Officer has not specified which documents the assessee was required to maintain as per rule 10D but not maintained. Further, he observed, the Transfer Pricing Officer has ultimately accepted the transaction with AEs to be at arm’s length. In view of the above, learned Commissioner (Appeals) deleted the penalty imposed.

The learned Departmental Representative strongly relying upon the observations of the Transfer Pricing Officer in the penalty order passed under section 271G of the Act submitted, due to non–

The learned Authorised Representative submitted, the assessee has maintained all preliminary and basic documents and has also prepared a transfer pricing study report benchmarking the transaction with the AEs. He submitted, being called upon by the Transfer Pricing Officer the assessee had also furnished the segmental profit margins. He submitted, the Transfer Pricing Officer has ultimately accepted the transaction with the AEs to be at arm's length. Therefore, there is no justification in imposing penalty under section 271G of the Act. Further, he submitted, the issue is otherwise covered in favour of the assessee as while deciding identical matter in assessee’s own case in assessment year 2011–12 the Tribunal has upheld deletion of penalty imposed under section 271G of the Act.

We have considered rival submissions in the light of the decision relied upon and perused the material on record. Materials on record make it clear that the assessee has maintained primary books of account/documents in respect of its business activity. In fact, the 5 Kiran Gems Pvt. Ltd.

In the result, appeal is dismissed. Order pronounced in the open court on 20.03.2020