DCIT-14(2)(1), MUMBAI V. M/S.LEO SCHACHTER DIAMONDS INDIA PRIVATE LIMITED , MUMBAI

ITA 5931/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6806 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 18-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K SHIVRAM SHRI SHASHANK DUNDU
• Keywords: Bogus purchase; Transfer pricing; Search and seizure; International transaction; Reasonable cause; Assessment record
• Section: 273B; 143(3); 92D; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY & SHRI M.BALAGANESH , AM ITA NO. 5931 / MUM/20 1 7 ( ASSESSMENT YEAR : 2011 - 12 ) DCIT 14(2)(1) 432, 4 TH FLOOR AAYAKAR BHAVAN MUMBAI 400 020 VS. M/S. LEO SCHACHTER DIAMON DS INDIA PVT. LTD., FE 3011B, F TOWER BHARAT DIAMOND BOURSE B.K.C. BANDRA (E) MUMBAI 400 051 PAN/GIR NO. AABCL5114E ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI JEEVAN LAL LAVIDIYA ASSESSEE BY SHRI K. SHIVRAM / SHRI SHASHANK DUNDU DATE OF HEARI NG 20 / 02 /201 9 DATE OF PRONOUNCEMENT 28 / 02 /201 9 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL FILED BY REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) 57, [HEREINAFTER REFERRED TO AS THE LD CIT ( A ) ] MU MBAI DATED 27/07/2015 IN THE MATTER OF PENALTY ORDER PASSED U/S. 271G OF THE INCOME TAX ACT, 1961. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY LEVIED U/S.271G OF THE IT ACT IN THE FACT S AND CIRCUMSTANCES OF THE CASE. ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 2 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND EXPORT OF CUT AND POLISHED DIAMONDS AND ALSO RENDERING SERVICES IN CONNECTION WITH RE - ASSORTMENT OF DIAMONDS OF THE LOCAL PARTIE S. DURING THE YEAR UNDER CONSIDERATION, PURSUANT TO THE RETURN FILED BY THE ASSESSEE, THE SAME WAS SELECTED FOR SCRUTINY AND REFERENCE MADE TO TRANSFER PRICING OFFICER (TPO) BY THE LD. AO U/S.92CA(1) OF THE ACT FOR THE PURPOSE OF DETERMINING THE ARMS LEN GTH PRICE IN RESPECT OF PURCHASE AND SALE TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATED E NTERPRISES (AES). THE AUDIT REPORT IN FORM 3ECB WAS DULY SUBMITTED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME AND ALSO BEFORE THE LD. TPO. THE LD. TPO IN THE O RDER PASSED U/S.92CA(3) OF THE ACT DATED 20/09/2015 OBSERVED THAT THE AUTHORISED REPRESENTATIVES OF THE ASSESSEE APPEARED AND FILED DETAILS AS REQUIRED FROM TIME TO TIME. HE ALSO OBSERVED THAT THE DETAILS AND DOCUMENTS FURNISHED IN RELATION TO THE INTERNAT IONAL TRANSACTIONS WITH THE AES VIS - - VIS COMPUTATION OF ALP WERE DISCUSSED AND EXAMINED. THE LD. TPO OBSERVED THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEES SUBMISSION AND DOCUMENTS FURNISHED, THE VALUE OF INTERNATIONAL TRANSACTI ONS WITH AES ARE CONSIDERED AT ALP. 3.1. DURING THE COURSE OF PROCEEDINGS BEFORE THE LD. TPO, THE ASSESSEE WAS ASKED TO SUBMIT INTERNAL T RANSACTION N ET M ARGIN M ETHOD (TNMM) TO WORK O UT THE PROFITABILITY OF AE AND NON - AE SEGMENT. IN THIS REGARD, THE ASSESS EE SUBMITTED THAT IT WAS NOT PRACTICAL TO IDENTIFY AND BIFURCATE THE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 3 STOCK, COST AND REVENUE BETWEEN AE AND NON - AE SEGMENT AND ACCORDINGLY NOT PRACTICAL TO IDENTIFY THE PROFITABILITY BETWEEN THE AE AND NON - AE SEGMENT. THE LD. TPO OBSERVED THAT THE NON - FURN ISHING OF SUCH INFORMATION HAS THWARTED THE DEPARTMENT FROM EXAMINATION OF CORRECTNESS OF THE ALP. THE LD. TPO OBSERVED IN HIS ORDER THAT SINCE ASSESSEE HAS FILED TO MAINTAIN DOCUMENTATION AS REQUIRED UNDER CLAUSE (G) AND (H) OF RULE 10D(1) R.W.S. 92D(3) O F THE ACT, PENALTY PROCEEDINGS U/S.271G OF THE ACT WERE INITIATED THEREON. BEFORE THE ASSESSING OFFICER, THE LD. AO OBSERVED IN HIS ASSESSMENT ORDER FRAMED U/S.143(3) OF THE ACT DATED 30/03/2015 ON THE ASPECT OF ISSUE OF BOGUS PURCHASES, THE ASSESSEE HAD R EPLIED THAT IT HAD MAINTAINED ALL SALES AND PURCHASE INVOICES AND THE RELEVANT STOCK RECORD. AS PRAYED BY THE ASSESSEE TO TAX ONLY THE NET PROFIT ON THE SAID BOGUS PURCHASES, THE LD. AO IN THE FINAL ASSESSMENT COMP UTED PROFIT AT 3.2 0 % OF THE ALLEGED BOGUS PURCHASES AND MADE ADDITION OF RS.3,17,174/ - TO THE RETURNED INCOME AND COMPLETED THE ASSESSMENT THEREON. LATER, THE LD. AO IN THE COURSE OF PENALTY PROCEEDINGS U/S.271G OF THE ACT OBSERVED AS UNDER: - S. NO. NATURE OF TRANSACTION FY 20 10 - 11 METHOD USED BY ASSESSEE FY 2009 - 10 I MANUFACTURING OF DIAMONDS 1 IMPORT OF POLISHED DIAMONDS 1,95,61,82,850 TNMM 1,89,89,76,724 2 EXPORT OF CUT AND POLISHED 2,45,78,79,851 TNMM 1,31,53,34,076 ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 4 TOTAL 4,41,40,62,701 3,21,43,10,800 II PUR CHASE OF ASSETS 1 PURCHASE OF FIXED ASSET 4,10 , 542 CUP - III REIMBURSEMENT OF EXPENSES 1 REIMBURSEMENT OF EXPENSES 93,02,562 CUP - 3.2. THE LD. AO OBSERVED THAT ASSESSEE HAD NOT FURNISHED THE WORKINGS OF AE AND NON - AE SEGMENT AL PROFITABILITY AS CALLED FOR BY HIM AND ACCORDINGLY , CONCLUDED THAT THE RELEVANT RECORDS IN TERMS OF CLAUSE (G) AND (H) OF RULE 10D(1) WAS NOT MAINTAINED BY THE ASSESSEE. 3.3. IN RESPONSE THERETO, THE ASSESSEE REPL IED BEFORE THE LD. AO AS UNDER: - IN RES PECT OF THE SAID NOTICE, THE COMPANY HUMBLY SUBMITS THAT IT HAS ALREADY PROVIDED THE SEGMENTAL RESULTS FOR AE AND NON - AE TRANSACTION TO THE EXTENT FEASIBLE (I.E. USING THE REVENUES AS ALLOCATION KEY). THE SAME WAS PROVIDED DURING THE COURSE OF TP ASSESSMEN T PROCEEDINGS. IT SEEMS THAT THE LEARNED TPO HAS I NADVERTENT/Y IGNORED THE SAID SUBMISSION OF THE ASSESSEE (SINCE THE TPO HAD NOT REBUTTED THE SEGMENTAL ANALYSIS SUBMITTED BY THE ASSESSEE) AND CONTINUED WITH HYPOTHESIS THAT SEGMENTAL INFORMATION WAS NOT AV AIL AB L E AND HENCE, INITIATED THE PENALTY PROCEEDINGS. WE REQUEST YOUR GOODSELF TO VERIFY THE ASSESSMENT RECORDS AND ACCORDINGLY, THE PROCEEDINGS MAY BE DROPPED. IN THIS CONTEXT, THE ASSESSEE PLACES RELIANCE ON THE FINDINGS OF THE HONORABLE DELHI /TAT IN C ASE OF CARGILL INDIA (P) LTD V/S DEPUTY COMMISSIONER OF INCOME - TAX, CIR. 3(1), NEW DELHI [2008J 110 /TD 616 (DELHI) WHEREIN THE FOLLOWING WAS OBSERVED - IT IS CLEAR FROM THE CONSIDERATION OF R. 100 AND ITS VARIOUS SUB - RULES, THAT DOCUMENTS AND INFORMATION PRESCRIBED UNDER THE RULE IS VOLUMINOUS AND IT COULD ONLY BE IN RAREST CASES THAT ALL THE CL AUSES OF SUB - RULES WOULD BE ATTRACTED. IT IS NOT POSSIBLE TO CASUALLY ASK FOR INFORMATION UNDER ALL THE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 5 CLAUSES. ONE OR MORE CLAUSES OF SUB - RULE (1) ARE APPLICABLE AND NOT ALL CLAUSES OF THE RULE IN A GIVEN CASE. IT WOULD