DCIT Vs Ratnakala Export Pvt Ltd (ITAT Mumbai)
The only substantial issue that has to be decided is whether the CIT(A) was justified in deleting the penalty levied under section 271G, the other grounds being ancillary to this. From the facts of the case, it is evident that the Assessee has furnished the necessary details for determination of the arm’s length price though (ALP) was unable to provide segment-wise profit & loss account of the AE segment and the non AE segment since the Assessee did not maintain separate books of account for AE & non AE segments. Apart from this, the Assessee has complied with the TPO’s requirement.
ITAT held considering the practical difficulties involved in furnishing the segmental details of AE transactions and non-AE transactions, penalty under Sec. 271G could not be justifiably imposed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the Revenue against the order passed by the Ld.CIT(A)-57, Mumbai dated 31/05/2017 deleting the penalty levied by the Assessing Officer under section 271G of the I.T. Act for assessment year 201213. The grounds of appeal are as follow:-
“1. Whether the 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 entire level margins which consists of overall profits on AE and significant non-AE transactions.
2. 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 compiled with clause (D),(g),(h) and (m) of Rule 10D(1), that have been specifically invoked by the TPO.
3. Whether the CIT(A) was not incorrect in stating that the TPO should have asked for copies of profit and loss accounts and balance sheets of AE’s to make an overall comparision with the gross profitability levels of the assessee with AE’s to ascertain diversion of profits, if any ignoring the finding of the ITAT in the case of Aztec Software Technology Services Ltd. Vs ACIT (ITA No. 584/Bang/2006), in which it has been held that there is no legal requirement for the AO to prima facie demonstrate tax avoidance before invoking the provisions of section 92 and 92CA of the Act.
4. The Id. CIT(A) erred in holding that there was reasonable cause for noncompliance of sec.92D r/w. Rule 10D(1) without specifying the cause of such noncompliance or demonstrating how the same was reasonable.
5. The Id. CIT(A) erred in deleting the penalty for the reason that no adjustment was made to the ALP, failing to note that by not producing the material documents necessary to determined the ALP under any of the prescribed methods u/s 92C(1), the assessee effectively prevented the TPO to make any determination as recorded by the TPO in Para 8 of the order u/.92CA(3).”
3. The brief facts are that the assessee is engaged in the business of purchasing rough diamonds within and outside India, cutting / polishing the same into finished goods and selling the polished diamonds to customers including foreign entities. The assessment order under section 143(3) read with section 92CA(3) of the I.T. Act dated 21/01/2016 was passed. During the course of the assessment proceedings, the Assessing Officer made reference to the Transfer Pricing Officer (for short ‘TPO’) to determine the arms length price for the following international transactions:-
