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Facts
The assessee, engaged in diamond trading, entered into international transactions with associated enterprises for purchasing/selling rough and polished diamonds. The assessee used the Transactional Net Margin Method (TNMM) at the entity level for benchmarking. The Transfer Pricing Officer (TPO) required segmental profitability analysis, which the assessee claimed was difficult to provide due to the nature of the diamond industry.
Held
The Assessing Officer levied penalty under section 271G for non-maintenance of documents. The CIT(A) deleted the penalties, relying on a previous decision of the Tribunal. The Revenue appealed this deletion.
Key Issues
Whether the penalty under section 271G was rightly levied for non-maintenance of documents related to international transactions with associated enterprises, especially when the assessee claimed difficulty in providing segmental analysis due to industry intricacies.
Sections Cited
271G, 92D, 10D(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “K” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
The captioned appeals by the Revenue are directed against a common order dated 08.02.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – 55, Mumbai [in short ‘the Ld. CIT(A)’] for assessment years 2013-14, 2014-15 and 2015-16 respectively, in relation to penalty u/s 271G of the Income-tax Act, 1961 (in short
Blue Star Diamonds Pvt. Ltd. Blue Star Diamonds Pvt. Ltd. 2 1721 & 1719/MUM/2024 1721 & 1719/MUM/2024 ‘the Act’) levied by the A ‘the Act’) levied by the Assessing Officer for non-maintenance of the maintenance of the documents/information for documents/information for computation of arm’s length arm’s length value of international transactions international transactions carried out by the assessee with its carried out by the assessee with its associated enterprises (AEs) associated enterprises (AEs). As common grounds have been raised . As common grounds have been raised in these appeal and in these appeal and therefore same were heard together and therefore same were heard together and disposed off by way of this consolidated order for convenience. disposed off by way of this consolidated order for convenience. disposed off by way of this consolidated order for convenience.
Briefly stated, facts of the case are that the assessee was 2. Briefly stated, facts of the case are that the assessee was Briefly stated, facts of the case are that the assessee was engaged in the business of trading/manufacturing of rough and engaged in the business of trading/manufacturing of rough and engaged in the business of trading/manufacturing of rough and polished diamonds. In the a polished diamonds. In the assessment year involved in captioned ssessment year involved in captioned appeals, the assessee had entered into international transaction appeals, the assessee had entered into international transaction appeals, the assessee had entered into international transaction with its associated enterprises for purchase/sale of rough diamonds with its associated enterprises for purchase/sale of rough diamonds with its associated enterprises for purchase/sale of rough diamonds as well as purchase/sale of polished diamonds. The assessee as well as purchase/sale of polished diamonds. The assessee as well as purchase/sale of polished diamonds. The assessee benchmarked the transactio benchmarked the transaction of purchase and sale of rough and n of purchase and sale of rough and polished diamonds by taking transactional net margin method polished diamonds by taking transactional net margin method polished diamonds by taking transactional net margin method (TNMM) as the most appropriate method using (TNMM) as the most appropriate method using gross profit gross profit over sales as profit level indicator (PLI). The assessee took margin at sales as profit level indicator (PLI). The assessee took margin sales as profit level indicator (PLI). The assessee took margin entity level and compared with entity level and compared with the margin of the comparable the comparable companies. However, according to the Ld. Transfer Pricing Officer companies. However, according to the Ld. Transfer Pricing Officer companies. However, according to the Ld. Transfer Pricing Officer (TPO), the assessee was required to compare profitability of the AE the assessee was required to compare profitability of the AE the assessee was required to compare profitability of the AE segment with the comparables and therefore, the assessee was segment with the comparables and therefore, the assessee was segment with the comparables and therefore, the assessee was required required to to maintain maintain documents/information documents/i nformation for for providing providing segmental profitability between AEs and Non segmental profitability between AEs and Non-AEs as required under AEs as required under Rule 10D(1) r.w.r. 92D of the Act. However, the assessee explained Rule 10D(1) r.w.r. 92D of the Act. However, the assessee explained Rule 10D(1) r.w.r. 92D of the Act. However, the assessee explained that in view of the intricacies involved in diamond industry it was that in view of the intricacies involved in diamond that in view of the intricacies involved in diamond
Blue Star Diamonds Pvt. Ltd. Blue Star Diamonds Pvt. Ltd. 3 1721 & 1719/MUM/2024 1721 & 1719/MUM/2024 practically difficult for the for the assessee to furnish the information of the information of segmental results of the assess for AE and nonAE, segmental results of the assess for AE and nonAE, which was called which was called for by the TPO. The Ld. TPO rejected the contention of the assessee the TPO. The Ld. TPO rejected the contention of the assessee the TPO. The Ld. TPO rejected the contention of the assessee and levied penalty invoking section 271G of the Act for all the three and levied penalty invoking section 271G of the Act for all the three and levied penalty invoking section 271G of the Act for all the three assessment years involved in present appeals. ears involved in present appeals.
