DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 5(1)(1), MUMBAI V. BLUE STAR DIAMONDS PVT. LTD ., MUMBAI

ITA 1719/MUM/2024

AI Insights

The case involves Blue Star Diamonds Pvt. Ltd., which engaged in international transactions with its associated enterprises (AEs) for the purchase and sale of rough and polished diamonds. The company used the Transactional Net Margin Method (TNMM) to benchmark these transactions. The Transfer Pricing Officer (TPO) was not satisfied with the entity-level benchmarking and required segmental financials to properly apply TNMM. The assessee argued that due to the complexities of the diamond business, it was impractical to provide such details. The TPO, not receiving the required documentation, levied penalties under section 271G for non-compliance with documentation requirements under Rule 10D(1) read with section 92D of the Act. However, the CIT(A) deleted these penalties, a decision which the Tribunal upheld, referencing a similar case involving the same assessee for a different assessment year.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 37986 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 16-10-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 05-04-2024
• Other Referred Cases: Asst. CIT v. Kapu Gems (141 taxmann.com 14), Dy. CIT v. Ratnakala Exports Pvt. Ltd. (ITA No. 5454/Mum/2017)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH
• Assessee Lawyers: MADHUR AGRAWAL
• Keywords: Transfer pricing; International transaction
• Section: 92D

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA Nos. 1704, 1721 & 1719/MUM/2024 Assessment Years: 2013-14 to 2015-16 Dy. CIT-5(1)(1), Room 568, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. Blue Star Diamonds Pvt. Ltd., CE-9010, 9013, 9th floor, Tower-C, Bharat Diamond Bourse, BKC, Bandra (E), Mumbai-400051. PAN NO. AADCB 6475 E Appellant Respondent Assessee by : Mr. Madhur Agrawal Revenue by : Ms. Neena Jeph, CIT-DR Date of Hearing : 16/10/2024 Date of pronouncement : 22/10/2024 ORDER PER OM PRAKASH KANT, AM 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 ‘the Act’) levied by the A documents/information for international transactions associated enterprises (AEs) in these appeal and disposed off by way of this consolidated order for convenience. 2. Briefly stated, facts of the case are that the assessee was engaged in the business of trading/manufacturing of rough and polished diamonds. In the a appeals, the assessee had entered into international transaction with its associated enterprises for purchase/sale of rough diamonds as well as purchase/sale of polished diamonds. The assessee benchmarked the transactio polished diamonds by taking transactional net margin method (TNMM) as the most appropriate method using sales as profit level indicator (PLI). The assessee took margin entity level and compared with companies. However, according to the Ld. Transfer Pricing Officer (TPO), the assessee was required to compare profitability of the AE segment with the comparables and therefore, the assessee was required to maintain documents/i segmental profitability between AEs and Non Rule 10D(1) r.w.r. 92D of the Act. However, the assessee explained that in view of the intricacies involved in diamond Blue Star Diamonds Pvt. Ltd. ITA Nos. 1704, 1721 & 1719/MUM/2024 ‘the Act’) levied by the Assessing Officer for non-maintenance of the documents/information for computation of arm’s length international transactions carried out by the assessee with its associated enterprises (AEs). As common grounds have been raised in these appeal and therefore same were heard together and disposed off by way of this consolidated order for convenience. Briefly stated, facts of the case are that the assessee was engaged in the business of trading/manufacturing of rough and polished diamonds. In the assessment year involved in captioned appeals, the assessee had entered into international transaction with its associated enterprises for purchase/sale of rough diamonds as well as purchase/sale of polished diamonds. The assessee benchmarked the transaction of purchase and sale of rough and polished diamonds by taking transactional net margin method (TNMM) as the most appropriate method using gross profit sales as profit level indicator (PLI). The assessee took margin entity level and compared with the margin of the comparable companies. However, according to the Ld. Transfer Pricing Officer the assessee was required to compare profitability of the AE segment with the comparables and therefore, the assessee was required to maintain documents/information for providing segmental profitability between AEs and Non-AEs as required under Rule 10D(1) r.w.r. 