ALL DEPEND UPON THE FACTS AND CIRCUMSTANCES OF THE CASE MORE PARTICULARLY THE NATURE OF INTERNATIONAL TRANSACTIONS CARRIED OR SERVICES INVOLVED. UNDER SUB - S. (2) OF S. 92CA, EVIDENCE IN SUPPORT OF ALP WOULD ORDINARILY INCLUDE INFORMATION AND DOCUMENTS REFERRED TO IN SUB - S. (3) OF S. 92D WHICH ARE PRESCRIBED IN VARIOUS CLAUSES OF R. 10D(1). DOCUMENTS AND INFORMATION PRESCRIBED ARE REQUIRED TO BE MAINTAINED TO HELP TO DETERMINE ALP AND ARE TO BE FILE D TO SUPPORT ALP BY THE TAXPAYER IN RESPONSE TO NOTICE UNDER S. 92CA(2). IF ON CONSIDERATION OF EVIDENCE PRODUCED BY THE TAXPAYER THE TPO IS SATISFIED THAT ALP HAS BEEN PROPERLY AND CORRECTLY DETERMINED BY THE TAXPAYER, IT IS THE END OF THE MATTER. THERE I S NO QUESTION OF ISSUING FURTHER NOTICE UNDER ANY PROVISION TO THE TAXPAYER. HOWEVER, IF COMPLETE INFORMATION IS NOT FURNISHED, OR OTHERWISE, TPO IS OF THE VIEW THAT MORE INFORMATION ON SPECIFIED POINTS IS REQUIRED FROM THE TAXPAYER, THE TPO CAN ISSUE NOTI CE UNDER SUB - S. (3) OF S. 92D. TPO CAN ALSO ISSUE NOTICE UNDER S. 92CA(3), DEPENDING UPON THE FACTS OF THE CASE AND THE INFORMATION NEEDED. ONLY IN CASE OF FAILURE OF THE TAXPAYER TO SUPPORT ITS ALP BY FILING NECESSARY EVIDENCE, QUESTION OF REQUIRING TAXPA YER TO FURNISH PRESCRIBED INFORMATION WOULD ARISE.' (EMPHASIS SUPPLIED) FOR THE CAPTIONED YEAR, THE COMPANY IS CHARACTERIZED AS A MANUFACTURER AND EXPORTER OF CUT AND POLISHED DIAMONDS AND TRANSACTIONAL NET MARGIN METHOD ('TNMM') IS SELECTED AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS AT ENTITY LEVEL. IN THE ABOVE REFERRED ORDER, THE VALUE OF INTERNATIONAL TRANSACTIONS IS CONSIDERED AT ALP AND THE OPERATING PROFIT MARGIN OF 3.20% OF THE COMPANY HAS BEEN ACCEPTED BY THE LEARN ED TPO. IN THIS CASE, IT WAS POSSIBLE THAT THE DIAMONDS PURCHASED FROM AES WERE COST ITEM FOR DIAMONDS SOLD TO NON - AES, RESULTANT THE TRANSACTION OF PURCHASE OF DIAMONDS FROM AES WOULD BE PART OF NET MARGIN OF NON - AE SEGMENT AND THE SAME WOULD NOT BE BEN CHMARKED WHICH WAS AGAINST THE PRINCIPAL OF TNMM. ACCORDINGLY, THE ASSESSEE RECOGNIZED THAT THE SEGMENTAL ANALYSIS MAY NOT BE APPROPRIATE AS THE SAME WOULD NOT CONSIDER THE TRANSACTIONS OF PURCHASE OF DIAMONDS FROM AES AND SOLD TO NON - AES THEREBY NOT DISCL OSING THE APPROPRIATE PROFITABILITY OF AE AND NON - AE SEGMENTS AND THE PURPOSE OF SEGMENTAL ANALYSIS WOULD NOT BE ACCOMPLISHED. IN THIS CONTEXT, THE ASSESSEE PLACED RELIANCE ON THE JUDICIAL PRONOUNCEMENT IN CASE OF M/S. THYSSENKRUPP INDUSTRIES INDIA PRIVAT E LIMITED V/S THE ADDL. COMMISSIONER OF INCOME - TAX RANGE 3(3) MUMBAI, ITA N O.6460/MUM/2012: AY 2008 - 09 THE RELEVANT EXTRACT IS STATED BELOW: ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 6 'IT IS RELEVANT TO NOTE THAT SUB - CLAUSE (I) OF RULE 10B(1)(E), WHICH IS FIRST S TEP IN THE COMPUTATION OF ALP UNDER TN MM, TALKS OF ASCERTAINING THE WITH MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL T RANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE. WE HAVE NOTICED THE DEFINITION OF 'INTERNATIONAL TRANSACTION' ABOVE AS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES. A BARE PERUSAL OF THIS PROVISION DIVULGES THAT THIS STEP CONTEMPLATES THE DETERMINATION OF ACTUAL PROFIT REALIZED ON TRANSACTION BETWEEN TWO AES. IT IS THIS PROFIT MARGIN WHICH IS SCRUTINIZED FOR DETERMINING AS TO WHETHER OR NOT IT IS AT ARM'S LENGTH. THE MARGIN WITH WHICH SUCH MARGIN EARNED BY THE ASSESSEE IS COMPARED WITH FOR DETERMINING THE ALP, CAN BE INTERNALLY AVAILABLE FROM COMPARABLE TRANSACTION(S) OR FROM EXTERNALLY AVAILABLE CASES, IF THE ENTERPRISE HAS ENTERED INTO SIMILA R TRANSACTIONS WITH THIRD PARTIES AS ARE UNDER CONSIDERATION WITH THE AE, THEN THE PROFIT REALIZED FROM SUCH TRANSACTIONS WITH THIRD PARTIES IS A GOOD MEASURE TO BENCHMARK THE MARGIN FROM INTERNATIONAL TRANSACTION. THUS, ON ONE HAND WE NEED TO HAVE PROFIT MARGIN WHICH IS TO BE COMPARED FROM TRANSACTIONS WITH THE AES AND ON THE OTHER HAND, WE NEED TO FIND OUT THE PROFIT MARGIN FROM SIMILAR TRANSACTIONS WITH NON - AES WITH WHICH COMPARISON IS TO BE MADE. BOTH THESE FIGURES SHOULD COME FROM SEPARATE WATERTIGHT C OMPARTMENTS. NO OVERLAPPING IS PERMISSIBLE IN THE COMPOSITION OF SUCH COMPARTMENTS. IN OTHER WORDS, NEITHER THE FIRST COMPARTMENT OF PROFIT MARGIN FROM AE TRANSACTIONS SHOULD INCLUDE PROFIT MARGIN FROM THE TRANSACTIONS WITH NON - AES, NOR THE SECOND COMPARTM ENT SHOULD HAVE PROFIT MARGIN FROM THE TRANSACTIONS WITH THE AES. IF SUCH AN OVERLAPPING TAKES PLACE, THEN THE ENTIRE WORKING IS VITIATED, THEREBY OBLITERATING THE FINER LINE OF DISTINCTION OF THE PROFIT MARGIN TO BE COMPARED AND THE PROFIT MARGIN TO BE CO MPARED WITH.' (EMPHASIS SUPPLIED) IN THE AFORESAID CASE, THE HON'BLE MUMBAI ITAT HELD THAT IF THE ASSESSEE HAS ENTERED INTO SIMILAR TRANSACTIONS WITH THIRD PARTIES AS SIMILAR TO AES, THEN THE PROFIT REALIZED FROM SUCH TRANSACTIONS WITH THIRD PARTIES IS A GOOD MEASURE TO BENCHMARK THE MARGIN FROM INTERNATIONAL TRANSACTION. HAVING SAID THAT, THE ITAT ALSO STATED THAT THE PROFITABILITY FROM THE AE AND NON - AE TRANSACTIONS NEEDS TO BE IDENTIFIED SEPARATELY AND CANNOT BE OVER - LAPPING I.E. NEITHER THE PROFIT MARG IN FROM AE TRANSACTIONS SHOULD INCLUDE PROFIT MARGIN FROM THE TRANSACTIONS WITH NON - AES, NOR THE PROFIT MARGINS FROM NON - AES SHOULD HAVE PROFIT MARGIN FROM THE TRANSACTIONS WITH THE AES. IF SUCH AN OVERLAPPING TAKES PLACE, THEN THE ENTIRE WORKING IS VITIAT ED, THEREBY OBLITERATING THE FINER LINE OF DISTINCTION OF THE PROFIT MARGIN TO BE COMPARED AND THE PROFIT MARGIN TO BE COMPARED WITH. ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 7 IN VIEW OF THE ABOVE, THE ASSESSEE HUMBLY SUBMITS THAT THE BUSINESS ACTIVITIES OF THE ASSESSEE CANNOT BE SEGREGATED IN TO 2 WATER TIGHT COMPARTMENTS AS THAT OF AES AND NON - AES. HENCE THERE ARE ALL POSSIBILITIES THAT THE DIAMONDS PURCHASED FROM AES WERE COST ITEM FOR DIAMONDS SOLD TO NON - AES AND VICE VERSA. ACCORDINGLY, IT WAS NOT CONSIDERED FEASIBLE TO IDENTIFY PROFITABILITY SEGMENT OF AE VIS - A - VIS NON - AE. IT IS PERTINENT TO NOTE THAT THE TOTAL EXPORT TURNOVER OF THE ASSESSEE IS INR 290 .69 CRORES OF WHICH THE EXPORT SALES TO NON - AES IS ONLY INR 16.21 CRORES (APPROX. 