On further appeal On further appeals, the Ld. CIT(A) however following the , the Ld. CIT(A) however following the ordinate Bench of the Tribunal in the case of the finding of the Co-ordinate Bench of the Tribunal in the case of the ordinate Bench of the Tribunal in the case of the assessee for assessment year 2012 assessee for assessment year 2012-13 in 553/Mum/2017 deleted the penalties. .
Aggrieved, the Revenue is in appeal Aggrieved, the Revenue is in appeals before us, by way of before us, by way of raising the grounds as reproduced above. raising the grounds as reproduced above.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The Ld. CIT(A) has summarized the relevant material on record. The Ld. CIT(A) has summarized the relevant material on record. The Ld. CIT(A) has summarized the facts of the case and follow facts of the case and following the finding of the Tribunal (supra) for ing the finding of the Tribunal (supra) for assessment year 2012 2012-13 has deleted the penalties for all the three assessment years from AY 2013 assessment years from AY 2013-14 to AY 2015-16 observing as 16 observing as under:
“5.3.1 The facts of the case of the appellant are that during A.Y.2013 5.3.1 The facts of the case of the appellant are that during A.Y.2013 5.3.1 The facts of the case of the appellant are that during A.Y.2013-14, the appellant had entered into international transaction with AE as under; appellant had entered into international transaction with AE as under; appellant had entered into international transaction with AE as under; S. No. Nature of international transactions Nature of international transactions Amount in Rs. Amount in Rs. 298,69,23,843/- 1. Purchase/sale of rough diamonds Purchase/sale of rough diamonds 298,69,23,843/ 129,96,54,693/- 2. Purchase/sale of polished diamonds Purchase/sale of polished diamonds 129,96,54,693/ The appellant bench marked the transaction of purchase and sale of rough marked the transaction of purchase and sale of rough marked the transaction of purchase and sale of rough diamond and polished diamond from/to the AE by taking TNNM as most diamond and polished diamond from/to the AE by taking TNNM as most diamond and polished diamond from/to the AE by taking TNNM as most appropriate method using operating profit/sales as Profit Level Indicator (PLI). appropriate method using operating profit/sales as Profit Level Indicator (PLI). appropriate method using operating profit/sales as Profit Level Indicator (PLI). The appellant took the margin at entity level and compa The appellant took the margin at entity level and compared the transactions red the transactions with the comparable companies. with the comparable companies. The profit margin of the comparable was The profit margin of the comparable was Blue Star Diamonds Pvt. Ltd. Blue Star Diamonds Pvt. Ltd. 4 1721 & 1719/MUM/2024 1721 & 1719/MUM/2024
4.04% and that of the appellant was 5.36%. 4.04% and that of the appellant was 5.36%. Thus, the appellant considered the Thus, the appellant considered the transaction at arm's length price. During the transfer pricing proceedings, the transaction at arm's length price. During the transfer pricing proceedings, the transaction at arm's length price. During the transfer pricing proceedings, the TPO was not satisfied with the method adopted by the appellant to bench mark s not satisfied with the method adopted by the appellant to bench mark s not satisfied with the method adopted by the appellant to bench mark the transactions at entity level and applying TNNM as most appropriate the transactions at entity level and applying TNNM as most appropriate the transactions at entity level and applying TNNM as most appropriate method. The TPO asked the appellant to provide segmental financials of method. The TPO asked the appellant to provide segmental financials of method. The TPO asked the appellant to provide segmental