92D of the Act. However, the assessee explained that in view of the intricacies involved in diamond Blue Star Diamonds Pvt. Ltd. 2 ITA Nos. 1704, 1721 & 1719/MUM/2024 maintenance of the arm’s length value of carried out by the assessee with its . As common grounds have been raised therefore same were heard together and disposed off by way of this consolidated order for convenience. Briefly stated, facts of the case are that the assessee was engaged in the business of trading/manufacturing of rough and ssessment year involved in captioned appeals, the assessee had entered into international transaction with its associated enterprises for purchase/sale of rough diamonds as well as purchase/sale of polished diamonds. The assessee n of purchase and sale of rough and polished diamonds by taking transactional net margin method gross profit over sales as profit level indicator (PLI). The assessee took margin at the comparable companies. However, according to the Ld. Transfer Pricing Officer the assessee was required to compare profitability of the AE segment with the comparables and therefore, the assessee was nformation for providing AEs as required under 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 practically difficult for the segmental results of the assess for AE and nonAE, for by the TPO. The Ld. TPO rejected the contention of the assessee and levied penalty invoking section 271G of the Act for all the three assessment years involved in present appeals. 3. On further appeal finding of the Co-ordinate Bench of the Tribunal in the case of the assessee for assessment year 2012 deleted the penalties. 4. Aggrieved, the Revenue is in appeal raising the grounds as reproduced above. 5. We have heard rival submission of the parties and perused the relevant material on record. The Ld. CIT(A) has summarized the facts of the case and follow assessment year 2012 assessment years from AY 2013 under: “5.3.1 The facts of the case of the appellant are that during A.Y.2013 appellant had entered into international transaction with AE as under; S. No. Nature of international transactions 1. Purchase/sale of rough diamonds 2. Purchase/sale of polished diamonds The appellant bench marked the transaction of purchase and sale of rough diamond and polished diamond from/to the AE by taking TNNM as most appropriate method using operating profit/sales as Profit Level Indicator (PLI). The appellant took the margin at entity level and compa with the comparable companies. Blue Star Diamonds Pvt. Ltd. ITA Nos. 1704, 1721 & 1719/MUM/2024 for the assessee to furnish the information of segmental results of the assess for AE and nonAE, which was called the TPO. The Ld. TPO rejected the contention of the assessee and levied penalty invoking section 271G of the Act for all the three ears involved in present appeals. On further appeals, the Ld. CIT(A) however following the ordinate Bench of the Tribunal in the case of the assessee for assessment year 2012-13 in ITA No. 6553/Mum/2017 . Aggrieved, the Revenue is in appeals before us, by way of raising the grounds as reproduced above. We have heard rival submission of the parties and perused the relevant material on record. The Ld. CIT(A) has summarized the facts of the case and following the finding of the Tribunal (supra) for 2012-13 has deleted the penalties assessment years from AY 2013-14 to AY 2015-16 observing as 5.3.1 The facts of the case of the appellant are that during A.Y.2013 appellant had entered into international transaction with AE as under; Nature of international transactions Amount in Rs. Purchase/sale of rough diamonds 298,69,23,843/ Purchase/sale of polished diamonds 129,96,54,693/ marked the transaction of purchase and sale of rough diamond and polished diamond from/to the AE by taking TNNM as most appropriate method using operating profit/sales as Profit Level Indicator (PLI). The appellant took the margin at entity level and compared the transactions with the comparable companies. The profit margin of the comparable was Blue Star Diamonds Pvt. Ltd. 3 ITA Nos. 1704, 1721 & 1719/MUM/2024 the information of which was called the TPO. The Ld. TPO rejected the contention of the assessee and levied penalty invoking section 271G of the Act for all the three , the Ld. CIT(A) however following the ordinate Bench of the Tribunal in the case of the 553/Mum/2017 before us, by way of We have heard rival submission of the parties and perused the relevant material on record. The Ld. CIT(A) has summarized the ing the finding of the Tribunal (supra) for for all the three 16 observing as 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; Amount in Rs. 298,69,23,843/- 129,96,54,693/- marked the transaction of purchase and sale of rough diamond and polished diamond from/to the AE by taking TNNM as most appropriate method using operating profit/sales as Profit Level Indicator (PLI). red the transactions The profit margin of the comparable was 4.04% and that of the appellant was 5.36%. 