5% ONLY) WHICH IS VERY MINISCUIE AS COMPARED TO THE EXPORT SALES OF THE ASSESSEE. HENCE THE SEGMENT OF AE VIS - A - VIS NON - AE IS NOT COMPARABLE DUE TO VOLUME DIFFERENCES. FURTHER, THE NON - AE SALES CONSISTS OF SEVERAL SALES INVOICES (RETAIL SALES) WHEREIN COMPARATIVELY THE LOTS OF DIAMONDS SOLD CONSISTS OF FEW PIECES THAN THAT SOLD TO AES. DUE TO THE INSIGNIFICANT VOLUME AND INHERENT LIMITATIONS OF THE PRODUCT SOLD, IT WAS CONSIDERED PRUDENT BY THE ASSESSEE TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS AT THE ENTITY LEVEL AND CONSIDER COMPANIES ENGAGED IN MANUFACTURING O F CUT AND POLISHED DIAMONDS FOR COMPARABILITY ANALYSIS. ACCORDINGLY, THE COMPANY CONSIDERED EXTERNAL TNMM AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS AND EVERY DETAIL AS PER CLAUSE G AND H TO RULE 10D(1) WERE FURNISHED DU RING THE ASSESSMENT PROCEEDINGS WHICH WAS DULY ACCEPTED BY THE LEARNED TPO. THEREFORE, IT IS HUMBLY SUBMITTED THAT THERE IS NO QUESTION OF NON - MAINTENANCE OF DOCUMENTS AND NO PENALTY SHOULD BE LEVIED FOR THE SAME. FURTHER, THE ASSESSEE HAS ALSO PLACED REL IANCE ON THE FOLLOWING JUDICIAL PRECEDENTS: THE COMPANY SUBMITS THAT THE LEARNED TPO HAD PASSED THE ORDER AND ACCEPTED THE BOOK VALUE OF INTERNATIONAL TRANSACTION TO BE AT ALP. UNDER SAID CIRCUMSTANCES IT IS HUMBLY SUBMITTED THAT THE CORRECTNESS AND ADEQU ACY OF DOCUMENTS MAINTAINED IS DULY ACCEPTED BY THE LEARNED TPO. UNDER SAID CIRCUMSTANCES NON - MAINTENANCE OF AE AND NON - AE PROFITABILITY HAS NOT AFFECTED THE ALP. THEREFORE, PENALTY FOR NON - MAINTENANCE IS NOT JUSTIFIED. IN THIS CONTEXT, THE COMPANY RELIES ON JUDGMENT OF THE HON'BLE CHENNAI IT AT IN CASE OF DCIT VS MAGICK WOODS EXPORTS (P.) LTD. (25 TAXMANN.COM 20). IT IS DISCUSSED HEREIN ABOVE THAT IT IS NOT POSSIBLE TO TRACE THE COST OF EACH PIECE OF DIAMOND SOLD TO AES AND NON - AES DUE TO WHICH AE AND NON - AE WISE PROFIT AND LOSS CANNOT BE DRAWN. UNDER SAID CIRCUMSTANCES THE PRINCIPLE OF 'MAXIM LEX NON COGIT AD IMPOSSIBILA' AS - LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SUPD OF TAXES, DHUBRI AND OTHERS V M/S .... (1975 CTR (S.C.) 172) SHALL BE CO NSIDERED WHICH MEANS THAT THE LAW DOES NOT COMPEL A MAN TO DO THAT WHICH HE CANNOT POSSIBLY PERFORM. ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 8 THE SAID PRINCIPLE SHALL BE THE GUIDING FORCE AS REGARDS UNDERSTANDING AND INTERPRETING THE REQUIREMENTS OF THE SAID RULE 10D. AS PER PROVISIONS OF SECTI ON 273 B OF THE ACT, NO PENALTY UNDER SECTION 271G SHALL BE IMPOSABLE ON THE PERSON OR THE ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS IF HE PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE. THE COMPANY HAS DE MONSTRATED THE LIMITATIONS IN TRACING THE COST OF EACH PIECE OF DIAMOND DUE TO NATURE OF DIAMONDS AND ITS BUSINESS. WE SUBMIT THAT THE SAID LIMITATION IS TO BE CONSIDERED A REASONABLE CAUSE PARTICULARLY WHERE THE ASSESSEE HAS MAINTAINED DETAILED DOCUMENTATION / TP STUDY REPORT, INVOICES, ETC. TO DETERMINE THE ALP AND WHEREIN THE SAME IS ACCEPTED BY THE TPO IN ITS ORDER, THE PENALTY PROCEEDINGS SHALL BE DROPPED. THE MEANING OF REASONABLE CAUSE IS EXPLAINED IN JUDICIAL PRONOUNCEMENT OF AZADI BACHAO ANDOLAN VS UNION (A (116 TAXMAN 249 - HON'BLE DELHI HIGH COURT). 'THE REASONABLE CAUSE CAN BE REASONABLY SAID TO BE A CAUSE WHICH PREVENTS A MAN OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE, ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTI ON OR WANT OF BONA FIDES. 5. 7. FURTHER, THE ASSESSEE HAS ALSO FILED A RECTIFICATION PETITION VIDE ITS LETTER D ATED 10.07.2015 DURING THE COURSE OF PENALTY PROCEEDINGS AND HAS REITERATED TH AT THE SEGMENTAL RESULTS FOR AE AND NON - AE TRANSACTION TO THE EXTEN T FEASIBLE (I.E. USING THE REVENUES AS ALLOCATION KEY) WAS PROVIDED DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS. BUT, TPO HAS INADVERTENTLY IGNORED THE SAID SUBMISSION OF THE ASSESSEE AND INITIATED THE PENALTY PROCEEDINGS. 3.3. THE ASSESSEE FURTHER REPLIED AS UNDER: - ''THE ASSESSEE HUMBLY SUBMITS THAT EVERY DIAMOND IS UNIQUE IN NATURE. VALUE OF A CUT AND POLISHED DIAMOND IS ESSENTIALLY DEPENDENT UPON THE 4 CS VIZ. CUT, CLARITY, COLOUR, CARAT. DUE TO THE INHERENT DIVERSITY IN EACH OF THE ABOVE CS IT I S DIFFICULT TO UNIFORMLY CLASSIFY DIAMONDS. LEO INDIA DEALS IN VARIOUS KINDS OF DIAMONDS WHICH VARY ACCORDING TO THEIR QUALITIES, SHAPES, SIZES. HENCE, IT IS VERY DIFFICULT / NOT PRACTICAL TO DETERMINE THE PER - CARAT COST PRICE AND SALE PRICE FOR AES OR NON - AES AS A WHOLE.' 3.4. THE LD. AO OBSERVED THAT ASSESSEE HAD ADOPTED TNMM AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING ITS TRANSACTIONS WITH AES. WHILE ADOPTING THE SAME, ASSESSEE HAS BENCHMARKED THE INTERNATIONAL TRANSACTIONS AT ENTITY LEVEL WHICH IS AGAINST THE METHOD PRESCRIBED IN RULE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 9 10B(E) OF THE IT RULES. WITH THESE OBSERVATIONS, THE LD. AO LEVIED PENALTY OF RS.8,82,81,250/ - U/S.271G OF THE ACT AT 2% OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WHIC H WAS DELETED BY THE LD. CIT(A) B Y ADJUDICATING THE ISSUE ON MERITS AND ALSO BY PLACING RELIANCE ON CERTAIN CO - ORDINATE B ENCH DECISIONS OF THIS TRIBUNAL. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4.1. THE LD. DR VEHEMENTLY ARGUED THAT ASSESSEE HAS NOT SUBMITTED BASIC DATA FOR DETERMINING THE SE GMENTAL PROFITABILITY OF AE AND NON - AES IN THE INSTANT CASE. THE ASSESSEE OUGHT TO HAVE MAINTAINED BASIC RECORDS FOR SUCH A PRECIOUS MATERIAL WHICH IS CRUCIAL FOR ITS SURVIVAL ITSELF IN THE BUSINESS CARRIED ON BY THE ASSESSEE. SINCE NO DE TAILS WERE FURNISH ED BY THE ASSESSEE BEFORE THE LD. TPO, THE LD. TPO DID NOT HAVE ANY OTHER OPTION BUT TO ACCEPT THE TRANSACTIONS OF THE ASSESSEE TO BE AT ARMS LENGTH. 5. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES, THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.YRS 2010 - 11 AND 2012 - 13 HAD HELD THAT SINCE THERE WAS NO TP ADJUSTMENT, THERE CANNOT BE ANY LEVY OF PENALTY U/S.271G OF THE ACT. WE ALSO FIND THAT ASSESSEE HAD DULY REPLIED BEFORE THE TPO IN RESPECT O F QUERIES RAISED BY THE TPO WHICH ARE ENCLOSED IN PAGES 119 TO 124 OF THE PAPER BOOK. WE FIND FROM PAGES 166 TO 169 OF THE PAPER BOOK THAT THE LD. TPO HAD ACCEPTED THE STAND OF THE ASSESSEE FOR A.YRS. 2010 - 11 AND 2012 - 13 ALSO VIDE ITS ORDER U/S.92CA(3) DAT ED 31/12/2015, ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 10 25/01/2016 RESPECTIVELY WHEREIN NO PENALTY PROCEEDINGS U/S.271G OF THE ACT WERE INITIATED. THIS GOES TO PROVE THAT THE LD. TPO HAD UNDERSTOOD THE PRACTICAL DIFFICULTY OF THE ASSESSEE BEFORE US AND HAS DECIDED NOT TO INITIATE PENALTY U/S.271G OF THE ACT. WE FIND THAT THE LD. AR HAD ALSO PLACED RELIANCE ON THE CO - ORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS. FIRESTONE