Failure To Furnish Segmental Information U/s 92D By Diamond Trader Is No Basis To Levy Penalty U/s 271G: Mumbai ITAT

On finding that transfer pricing adjustment made in the Arm's Length Price to be erroneous, the Mumbai ITAT deleted the penalty u/s 271G of Income Tax Act, 1961 for non-furnishing of requisite information u/s 92D.

The Bench comprising Amit Shukla (Judicial Member) and S. Rifaur Rahman (Accountant Member) observed that, “levy of penalty under section 271G of the Act is neither fair nor reasonable and it is not justified in the present facts of the case viz., the nature of diamond trade, substantial compliance made by the assessee and the reasonable cause submitted before Transfer Pricing Officer and above all when there is no adjustment made in the Arm's Length Price, the levy of penalty under section 271G is hereby deleted.” (Para 6)

As per the brief facts of the case, the assessee entered into international transactions and benchmarked the same by adopting TNM Method. During course of assessment proceedings, the Transfer Pricing Officer asked the assessee to furnish separate profit level indicator (PLI) in AE and Non-AE segment-wise either profit and loss account and / or some other evidences to show that the international transactions were at Arm's Length Price. The assessee attempted to segregate the segment wise figures of sales, purchase and expenses and submitted the segment wise data on AE and Non-AE sales and worked out the OP/Sales Margins. The TPO has not discussed anything in his report and considering the difficulties in the diamond industry and complication involved in polished and non-polished diamonds. The Transfer Pricing Officer has accepted the ALP and not proposed any adjustment. However, proceeded to levy penalty under section 271G, because assessee has not furnished required information.

The Bench observed that the assessee has not filed the segment wise results of purchase and sales of polished and unpolished diamonds relating to international transactions.

The Bench further found that the AO proceeded to levy the penalty under section 271G and at the same time TPO has not proposed any Arm's Length Price adjustment.

Referring to the cases Annapurna Business Solutions v. ACIT [52 SOT 0140] and DCIT v. Magick Woods Exports (2012) 32 CCH 0422, the ITAT deleted the penalty under section 271G and dismissed the appeal raised by Revenue.

Counsel for Appellant/ Department: Shilpa N.C

Counsel for Respondent/ Taxpayer: None

Case Title: ACIT verses M/s. Eurostar Diamonds India Pvt Ltd.

Case Number: ITA NO. 5643/MUM/2016

Click here to read/ download the Order