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 the transactions at entity level and applying TNNM as most appropriate method. The TPO asked the appellant to provide segmental financials of transactions of purchase and sales with AEs 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 and non-AEs. The TPO held that in absence of providing segmen 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 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 and j of Rule 10D(1) r.w.s. the provisions of notice u/s.92D(3) of the Act, therefore, the TPO levied penalty of Rs. 11,68,06,050/-u/s. 5.1 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 Gems (141 taxmann.com 14) and Dy. CIT v. Ratnakala Exports Pvt. Ltd. (ITA No. 5454/Mum/2017). 5.2 In view of identical question involved in the year under consideration as was available in assessment not find any infirmity in the order of the Ld. CIT(A) in following the binding precedent in the case of the assessee itself or stayed by the Hon’ble High Court Revenue in all the three appeals are accordingly dismissed. 6. In the result, all the three appeals of the Revenue are dismissed. Order pronounced in the open Court on Sd/- (KAVITHA RAJAGOPAL JUDICIAL MEMBER Blue Star Diamonds Pvt. Ltd. ITA Nos. 1704, 1721 & 1719/MUM/2024 4.04% and that of the appellant was 5.36%. Thus, the appellant considered the transaction at arm's length price. During the transfer pricing proceedings, the s not satisfied with the method adopted by the appellant to bench mark the transactions at entity level and applying TNNM as most appropriate method. The TPO asked the appellant to provide segmental financials of transactions of purchase and sales with AEs as well as non-AEs. The appellant 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 AEs. The TPO held that in absence of providing segmental financials 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 apply for CUP or PSM as most appropriate method. The TPO held that the maintained the documents as provided in clause d, g, h, i and j of Rule 10D(1) r.w.s. 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 u/s. 271G of the Act.” Before us, the Ld. counsel for the assessee also relied on the ordinate Bench in the case of Asst. CIT v. Kapu Gems (141 taxmann.com 14) and Dy. CIT v. Ratnakala Exports Pvt. Ltd. (ITA No. 5454/Mum/2017). of identical question involved in the year under consideration as was available in assessment year 2012 any infirmity in the order of the Ld. CIT(A) in following the binding precedent in the case of the assessee itself, unless, reversed or stayed by the Hon’ble High Court . The grounds raised by the Revenue in all the three appeals are accordingly dismissed. In the result, all the three appeals of the Revenue are nounced in the open Court on 22/10/2024. Sd/ KAVITHA RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Blue Star Diamonds Pvt. Ltd. 4 ITA Nos. 1704, 1721 & 1719/MUM/2024 Thus, the appellant considered the transaction at arm's length price. During the transfer pricing proceedings, the s not satisfied with the method adopted by the appellant to bench mark the transactions at entity level and applying TNNM as most appropriate method. The TPO asked the appellant to provide segmental financials of AEs. The appellant 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 tal financials 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 apply for CUP or PSM as most appropriate method. The TPO held that the maintained the documents as provided in clause d, g, h, i 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 Before us, the Ld. counsel for the assessee also relied on the ordinate Bench in the case of Asst. CIT v. Kapu Gems (141 taxmann.com 14) and Dy. CIT v. Ratnakala Exports Pvt. of identical question involved in the year under year 2012-13, we do any infirmity in the order of the Ld. CIT(A) in following the , unless, reversed . The grounds raised by the Revenue in all the three appeals are accordingly dismissed. In the result, all the three appeals of the Revenue are /10/2024. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER Mumbai; Dated: 22/10/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Blue Star Diamonds Pvt. Ltd. ITA Nos. 1704, 1721 & 1719/MUM/2024 Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Blue Star Diamonds Pvt. Ltd. 5 ITA Nos. 1704, 1721 & 1719/MUM/2024 BY ORDER, (Assistant Registrar) ITAT, Mumbai "