INTERNATIONAL PVT. LTD., IN ITA NO.5304/MUM/2016 FOR A.Y.2011 - 12 DATED 01/12/2018 WHEREIN IT WAS ORDERED AS U NDER: - THESE APPEALS BY THE REVENUE ARE ARISING OUT OF THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) - 56, MUMBAI [IN SHORT CIT(A)], IN APPEAL NO. CIT(A) - 56/TP/ACIT - 5(2)(1)&6(4)/2015 - 16 & 2016 - 17/110 - I, 109 - K, 120 - K,113 - F VIDE EVEN DATE 21.06.2016, 28 .06.2016 & 30.05.2016. THE ASSESSMENTS WERE FRAMED BY THE DY. COMMISSIONER OF INCOME TAX, WARD 5(2)(1), MUMBAI (IN SHORT DCIT/ AO) FOR THE A.Y. 2011 - 12 VIDE ORDER DATED 20.03.2015, 27.03.2015, 30.03.2015 UNDER SECTION 143(3) READ WITH SECTION 92CA(4) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2 . THE ONLY COMMON ISSUE IN THESE FOUR APPEALS OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE PENALTY LEVIED BY AO UNDER SECTION 271G OF THE ACT FOR VIOLATION OF THE PROVISIONS OF SECTION 92D(3) OF TH E ACT READ WITH RULE 10D(1) OF THE INCOME TAX RULES, 1962 (HEREINAFTER THE RULES). AS THE ASSESSEE FAILED TO FURNISH THE DOCUMENTS. FOR THIS REVENUE HAS RAISED THE IDENTICAL WORDED GROUNDS IN ALL THESE FOUR APPEALS. FACTS AND CIRCUMSTANCES ARE EXACTLY IDEN TICAL, HENCE, WE WILL TAKE THE FACTS FROM ITA NO. 5628/MUM/2016 FOR AY 2011 - 12 IN THE CASE OF INTERJEWEL PVT. LTD. AND DECIDE THIS COMMON ISSUE OF ALL THE APPEALS. FOR THIS REVENUE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 5628/MUM/2016 FOR AY 2011 - 12 : - (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE PENALTY UNDER SECTION 271G WHEN THE ASSESSEE FAILED TO FURNISH DOCUMENTATION AS REQUIRED UNDER THE RULE 10D(1) AND SUB SECTION ( 3 ) OF THE SEC 92 D OF THE I.T. ACT IN RESPECT OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT? ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 11 (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY UNDER SECTION 271G WITHOUT APPRECIATING THAT THE BENCHMARKING OF THE ENTITY LEVEL PROFIT BY THE ASSESSEE CANNOT SUBSTITUTE THE REQUIREMENT OF BENCHMARKING OF THE INTERNATIONAL TRANSACTIONS TO DETERMINE THE ARMS LENGTH PRICE. (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN DELETING THE PENALTY UNDER SECTION 271G BY ACCEPTING THE ASSESSEES PLEA THAT IT WAS DIFFICULT TO LINK THE PURCHASE WITH THE SALES FOR COMPUTING NET MARGIN IN RESPECT INTERNATIONAL TRANSACTIONS WITHOUT APPRECIATING THAT THERE IS NO EXCEPTION TO THE REQUIREMENT OF MAINTAIN DOCUMENTS AND CARRYING OUT ANALYSIS BY THE MOST APPROPRIATE METHOD TO SHOW THAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO ARE AT ARMS LENGTH AND THAT SEVERAL METHODS HAVE BEEN PRESCRIBED FOR THIS PURPOSE. (IV ) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE LD. CIT(A) DELETING THE PENALTY ON THE GROUND OF DIFFICULTY IS JUSTIFIED, SINCE IT RENDERS THE PROVISIONS OF RULE 10D REDUNDANT IN CASES LIKE THAT OF THE ASSESSEE WHIC H CAN NEVER BE THE INTENTION OF THE LEGISLATURE. (V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE LD. CIT(A) DELETING THE PENALTY ON THE GROUND THAT TPO HAS NOT EXAMINED SEGMENT - WISE UNAUDITED PROFIT AND LOSS ACCO UNT PREPARED AND SUBMITTED BY THE ASSESSEE DURING THE PENALTY PROCEEDINGS DISREGARDING THE FACT THAT THE ASSESSEE DID NOT SUBMIT ANY SUPPORTING DOCUMENTS TO SUPPORT THE SEGMENTAL RESULTS AND HAD ADMITTED HIMSELF IN THE COVERING LETTER THAT THE SEGMENTS HAD BEEN PREPARED TO THE EXTENT POSSIBLE ON THE BASIS OF CERTAIN ASSUMPTIONS WHICH WERE ALSO NOT SPELT OUT, AND THE TPO, IN HIS ORDER UNDER SECTION 271G AT PARA 28(PG.14), HAS GIVEN A FINDING THAT SEGMENTAL RESULTS OF AE AND NON - AE ON THE BASIS OF PRO - RATA AL LOCATION OF COST TO AES AND NON - AES BASED ON THE SALES MADE TO AES AND NON - AES RESPECTIVELY IS NOT CORRECT AND CANNOT BE RELIED FOR THE PURPOSE OF BENCHMARKING. (VI) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE LD . CIT(A) DELETING THE PENALTY ON THE GROUND THERE IS NO ADJUSTMENT MADE IN THE ALP EVEN THOUGH ADJUSTMENT TO ALP IS NOT A PRECONDITION FOR LEVY OF PENALTY U/S271G. 3 . BRIEFLY SATED FACTS ARE THAT THE ASSESSEE IS ENGAGED IN IMPORTING & EXPORTING AND LOCALLY PURCHASING ROUGHED DIAMONDS, GETTING THEM CUT AND POLISHED AND FINALLY EXPORT OR LOCALLY SELLING THE CUT AND POLISHED ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 12 DIAMONDS. DURING THE FINANCIAL YEAR 2010 - 11 RELEVANT TO AY 2011 - 12, THE ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WIT H ITS AE: - SL NATURE OF THE INTERNATIONAL AMOUNT IN ( ) NO. T RANSACTIONS 1. PURCHASE OF ROUGH DIAMONDS 125,53,36,515 2. SALES OF ROUGH DIAMONDS 38,27,73 3. PURCHASE OF POLISHED DIAMONDS 33,43,86,459 4. SALE OF POLISHED DIAMONDS 185,41,22,630 TOTAL 344,76,73,342 4 . ACCORDINGLY, THE TPO/AO MADE ADJUSTME NT AS THE ASSESSEE FAILED TO FURNISH THE AE AND NON AE WISE SEGMENT DETAILS. THE TPO/ AO MADE ADJUSTMENT AND ALSO INITIATED THE PENALTY PROCEEDINGS UNDER SECTION 271G OF THE ACT FOR CONTRAVENTION OF PROVISION OF SECTION 92D(3) OF THE ACT READ WITH RULE 10D (1) OF THE RULES BY OBSERVING IN PARA 4.1 AS UNDER: - 4.1 DURING THE COURSE OF T.P. PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH AE AND NON - AE WISE SEGMENTAL DETAILS. HOWEVER, THE ASSESSEE FAILED TO FURNISH THE SAME AND REPORTED THAT IT HAS NOT MAINTAIN ED THE DETAILS SEPARATELY IT WONT BE POSSIBLE TO FURNISH AE AND NON - AE SEGMENTAL PROFITABILITY. THIS CONDUCT OF THE ASSESSEE IS IN CONTRAVENTION TO THE PROVISION OF SECTION 92D(3) OF THE I.T. ACT, 1961 AND HENCE, THE PENALTY PROCEEDINGS UNDER SECTION 271G OF THE I.T. ACT, 1961 HAS BEEN INITIATED IN THIS CASE. THE NOTICE INITIATING THE PENALTY HAS ALREADY BEEN ISSUED BY THE TPO ON 12.01.2015. 