Case Law Details
ACIT Vs Eurostar Diamonds India Pvt Ltd. (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai delivered a notable judgment in the case of ACIT vs Eurostar Diamonds India Pvt Ltd. concerning the levy of penalty under section 271G of the Income-tax Act, 1961 (the Act). This case revolves around the failure of the taxpayer to furnish certain information required for Transfer Pricing (TP) documentation. Here’s a detailed analysis:
Facts of the Case: Eurostar Diamonds India Pvt Ltd., the assessee, had engaged in various international transactions, which were benchmarked using the Transactional Net Margin Method (TNMM). During the assessment proceedings for the Assessment Year 2011-12, the Transfer Pricing Officer (TPO) requested the assessee to furnish a separate Profit Level Indicator (PLI) for Associated Enterprise (AE) and Non-AE transactions. The assessee attempted to provide the requested segment-wise sales, purchase, and expense data. Although the TPO did not make any Transfer Pricing adjustments citing the complexity of the diamond industry, a penalty under section 271G was levied for not furnishing the required information.
Issue at Hand: The central issue was whether a penalty under section 271G is justifiable when the TPO has not made any adjustments to the Arm’s Length Price (ALP) and the assessee made substantial compliance with the TP documentation requirements.
Decision and Rationale: The ITAT observed that the assessee made a genuine attempt to comply with the TPO’s request by segregating and submitting the required data. Notably, the TPO accepted the ALP determination without proposing any adjustments. The ITAT referenced several precedents where penalties under section 271G were deleted under similar circumstances, emphasizing that such penalties were neither fair nor reasonable when there’s substantial compliance and no ALP adjustment.
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