financials of transactions of purchase and sales with AEs transactions of purchase and sales with AEs as well as non-AEs. The appellant AEs. The appellant had stated that due to peculiar nature of diamond business, it was not possible had stated that due to peculiar nature of diamond business, it was not possible had stated that due to peculiar nature of diamond business, it was not possible to give the precise details of segmental financial of transactions with the AEs to give the precise details of segmental financial of transactions with the AEs to give the precise details of segmental financial of transactions with the AEs and non-AEs. The TPO held that in absence of providing segmen AEs. The TPO held that in absence of providing segmental financials tal financials by the appellant it was not possible to apply the TNNM properly. Further, in by the appellant it was not possible to apply the TNNM properly. Further, in by the appellant it was not possible to apply the TNNM properly. Further, in absence of sufficient details provided. by the appellant, it was not possible to absence of sufficient details provided. by the appellant, it was not possible to absence of sufficient details provided. by the appellant, it was not possible to apply for CUP or PSM as most appropriate method. The TPO held that the apply for CUP or PSM as most appropriate method. The TPO held that the apply for CUP or PSM as most appropriate method. The TPO held that the appellant had not maintained the documents as provided in clause d, g, h, i maintained the documents as provided in clause d, g, h, i maintained the documents as provided in clause d, g, h, i and j of Rule 10D(1) r.w.s. and j of Rule 10D(1) r.w.s. 92D of the I.T. Act. The appellant failed to comply to 92D of the I.T. Act. The appellant failed to comply to the provisions of notice u/s.92D(3) of the Act, therefore, the TPO levied penalty the provisions of notice u/s.92D(3) of the Act, therefore, the TPO levied penalty the provisions of notice u/s.92D(3) of the Act, therefore, the TPO levied penalty of Rs. 11,68,06,050/-u/s. u/s. 271G of the Act.” 5.1 Before us, the Ld. counsel for the assessee also relied on the Before us, the Ld. counsel for the assessee also relied on the Before us, the Ld. counsel for the assessee also relied on the decision of the Co-ordinate Bench in the case of Asst. CIT v. Kapu ordinate Bench in the case of Asst. CIT v. Kapu ordinate Bench in the case of Asst. CIT v. Kapu Gems (141 taxmann.com 14) and Dy. CIT v. Ratnakala Exports Pvt. Gems (141 taxmann.com 14) and Dy. CIT v. Ratnakala Exports Pvt. Gems (141 taxmann.com 14) and Dy. CIT v. Ratnakala Exports Pvt. Ltd. (ITA No. 5454/Mum/2017). Ltd. (ITA No. 5454/Mum/2017).
5.2 In view of identical question involved in the year under of identical question involved in the year under of identical question involved in the year under consideration as was available in assessment consideration as was available in assessment year 2012 year 2012-13, we do not find any infirmity in the order of the Ld. CIT(A) in following the any infirmity in the order of the Ld. CIT(A) in following the any infirmity in the order of the Ld. CIT(A) in following the binding precedent in the case of the assessee itself binding precedent in the case of the assessee itself, unless, reversed , unless, reversed or stayed by the Hon’ble High Court or stayed by the Hon’ble High Court . The grounds raised by the . The grounds raised by the Revenue in all the three appeals are accordingly dismissed. Revenue in all the three appeals are accordingly dismissed. Revenue in all the three appeals are accordingly dismissed.
In the result, all the three appeals of the Revenue are In the result, all the three appeals of the Revenue are In the result, all the three appeals of the Revenue are dismissed.
Order pronounced in the open Court on nounced in the open Court on 22/10/2024. /10/2024.