5 . THE AO LEVIED THE PENALTY FOR NON - FURNISHING OF THE INFORMATION BY OBSERVING IN PARA 31 TO 33 AS UNDER: - 31 TH E ASSESSEE HAD ALSO CONTENDED IN ITS SUBMISSION THAT PENALTY U/S 271G CANNOT BE LEVIED IF THERE WAS REASONABLE CAUSE FOR FAILURE TO FURNISH INFORMATION CALLED FOR BY THE TPO. FROM THE ABOVE CONTENTION, IT IS CLEAR THAT, FINALLY, ASSESSEE HAS TAKEN SHELTER U/S 273B OF THE INCOME TAX ACT 1961 WHEREIN THE LAW STATES THAT: 'NO PENALTY SHALL BE IMPOSABLE ON THE PERSON OR THE ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS IF HE PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE.' 31.1. BUT, IN THE INSTANT CASE, ASSESSEE HAS NOT MADE A REASONABLE CAUSE FOR FAILURE TO MAINTAIN DOCUMENTATION ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 13 PRESCRIBED UNDER RULE 10D(1). ON THE OTHER HAND, THE ASSESSEE HAD DELIBERATELY AND WILLFULLY WITHHELD INFORMATION/DOCUMENT PERTAINING TO SEGMENTAL ACCOUNTS IN RESPECT OF PURCHASES AND SALES MADE WITH AES AND NON - AES, AND BY DOING SO HAD PREVENTED THE TPO FROM PERFORMING ANY COMPARABILITY ANALYSIS (WHICH WAS ACTUALLY AN OBLIGATION OF THE ASSESSEE AS PER RULE 100 CLAUSE ( G ) AND _(H)B AND FUR THER THWARTED ANY EFFORT BY THE TPO TO DETERMINE THE ALP IN A FAIR MANNER AS ENVISAGED UNDER SECTION 92C. THEREFORE, ASSESSEE CANNOT TAKE SHELTER UNDER THE BENEFICIAL CLAUSE IN SECTION 27. THEREFORE, ASSESSEE CANNOT TAKE SHELTER UNDER THE BENEFICIAL CLAUSE IN SECTION 273B. IN THIS CONTEXT, RELIANCE IS PLACED ON THE DECISION OF THE HONBLE JURISDICTIONAL MUMBAI HIGH COURT IN THE CASE OF SHATRUNJAY DIAMONDS (261 ITR 258; 2003) WHEREIN COURT HAS HELD THAT 'THE PURPOSE BEHIND THE LEGISLATURE ENACTING SECTION 4 04 (2) (B) WAS TO PROVIDE FOR SHIFTING OF BURDEN ON THE ASSESSEE IN CASES WHERE THE TRANSACTIONS ARE NOT AT ARM'S LENGTH. THE PURCHASES ARE MADE BY THE ASSESSEE FROM ITS SISTER CONCERN. IN SUCH CASES, THE INTRICACIES OF THE TRANSACTIONS ARE REQUIRED TO BE EXPLAINED BY THE ASSESSEE. . .. REQUIREMENT UNDER RULE 10D(1) CLAUSES 'G' AND 'H' AND RULE 10D(3) READ WITH SECTION 92D TO MAINTAIN AND PRODUCE DOCUMENTATION AS CALLED FOR BY THE TPO. THE REFORE, THE ASSESSEE'S INSTANT CASE IS A FIT CASE FOR LEVY OF PENALTY ULS 271G FOR FAILURE TO FURNISH INFORMATION OR DOCUMENT IN RESPECT OF SEGMENTAL ACCOUNTS RELATING TO TRANSACTIONS MADE WITH AES AND NON AES FOR DETERMINATION OF ARMS LENGTH PRICE OF INTE RNATIONAL TRANSACTIONS AS REQUIRED BY THE TPO UNDER RULE 10D(1) AND RULE 10D(3). 32 . FOLLOWING FACTS BECOMES EVIDENT: A ) THE TPO HAS CALLED FOR SPECIFIC DETAILS PERTAINING TO SEGMENTAL PROFITABILITY BETWEEN AE AND NON - AE SEGMENTS WITHIN THE MEANING OF SECTION 9 20(3) OF INCOME TAX ACT, 1961. ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 14 B ) THE DETAILS WERE CALLED FOR DURING TRANSFER PRICING PROCEEDINGS AND ASSESSEE WAS GIVEN OPPORTUNITY TO SUBMIT THE SAME ON 4 - 12 - 2014 BUT THE SAME WAS NOT FURNISHED WITHIN 30 DAYS OR EVEN TILL PASSING OF TRANSFER PRICING ORDER U/S 92CA(3) ON 19 - 01 - 2015 OR AT ANY TIME SUBSEQUENTLY. C ) THE DETAILS WERE ESSENTIAL FOR BENCHMARKING THE TRANSACTION OF ASSESSEE WITH AE. D ) THE ASSESSEE COULD ALSO NOT PROVIDE ANY ALTERNATE METHOD OF BENCHMARKING THE TRANSACTION BASED ON MATERIAL AVAILABLE O N RECORD. E ) IN THE ABSENCE OF MATERIAL THE TPO WAS FORCED TO ACCEPT THE TRANSACTIONS TO BE AT ARMS LENGTH AFTER INITIATING PENALTY PROCEEDINGS UNDER SECTION 271G OF INCOME TAX ACT, 1961. 33 . ACCORDINGLY, I REJECT THE VARIOUS CONTENTIONS RAISED BY THE ASSESSEE AND HOLD THAT THIS IS A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271G. THE TOTAL VALUE OF RELEVANT INTERNATIONAL TRANSACTIONS IN THIS CASE IS RS.344,76,73,342/ - . THE VALUE OF 2% OF INTERNATIONAL TRANSACTION COMES OUT TO BE RS.6,89,53,467/ - . HENCE, I HER EBY LEVY A PENALTY OF A SUM OF RS.6,89,53,467/ - . AGGRIEVED, ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A). 6 . THE CIT(A) DELETED THE PENALTY BY STATING THAT THE ASSESSEE HAS MADE SUBSTANTIAL COMPLIANCE AND GOING BY THE NATURE OF THE DIAMOND TRADING, THE ASS ESSEE COULD SHOW REASONABLE CAUSE. FOR THIS HE OBSERVED IN PARA 6 AS UNDER: - 6. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, CONTENTIONS OF THE TI'O AND SUBMISSIONS OF THE APPELLANT & THE DETAILED ANALYSIS IS DISCUSSED HEREIN BELOW: TH E TPO LEVIED PENALTY U/S.2710 ON THE GROUND THAT THE APPELLANT FAILED TO FURNISH INFORMATION CALLED FOR. THE TPO MENTIONED THAT THE APPELLANT INAPPROPRIATELY APPLIED THE TNM METHOD AND DESPITE THE MAJOR IRREGULARITIES IN THE ENTITY LEVEL TNMM, THE APPELLAN T ADOPTED THIS METHOD. FINALLY, THE TPO REJECTED ALL THE OBJECTIONS AND HELD THAT APPELLANT DID NOT ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 15 PROVIDE ANY BASIS FOR COMPARING THE TRANSACTIONS OF AE WITH ANOTHER AF AND/OR NON - AE AND APPELLANT FAILED TO PROVIDE ANY ALTERNATIVE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS AND THE FAILURE OF THE APPELLANT RESULTED IN AND FORCED THE TPO TO ACCEPT THE ARMS - LENGTH PRICE AS IT IS AND THUS PREVENTING THE TPO FROM EXAMINING AND DETERMINING THE ARMS - LENGTH PRICE OF VARIOUS INTERNATIONAL TRANSACTIONS AND HENCE LEVIED PENALTY UNDER SECTION 271C OF L.T. ACT, 1961 OF RS. 6,89,53,467/ - @12% OF INTERNATIONAL TRANSACTIONS. ON THE OTHER HAND, THE APPELLANT SUBMITTED THAT IT MAINTAINED NECESSARY BOOKS AND FURNISHED VARIOUS INFORMATION AND DOCUMENTS AS REQUIRE D BY RULE 10D AND SUBMITTED SEGMENT - WISE PLI DURING THE PENALTY PROCEEDINGS. THE APPELLANT FURTHER SUBMITTED THAT CUP METHOD COULD NOT BE APPLIED AS EACH INVOICE OF SALE TO AE AND NON - AES INCLUDE DIFFERENT TYPES OF GOODS SOLD FOR DIFFERENT PRICE AND DUE TO PECULIAR CHARACTER OF THE GOODS SOLD, THE APPELLANT DID NOT CONSIDER THE CUP METHOD AS THE MOST APPROPRIATE METHOD. IT IS ALSO MENTIONED THAT THE DEPARTMENT ACCEPTED TNMM METHOD AS THE MOST APPROPRIATE METHOD AND NO ADJUSTMENT. WERE MADE IN THE PRECEDING YEARS. THE TPO SHOULD HAVE CONSIDERED THE PECULIAR NATURE BI DIAMOND TRADE AND SHOULD HAVE APPRECIATED THE DIFFICULTIES IN ADOPTING CUP METHOD, THE APPELLANT FURNISHED ALL THE PARTICULARS ON THE BASIS OF WHICH THE TPO COULD COME TO THE CONCLUSION REGARDING THE ALP IN THE CASE OF INTERNATIONAL TRANSACTION AND THEREFORE WERE NO ADJUSTMENTS MADE. IN THESE CIRCUMSTANCES, THE PENALTY U/S.271G SHOULD NOT BE LEVIED. BEFORE DECIDING THE ISSUE WHETHER LEVY OF PENALTY IS JUSTIFIED OR NOT, IT IS ESSENTIAL TO KNOW AND UNDERSTAND THE NATURE OF DIAMOND MANUFACTURE AND TRADING BUSINESS TO APPRECIATE THE BASIC ISSUES. APPELLANT AND ITS AUDITORS IN THEIR SUBMISSIONS HAVE DESCRIBED NATURE OF DIAMOND TRADE, ITS PECULIARITIES AND APPELLANT'S BUSINESS AS FOLLOWS: '(C) THE NATU RE OF DIAMOND BUSINESS WORLD OVER: DIAMOND BUSINESS INVOLVES FOLLOWING MAJOR STAGES: ( A ) EXTRACTING OF ROUGH DIAMONDS BY DIAMOND MINE OWNERS. IN THE WORLD, MAJORITY OF DIAMOND MINES ARE LOCATED IN AFRICA, RUSSIA, AUSTRALIA, ETC. THESE MINES ARE MAINLY OWNED BY A HANDFUL OF COMPANIES WHO ENJOY NEAR MONOPOLY OVER SUPPLY OF ROUGH DIAMONDS. DTC (I.E. DIAMOND TRADING CO., A DISTRIBUTING ARM OF DE BEERS, A MAJOR MINE OWNER IN AFRICA) IS A MAJOR SUPPLIER OF ROUGH DIAMONDS IN THE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 16 WORLD, THE SUPPLY CYCLE, THE TERMS OF SUPPLY, QUANTITY AND QUALITY OF SUPPLY ETC. ARE CONTROLLED AND DECIDED