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Income Tax Appellate Tribunal, MUMBAI BENCH “K” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-55, Mumbai [in short ‘CIT(A)’] and arises out of the penalty levied u/s 271G of the Income Tax Act 1961, (the ‘Act’). 2. The grounds of appeal filed by the Revenue read as under : i) Whether the CIT(A) was correct in deleting the penalty levied u/s 271G of the Act, by holding that the assesses 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 M/s D. Navinchandra Gems Pvt. AE and significant non-AE transactions. ii) Whether the decision of the CIT(A)is not vitiated for the reason that the CIT(A) has not given any finding on how the assessee has complied with clause (d), (g), (h) and (m) of Rule 10D (1) that have been specifically invoked by the TPO. iii) The Id. CIT(A) erred in holding that there was reasonable cause for non- compliance of sec.92D read with Rule 10D(1) without specifying the cause of such non-compliance or demonstrating how the same was reasonable. iv) Whether the Id. CIT(A) was correct in ignoring the ratio laid down in the decision of Hon’ble Bombay High Court in the case of M/s. Shatrunjay Diamonds (261 ITR 258) holding that the initial burden was cast upon the assessee? v) The Id. CIT(A) erred in deleting the penalty for the reason that non adjustment was made to the ALP, failing to note that by not producing the material documents necessary to determine the ALP under any of the prescribed methods u/s. 92. C (1) of the Act, the assessee effectively prevented the TPO to make any determination as recorded by the TPO in the order u/s. 92CA(3) of the Act.
Briefly stated, the facts of the case are that the Transfer Pricing Officer (TPO) received a reference from the Assessing Officer (AO) to determine the arm’s length price in respect of the following international transactions:
S. No. Nature of International Transactions Amount in (Rs.) 1 Purchase of rough diamonds 85,98,78,782 2 Export of rough diamonds 10,27,810 3 Export of finished /polished diamonds 37,65,92,440 4 Purchase of polished diamonds 9,32,40,982 M/s D. Navinchandra Gems Pvt. Total 133,07,40,014 The TPO issued notices and asked the assessee to submit details and documents mentioned as per Rule 10D(1) and 10D(3) of the Income Tax Rules, 1962 (the Rules). After examining the details and documents filed by the assessee, the TPO asked to submit the segmental profitability of AE transactions and non-AE transactions. The assessee expressed its inability to furnish details in the manner called for by the TPO on the ground that it did not maintain separate books of accounts for AE and non-AE segments. The TPO thus held that he was prevented from benchmarking various transactions and thus levied a penalty of Rs.2,66,14,800/- u/s 271G of the Act.
Aggrieved by the order of the TPO the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) following the order of her predecessor-in-office for AY 2011-12 allowed the appeal filed by the assessee. While doing so, it is noted by the Ld. CIT(A) that the ITAT, Mumbai has dismissed the appeal filed by the Revenue against the order of the CIT(A) for AY 2011-12.
Before us, the Ld. Departmental Representative (DR) submits that the TPO has called for specific details within the meaning of section 92D(3) of the Act ; the details were not filed within 30 days or any time subsequently; the details were essential for benchmarking the transaction of the assessee with AE ; the assessee also could not provide any alternative method of benchmarking the transaction based on material available on record ; in the absence of material, the TPO to forced to accept the transactions to be at ALP, after initiating penalty proceedings u/s 271G of the Act. Thus the Ld. DR M/s D. Navinchandra Gems Pvt. Rs.2,66,14,800/- levied by the TPO u/s 271G of the Act.
On the other hand, the Ld. counsel for the assessee submits that the issue is decided in favour of the assessee by the ITAT ‘K’ Bench, Mumbai in assessee’s own case for AY 2011-12 in ITA No. 6304/Mum/2016. Similar reliance is placed by him on the order of the Tribunal in DCIT v. M/s K. Girdharilal International Ltd. [IT(TP) A No. 6446/Mum/2016], DCIT v. Bluestar Diamonds Pvt. Ltd. (ITA No. 6553/Mum/2017), DCIT v. Laxmi Diamonds P. Ltd. (ITA No. 2643/Mum/2017), DCIT v. M/s Amore Jewels Pvt. Ltd. (ITA No. 6009/Mum/2017) and ACIT v. M/s Dilipkumar V. Lakhi [IT(TP)A No. 2142/Mum/2017].
We have heard the rival submissions and perused the relevant materials on record. Similar issue arose before the ITAT ‘K’ Bench, Mumbai in assessee’s own case for AY 2011-12 in ITA No. 6304/Mum/2016. The Tribunal vide order dated 25.10.2017 held as under :
20. We further find that as stands gathered from the records, the nature and level of business of the assessee during the year under consideration had increased almost two fold. We find that while for the gross profits of the assessee had also increased from 7.42% for A.Y. 2010-11 to 8.71% for the year under consideration, viz. A.Y. 2011-12, the Net profit had also witnessed a growth from 3.9% in the immediate preceding year to 4.9% during the year under consideration. We further find that as observed by the CIT(A) that in the preceding year, i.e A.Y. 2010-11 the TPO did not propose any adjustment in the ALP. We are not inspired by the fault finding approach adopted by the TPO without understanding the intricacies of the diamond manufacture and trading business, and are of the considered view that he instead of determining the arms length price by asking for the Profit & loss a/c and M/s D. Navinchandra Gems Pvt. Balance Sheets of the AEs and comparing the financial ratios in general, had rather hushed through the matter and imposed penalty under Sec. 271G of Rs. 2,15,98,527/- on the assessee. We also find that the assessee to the extent possible in the backdrop of the nature of its trade had furnished several details on several occasions from time to time with the TPO. We thus are of the considered view that the assessee had substantially complied with the directions of the TPO and placed on his record the requisite information, to the extent the same was practically possible in light of the very nature of its trade. We though are not oblivious of the fact that the assessee may not have effected absolute compliance to the directions of the TPO and furnished all the requisite details as were called for by him on account of practical difficulties as had been deliberated by us at length hereinabove, but however, in the backdrop of our aforesaid observations, we are of the considered view that the failure to the said extent on the part of the assessee to comply with the directions of the TPO can safely be held to be backed by a reasonable cause, which thus would bring the case of the assessee with the sweep of Sec. 273B of the ‘Act’. We thus in the backdrop of our aforesaid observations find ourselves to be in agreement with the view taken by the CIT(A,) and finding no reason to dislodge his well reasoned order, therefore, uphold the same. We thus uphold the order of the CIT(A) and the resultant deletion of the penalty of Rs. 2,15,98,527/- imposed by the TPO.
7.1 Facts being identical, we confirm the order passed by the Ld. CIT(A).