DCIT Vs D. Navinchandra Gems Private Limited (ITAT Mumbai)
The ITAT Mumbai disposed of Revenue’s appeals for Assessment Years 2013-14 and 2015-16 challenging the orders of the Commissioner of Income-tax (Appeals), which had deleted penalties levied under Section 271G of the Income-tax Act, 1961. The penalties arose from transfer pricing proceedings under Section 92CA(3), where the Transfer Pricing Officer (TPO) alleged non-furnishing of prescribed documentation under Section 92D read with Rule 10D of the Income-tax Rules, 1962.
The assessee, engaged in the business of importing rough diamonds, cutting and polishing diamonds, and exporting finished diamonds, had entered into international transactions with its Associated Enterprises (AEs). The assessee benchmarked these transactions using the Transactional Net Margin Method (TNMM). During the transfer pricing proceedings, the TPO sought documentation prescribed under Section 92D and Rule 10D. According to the TPO, the assessee failed to furnish certain documents, particularly those contemplated under Rule 10D(1)(g), (h) and (i), and furnished only entity-level margins instead of transaction-specific or segmental profitability relating to AE transactions. Although no transfer pricing adjustment was ultimately made, the TPO levied penalties under Section 271G at 2% of the value of the international transactions.
The assessee contended that it had furnished all relevant documentation to the extent available, that TNMM had been consistently accepted in earlier years, that segmental information had been provided wherever possible, and that certain documents required under Rule 10D were either irrelevant for TNMM or had not been specifically called for under Section 92D(3). It also relied on Section 273B, asserting that any alleged deficiency was supported by reasonable cause. Before the Commissioner (Appeals), the assessee further submitted that identical penalties in earlier years had already been deleted by appellate authorities, including the Tribunal. The Commissioner (Appeals) accepted these submissions and deleted the penalties.