BY IT. OTHER MAJOR SUPPLIERS ARE ARGYLE, BHP DIAMONDS, RIO TINTO DIAMONDS, ETC. THEY ALSO ARE IN A POSITION TO DICTATE MAJOR TERMS OF SUPPLY OF ROUGH DIAMONDS. AS IN ANY OTHER EXTRACTI ON ACTIVITY, DIAMOND EXTRACTION INVOLVES A LOT OF RISKS AND REQUIRES DEPLOYMENT OF HUGE MANPOWER, SOPHISTICATED MACHINERIES AND HUGE CAPITAL. POSSIBILITY OF ENTIRE EXTRACTION ACTIVITY RESULTING INTO FAILURE IS ALSO VERY HIGH. ( B ) EXTRACTED ROUGH DIAMONDS ARE THEN SOLD TO MAJOR DISTRIBUTORS IN ANTWERP, ISRAEL, ETC. WHO ARE SIGHT HOLDERS. THESE DISTRIBUTORS THEN IN TURN RESELL THESE ROUGH DIAMONDS TO SMALL DISTRIBUTORS. (C) THESE SMALL DISTRIBUTORS THEN SELL THE GOODS TO ACTUAL CUTTERS/ MANUFACTURERS. INDIA IS. A MAJOR CENTRE OF CUTTING AND POLISHING. THESE PERFORM VERY LITTLE JUNCTION IN THE ENTIRE PROCESS OF DIAMOND BUSINESS AND UNDERTAKE NO VALUE ADDITION ACTIVITY. THEY ALSO UNDERTAKE VERY LITTLE RISKS AND THE TIME INVOLVED IN THEIR BUSINESS CYCLE IS COMPARAT IVELY VERY LESS. ( D ) THESE ROUGH DIAMONDS ARE THEN CUT AND POLISHED INTO FINISHED POLISHED DIAMONDS BY EMPLOYING MAN POWER AND DEPLOYING SOPHISTICATED MACHINERIES, EITHER DIRECTLY OR THROUGH JOB WORKERS. THE ENTIRE CUTTING AND POLISHING ACTIVITY INVOLVES VARI OUS FUNCTIONS SUCH AS ASSORTING, CLEAVING, KERFING, BOILING, BRUITING, SHAPING, GRADING ETC. THE WHOLE CYCLE FROM THE PURCHASE OF ROUGH DIAMONDS TILL THE FINAL OUTPUT OF POLISHED DIAMONDS TAKES MINIMUM OF ONE MONTH TO MAXIMUM OF TWO TO TWO AND HALF MONTHS. THE CUTTING AND POLISHING ACTIVITY GIVES VALUE ADDITION. ALSO THE PERSON INVOLVED UNDERTAKES RISKS AS ULTIMATE YIELD OF POLISHED DIAMONDS AND THE QUALITY OF THE SAME DEPENDS ON VARIOUS FACTORS LIKE PURITY, SIZE, SHAPE OF ROUGH DIAMONDS, SKILL OF THE WORKE RS, ETC. ( E ) THE POLISHED DIAMONDS SO MANUFACTURED ARE THEN SOLD EITHER DIRECTLY OR THROUGH DISTRIBUTORS SPREAD ACROSS THE GLOBE TO VARIOUS CUSTOMERS WHO ARE MAINLY JEWELLERY MANUFACTURERS. D. PECULIARITIES OF PRODUCTS AND BUSINESS: ( A ) IN THE DIAMOND BUSINESS WORLD OVER, THERE ARE ESTIMATED TO BE 8000 TO 10000 DIFFERENT QUALITIES OF DIAMONDS. THE PRICE OF A DIAMOND DEPENDS ON VARIOUS FACTORS SUCH AS SHINE, LUSTER, SIZE, COLOR, CLARITY, PURITY, CLUSTER, CARTAGE ETC. IN FACT, NO TWO DIAMONDS CAN HAVE SAME PRICE. ALSO NO TWO ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 17 DIAMOND BUSINESSMEN MAY VALUE THE SAME PIECE OF DIAMOND AT THE SAME PRICE AS VALUATION ALSO DEPENDS UPON THE PERCEPTION OF INDIVIDUAL BUSINESSMAN. IN VIEW OF THIS, ONE CAN SAY THAT NORMALLY THERE ARE NO COMPARABLE PIECES AND PRICES OF DIAMONDS . ALSO AT EACH STAGE IN DIAMOND BUSINESS I.E. FROM MINE OWNERS TO DISTRIBUTORS TO MANUFACTURER/EXPORTER AND ULTIMATELY TO CUSTOMER OR DISTRIBUTOR OF POLISHED DIAMONDS, THE GOODS ARE ASSORTED - RE - ASSORTED, MIXED - REMIXED QUITE A NUMBER OF TIMES AND HENCE EA CH PIECE OF DIAMOND LOSES ITS IDENTITY AS TO THE SOURCE. B ) DIAMONDS ARE SOLD BY THEIR GENERIC NAME AND NOT BY ANY BRAND. THIS PRODUCT LACKS HOMOGENEITY. THUS, ( I ) PRIMA FACIE NO TRANSACTION OF PURCHASE OR SALE OF DIAMONDS CAN BE COMPARED WITH ANY OTHER TRANSACT ION. ( II ) IT IS NOT POSSIBLE AND PRACTICABLE TO FIND OUT EXACT COST OF TRANSACTION AND HENCE RESULTANT MARK UP OR NET PROFIT MARGIN OF PARTICULAR TRANSACTION. C ALSO DIAMOND BUSINESS WORLD OVER IS BEING DONE MAINLY IN THE FORM OF PARTNERSHIP COMPANY, PARTNERSH IP CONCERN OR PRIVATE LIMITED COMPANIES. THERE ARE VERY FEW PUBLICLY LISTED COMPANIES IN INDIA AND ABROAD. SO IT IS NOT JUST DIFFICULT BUT RATHER IMPOSSIBLE TO HAVE VERY WIDE RELIABLE, COMPARABLE, DETAILED AND PUBLICLY AVAILABLE DATABASE. E . THE NATURE OF AS SESSEES BUSINESS. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF IMPORTING AND LOCALLY PURCHASING ROUGH DIAMONDS, GETTING THEM CUT AND POLISHED, AND EXPORTING OR LOCALLY SELLING THE SAME. IT ALSO PROCURED POLISHED DIAMONDS ARID EXPORTS THE SAME WITHO UT CARRYING OUT ANY MATERIAL FUNCTION. AS PER THE KNOWLEDGE OF THE DIRECTORS OF THE ASSESSEE COMPANY THE FOREIGN ENTITIES ARE MAINLY ENGAGED IN TRADING OF DIAMONDS. ASSESSE COMPANY IS PURCHASING ROUGH DIAMONDS FROM VARIOUS ENTITIES INCLUDING FOREIGN ENTITI ES. IT THEN GIVES THESE ROUGH DIAMONDS TO CUTTERS/POLISHERS FOR PROCESSING INTO FINISHED GOODS. I.E. POLISHED DIAMONDS. IT GOT THIS OPERATION DONE FROM CONTRACT LABORER. AFTER POLISHING, IT SELLS THESE DIAMONDS TO VARIOUS CUSTOMERS INCLUDING FOREIGN ENTITI ES. IN ADDITION TO THE FOREGOING DESCRIPTIONS IT IS ESSENTIAL TO KNOW AS TO WHAT HAPPENS IN THE MANUFACTURING & TRADING OF DIAMOND BUSINESS. ROUGH DIAMONDS ARE MINED FROM VARIOUS PLACES ALL OVER THE WORLD AND THEY VARY FROM A SIZE OF 0.05 CARAT TO 10 CARA T USUALLY AND THE PRICE OF ROUGH DIAMONDS VARY ON THE COMPOSITION OF EACH LOT OF DIAMOND CONSISTING OF VARIOUS SIZES, ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 18 SHAPES AND COLOURS AND WEIGHT AND EACH LOT IS LIKELY TO HAVE ROUGH DIAMONDS VARYING IN SIZE, SHAPE, COLOUR AND WEIGHT. IT ALSO REMAINS A FACT THAT NO TWO ROUGH DIAMONDS IN THE LOT ARE LIKELY TO BE OF THE SAME SIZE, SHAPE, COLOUR AND WEIGHT WHICH LEADS TO ANOMALOUS SITUATIONS WHEN THESE ARE CUT AND POLISHED. THE PROCESS OF CUTTING CONSISTS OF PRUNING THE EDGES, FLATTENING THE TOP AND SHAPING THE SIDES AS TO GIVE THE ROUGH STONE A FINAL SHAPE AND THEN POLISH IT. THE ENTIRE PROCESS OF CUTTING AND POLISHING RESULTS IN DIAMONDS OF DIFFERENT SHAPES AND SIZES DEPENDING UPON THE STRUCTURE OF THE ROUGH DIAMONDS AND THE SKILLS OF THE CUTTERS AND POLIS HERS OF DIAMONDS. THUS A LOT OF 100 CARAT OF ROUGH DIAMONDS MAY USUALLY YIELD 27% TO 29% CUT AND POLISHED DIAMONDS OF VARYING SIZES AND SHAPES AND COLOURS AND WEIGHTS (CARATS). DIAMONDS ARE WEIGHED IN CARATS AND ONE GRAM IS EQUAL TO 5 CARATS. THUS DIAMONDS GET CUT AND POLISHED LOT WISE AND EVEN IF EACH LOT OF ROUGH DIAMONDS IS PRE - SORTED BEFORE GIVING IT FOR CUTTING AND POLISHING, THE POLISHED DIAMONDS ARE LIKELY TO VARY IN SIZE, SHAPE, SIZE, COLOUR AND WEIGHT. NORMALLY DIAMONDS ARE EXPORTED AND SOLD LOCAL LY IN LOTS AND/OR BY WEIGHT OF SIMILAR SIZE AND COLOJ.IR BECAUSE THESE DIAMONDS ARE THEN USED BY DIAMOND JEWELLERY MANUFACTURERS IN THE MANUFACTURE OF DIAMOND JEWELLERY WHICH REQUIRES DIAMONDS OF SIMILAR SIZE, SHAPE AND COLOUR WHILE DESIGNING AND MAKING JE WELLERY EXCEPT FOR ONE UNIQUE PIECE WHICH MAY BE REQUIRED FOR THE RING OR FOR CENTRE OF THE NECKLACE. HENCE A DIAMOND MANUFACTURER IS CONTINUOUSLY REQUIRED TO SORT OUT ROUGH DIAMONDS BEFORE GIVING FOR CUTTING AND POLISHING WHICH IS DONE IN STAGES AND ALSO SORT OUT POLISHED DIAMONDS WHEN THE LOTS OF CUT AND POLISHED DIAMONDS ARE RECEIVED FROM THE CUTTERS AND POLISHERS TO MAKE LOTS OF SIMILAR SIZES, COLOURS, SHAPES AND WEIGHT BEFORE SELLING /EXPORTING POLISHED DIAMONDS. IT IS ALSO WORTH MENTIONING HERE THAT NORMALLY POLISHED DIAMONDS OF HIGHER CARAT WEIGHT COMMANDS HIGHER PRICES IF OTHER FACTORS LIKE SIZE, COLOUR AND SHAPE ARE SAME AND/OR SIMILAR AND IF THERE IS VARIATION, PRICES WILL AGAIN VARY. MOREOVER, THERE IS NO STANDARD PRICE FOR A DIAMOND IN THE WORLD , BECAUSE PRICE VARIES WITH EACH DIAMANTAIRE WHO VALUES THE DIAMOND AND A BROAD PRICE RANGE CAN BE FIXED FOR DIAMONDS OF PARTICULAR SIZE, SHAPE, COLOUR AND WEIGHT AT A PARTICULAR POINT OF TIME. MOREOVER, DIAMONDS ARE SOLD IN LOTS OF CARATS UNLESS ONE DIAMO ND IS OF ONE CARAT OR TWO CARATS IN WEIGHT WITH UNIQUE FEATURES AND SHAPE AND SIZE. THUS DETERMINING THE PRICE OF A DIAMOND AND /OR DIAMONDS IS A DIFFICULT ISSUE AND EVEN IF THE DIAMONDS ARE PHYSICALLY EVALUATED, PRICES WILL VARY FROM VALUER TO VALUER. ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 19 TH IS ASPECT OF DIAMOND TRADE IS EXHAUSTIVELY EXPLAINED BY THE GJEPC INDIA IN ITS LETTER DATED 21/7/2015 ADDRESSED TO THE CIT - TRANSFER PRICING, MUMBAI. THE TPO BASICALLY WANTED THE APPELLANT TO FURNISH SEPARATE PROFIT LEVEL INDICATOR (PLI), THAT IS, AE AND N ON - AE SEGMENT WISE EITHER THE P & L ACCOUNTS AND/OR SOME OTHER EVIDENCE TO SHOW THAT THE INTERNATIONAL TRANSACTIONS WERE AT ARMS - LENGTH PRICE. APPELLANT HAD ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS: . TOTAL VALUE OF TRANSA CTIONS OF DIAMONDS ENTERED BY THE ASSESSEE WITH AES AND NONAES WERE AS FOLLOWS: THE PROFIT AND LOSS ACCOUNT AND THE PRINTED ACCOUNTS SHOW THAT ASSESSEE MAINLY EXPORTED TOTAL POLISHED DIAMONDS WORTH RS. 185 CRORES TO AES OUT OF TOTAL TURNOVER OF RS. 429 CR ORES AND THE BALANCE OF RS. 244 CRORES TO NON - AE PARTIES. THUS THE P&L ACCOUNT REFLECTS A MIXTURE OF SALES OF POLISHED DIAMONDS TO BOTH AES AS WELL AS NON AES. IT IS ALSO OBSERVED FROM THE RECORDS THAT ASSESSEE HAD IMPORTED ROUGH & POLISHED DIAMONDS WORTH RS. 158 CRORES OUT OF ITS TOTAL CONSUMPTION OF ROUGH DIAMONDS OF 367 CRORES. ASSESSEE ALSO MADE AN ATTEMPT TO SEGREGATE SEGMENT WISE FIGURES OF SALES, PURCHASES AND EXPENSES AND WORKED OUT AND SUBMITTED A SEGMENT WISE, THAT IS, LOCAL SALES, NON - AE SALES AND AF SALES AND WORKED OUT THE OP/SALES MARGINS AND FURNISHED THE SAME TO THE TPO. IT APPEARS FROM THE PENALTY ORDER DATED 30/07/2015 THAT THE TPO HAS NOT EXAMINED THIS SEGMENT WISE UNAUDITED P & L ACCOUNT AND HAS GONE AHEAD WITH PASSING OF A STEREO TYPED PENALTY ORDER AS BEING DONE BY OTHER TPOS EVEN THOUGH THE FACTS OF THE CASE WERE MATERIALLY LITTLE DIFFERENT AND HAS LEVIED PENALTY UNDER SECTION 271G OF L.T. ACT, 1961. IN THIS SCENARIO, IT IS DIFFICULT TO IDENTIFY AND SAY WHETHER A POLISHED DIAMOND CAM E OUT OF ANY PARTICULAR LOT OF ROUGH DIAMONDS OR THE OTHER AND/OR OUT OF THE POLISHED DIAMONDS LOCALLY PURCHASED BY THE APPELLANT. ON UNDERSTANDING OF EXPORT BILLS OF CUT AND POLISHED DIAMONDS EXPORTED TO AES AND NON AES REVEALS THAT DIAMONDS OF VARYING SI ZE, QUALITY, COLOUR AND CARAT WEIGHT WERE EXPORTED AS IS EVIDENT FROM THE PRICE PER CARAT CHARGED IN EACH BILL. AND MAY BE SIMILAR SITUATION MUST HAVE EXISTED IN RESPECT OF CUT AND POLISHED DIAMONDS PURCHASED AND SOLD LOCALLY AND/ OR PURCHASED FROM ABROAD BUT SOLD LOCALLY. ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 20 THEREFORE, IT IS EXTREMELY DIFFICULT EVEN FOR THE DIAMOND TRADER AND MANUFACTURER TO IDENTIFY WHICH ROUGH DIAMOND GOT CONVERTED INTO WHICH POLISHED DIAMOND SPECIFICALLY UNLESS THE SINGLE PIECE ROUGH DIAMOND HAPPENED TO BE OF EXCEPTIONALL Y HIGH CARAT VALUE AND WEIGHT MAKING THE TRACING OUT AND IDENTIFICATION OF THE POLISHED DIAMOND PHYSICALLY POSSIBLE AND CONVENIENT. ONLY INDICATION ABOUT THE SIZE MAY COME FROM THE MARKET PRICE REALISED PER CARAT UNLESS EACH DIAMOND IS SUBJECTED TO PRE CHE CKING AS DONE BY THE TRADER AND MANUFACTURER BEFORE SELLING AND EXPORTING TO R EALISE A BETTER PRICE PER CARAT OF THE LOT. THEREFORE, IT IS EXTREMELY DIFFICULT FOR THE TRADER TO IDENTIFY EACH ROUGH DIAMOND PIECEWISE UNLESS THE ROUGH DIAMOND IS EXCEPTIONALLY OF HIGH CARAT VALUE BY WEIGHT AND SIMILARLY, IT IS ALSO DIFFICULT TO IDENTIFY EACH CUT AND POLISHED DIAMOND VIS - - VIS THE ORIGINAL ROUGH DIAMOND FROM WHICH IT WAS CUT AND POLISHED. THE TPO ASKED FOR DETAILS OF PLI PROFIT LEVEL INDICATOR, THAT IS, SEGMENT WISE PROFIT AND LOSS ACCOUNT OF THE AE SEGMENT AND NON - AE SEGMENT IN RESPECT OF EXPORT OF GOODS AS WELL AS LOCAL SALES TO ARRIVE AT ARMS - LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTIONS. APPELLANT EXPLAINED THE DIFFICULTIES TO THE TPO IN VARIOUS LETT ERS DESCRIBED EARLIER, HOWEVER, THE TPO MERELY ACCEPTED THE ARMS - LENGTH PRICE AS IT IS AND INITIATED THE PENALTY PROCEEDINGS UNDER SECTION 271G OF I.T. ACT, 1961. THE TPO COULD HAVE FRIED TO WORK OUT THE GROSS PROFITS AND NET PROFITS BY AVERAGING THE PURCH ASE PRICES AND THE EXPENSES IN PROPORTION OF EXPORT SALES OF EACH ONE OF THE THREE SEGMENTS, AS HAS BEEN DONE BY THE APPELLANT DURING PENALTY PROCEEDINGS TO ARRIVE AT AVERAGE PROFITABILITY OF EACH SEGMENT AND THEN TO COMPARE THE SAME WITH THE AVERAGE PROFI TABILITY OF OTHER TEN PUBLIC/PRIVATE COMPANIES WHOSE DETAILS WERE MADE AVAILABLE IN TP STUDY REPORT. IN THIS REGARD, THE TPO HAD ANOTHER OPTION OF ASKING FOR THE COPIES OF P& L ACCOUNTS AND THE BALANCE SHEETS OF THE AES TO MAKE AN OVERALL COMPARISON WITH T HE GROSS PROFITABILITY LEVELS OF THE APPELLANT WITH AES TO ASCERTAIN DIVERSION OF PROFITS, IF ANY, IN BROAD MANNER. HOWEVER, THIS WAS NOT DONE BY THE TPO AND THE TPO WENT AHEAD WITH THE LEVY OF PENALTY UNDER SECTION OF PS. 6,89,53,467/ - UNDER SECTION 271G OF L.T. ACT, 1961. ANOTHER ISSUE ON WHICH THE TPO HAS LAID STRESS IS THAT THE APPELLANT COULD HAVE FOLLOWED THE INTERNAL CUP METHOD TO WORK OUT THE ARM'S LENGTH PRICE IN RESPECT OF ITS EXPORTS. UNLESS LOTS OF DIAMONDS EXPORTED TO AN AE AND A NON - AE ARE OF SIMILAR SIZE, COLOUR, SHAPE AND CLARITY, IT WILL BE DIFFICULT TO COMPARE THE PRICES GENERALLY UNDER CUP METHOD EXCEPT A ROUGH ESTIMATE CAN BE MADE IN GENERAL. HENCE 1EPINGJ IN VIEW THE NATURE OF THE TRADE AND THE LOTS OF DIAMONDS EXPORTED BY THE APPELLANT TO AES ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 21 AND NON - AES DURING THE ASSESSMENT YEAR, FOLLOWING INTERNAL CUP METHOD IS NOT PRACTICABLE. 'ITO HAS INVOKED SPECIFICALLY RULE 10D(1)(D), (G), (H) AND (M) OF L.T. RULES, 1962 TO SUBSTANTIATE THE LEVY OF PENALTY UNDER SECTION 271G OF I.T. ACT, 1961, HOWEVER, A SEGMENT WISE PROFIT AND LOSS ACCOUNT PREPARED AND SUBMITTED BY THE APPELLANT I DURING THE PENALTY PROCEEDINGS WAS NOT EVEN EXAMINED AND A COMPARISON OF THE P & L ACCOUNTS AND THE BALANCE SHEETS OF THE AES WAS ALSO NOT MADE BY THE TPO. IF THE SEG MENT WISE P & L ACCOUNT SUBMITTED BY THE APPELLANT EVEN DURING THE PENALTY PROCEEDINGS HAD BEEN MADE AND / OR P & L ACCOUNT OF AES HAD BEEN CASED AND EXAMINED DURING TP PROCEEDINGS, THESE DETAILS WOULD HAVE REVEALED THE GROSS PROFIT MARGINS AND LEVELS OF P ROFITABILITY EARNED BY THE AES IN THEIR BUSINESSES SINCE THE AES WERE THE ULTIMATE BENEFICIARIES OF THESE INTERNATIONAL TRANSACTIONS AND ANY ABNORMAL VARIATION IN THEIR GROSS PROFITABILITY WOULD HAVE REVEALED THE ABERRATIONS IN INTERNATIONAL TRANSACTIONS, IF ANY. IN THIS REGARD IT IS WORTH NOTING HERE THAT NATURE AND LEVEL OF BUSINESS OF THE APPELLANT DURING THE CURRENT YEAR HAS REMAINED THE SAME AS IT WAS LAST YEAR THAT IS A.Y. 2010 - 11 AND THE TPO DID NOT PROPOSE ANY ADJUSTMENTS IN THE ARMS LENGTH PRICES F OR A.Y. 2010 - 11. EVEN THOUGH EACH ASSESSMENT YEAR IS DIFFERENT AND THE TYPE AND LEVEL OF TRANSACTIONS WOULD HAVE DIFFERED, YET THE NATURE OF BUSINESS REMAINED THE SAME AND HENCE ALL OTHER INGREDIENTS OF EACH DIAMOND BEING DIFFERENT AND FOUR 'C' S, THAT IS CUT, CARAT, CLARITY AND COLOUR REMAINED AND WERE APPLICABLE. EVEN OTHERWISE, THE TPO HAS GONE STRAIGHT TO FAULT FINDING BUSINESS WITHOUT UNDERSTANDING THE INTRICACIES OF DIAMOND MANUFACTURE AND TRADING BUSINESS AND INSTEAD OF DETERMINING THE ARMS LENGTH PR ICE BY ASKING FOR P & L 'ACCOUNTS AND BALANCE SHEETS OF THE AES AND THEN COMPARING THE FINANCIAL RATIOS IN GENERAL, GONE AHEAD AND LEVIED PENALTY OF RS. 6,89,53,467/ - ON THE ASSESSEE. PRIMA FADE, THE LEVY OF PENALTY UNDER SECTION 271G OF I.T. ACT, 1961 IS NEITHER FAIR NOR REASONABLE AND IS ALSO NOT JUSTIFIED IN FACTS OF THE CASE MAINLY THE INTRICACIES OF THE DIAMOND TRADE AND LACK AND NON - AVAILABILITY OF KNOWLEDGE IN PUBLIC DOMAIN ABOUT THE MANUFACTURE OF DIAMOND TRADE. THE APPELLANT HAS ALSO SUBMITTED THA T WHEN THE APPELLANT HAD FURNISHED ALL THE PARTICULARS ON THE BASIS OF WHICH THE TPO COULD HAVE COME TO THE CONCLUSION REGARDING ALP IN THE CASE OF INTERNATIONAL TRANSACTION AND FURTHER SUBMITTED THAT THE TPC) HAD NOT ASKED FOR ONLY ONE SPECIFIC DETAIL BUT SEVERAL DETAILS ON SEVERAL OCCASIONS FROM TIME TO TIME. EVEN THE EXPLANATION FOR THE SPECIFIC DETAILS OF SEGMENTAL AE, NON - AE TRANSACTIONS WERE ALSO FILED AND SUBMITTED. THUS, IT APPEARS THAT THE APPELLANT HAD MADE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 22 SUBSTANTIAL COMPLIANCE WITH THE REQUIREM ENTS CI FILING ALL MAJOR INFORMATION CALLED FOR BY THE TPO FOR DETERMINATION OF THE ALP AND ACCORDINGLY, THE ALP WAS ACCEPTED BY THE TPO. FURTHER, THE APPELLANT RELIED ON THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. M/S. LEROY SOMER & CONTROLS (I NDIA) PVT. LTD. WHICH OBSERVED AS UNDER: .. THE ASSESSEE ALSO CITED THE BELOW MENTIONED DECISION OF HONBLE ITAT WHICH IS AS UNDER: I HAVE GONE THROUGH THE ABOVE AND FOUND THAT THE FACTS OF THE ABOVE CASE LAWS ARE SIMILAR TO THE FACTS OF THE APPELLANT'S CASE. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT LEVY OF PENALTY U/S.271G OF THE I.T.ACT,1961 IS NEITHER FAIR NOR REASONABLE AND THEREFORE IT IS NOT JUSTIFIED IN FACTS OF THE CASE, VIZ. , THE NATURE OF DIAMOND TRADE, SUBSTANTIAL COMPLIANCE MADE BY THE APPELLANT AND THE REASONABLE CAUSE SHOWED BY THE APPELLANT AND ABOVE ALL, WHEN THERE IS NO ADJUSTMENT MADE IN THE ALP. THUS, THE LEVY OF PENALTY OF RS. 6,89,53,467/ - UNDER SECTION 271G OF L. T.ACT, 1961 IS HEREBY DELETED. IN THIS REGARD, RELIANCE IS ALSO PLACED ON FOLLOWING DECISIONS: 1) ITO V/S. NETS SOFT INDIA LTD. - 2013/35/TAXNIANN.COM/579/MUMBAJ ITAT 2) ACIT V/S. GILLETTE INDIA LTD. - 2015/54/TAXMANN.COM/3L3FJAIPUR ITAT IN VIEW OF THE FA CT THAT LEVY OF PENALTY UNDER SECTION 271G OF I.T. ACT, 1961 IS ITSELF DELETED, OTHER OBJECTIONS RAISED BY THE APPELLANT BEFORE THE TPO AND IN APPEAL ARE CONSIDERED RELEVANT AND ARE NOT DISCUSSED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE TRIBUNAL. 7 . AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE IS SQUARELY COVERED BY TRIBUNALS DECISION OF THIS CO - ORDINATE BENCH IN THE CASE OF ACIT VS NAVINCHANDRA EXPORTS PVT. LTD. IN ITA NO. 6304/MUM/2016 FOR AY 2011 - 12 VIDE ORDER DATED 25.1 0.2017, WHICH WAS FURTHER FOLLOWED IN THE CASE OF ACIT VS. DILIPKUMAR V. LAKHI, IN ITA NO. 2142/MUM/2017 FOR AY 2011 - 12 VIDE ORDER DATED 02.08.2018 READS AS UNDER ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 23 8. HAVING PERUSED THE MATERIAL ON RECORD AND AFTER HEARING BOTH THE PARTIES VIS - - VIS THE D ECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. D NAVINCHANDRA EXPORTS PVT. LTD. (SUPRA), WE OBSERVE THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE BENCH IN FAVOUR OF THE ASSESSEE. THE OPERATIVE PART OF THE DECISION IS AS UNDER: 18 . WE F IND THAT THE CIT(A) AFTER DELIBERATING AT LENGTH ON THE NATURE OF THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS, THEREIN CONCLUDED THAT IN THE BACKDROP OF THE INTRICACIES INVOLVED IN THE SAID BUSINESS IT WAS PRACTICALLY DIFFICULT FOR THE ASSESSEE T O FURNISH THE INFORMATION IN THE MANNER THE SAME WAS CALLED FOR BY THE TPO. WE FIND THAT THE CIT(A) IN THE BACKDROP OF AN INDEPTH STUDY OF THE NATURE OF ACTIVITIES INVOLVED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS, HAD IN A VERY WELL REASON ED MANNER CULLED OUT THE PECULIAR NATURE OF THE TRADE OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT A CAREFUL PERUSAL OF THE VERY NATURE OF THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS THEREIN GLARINGLY REVEALS THAT CERTAIN INFORMATION WHICH WAS CALLED FOR BY THE TPO COULD NOT BE FURNISHED BY THE ASSESSEE. WE FIND THAT THE CIT(A) HAD OBSERVED THAT AS THE ASSESSEE HAD PURCHASED A MIX OF IMPORTED ROUGH AND POLISHED DIAMONDS FROM AES AND NON - AES, AND HAD ALSO SOLD/EXPORTED ROUGH AND POLISHED DIA MONDS TO AES AS WELL AS THE NON - AES, THEREFORE, THE PROFIT & LOSS A/C OF THE ASSESSEE REFLECTED A MIXTURE OF PURCHASES AND SALES BOTH FROM THE AES AND THE NON - AES. WE ARE PERSUADED TO BE IN AGREEMENT WITH THE VIEW OF THE CIT(A) THAT NOW WHEN THE ROUGH/POLI SHED DIAMONDS WERE TRADED ON LOT WISE BASIS, THEREFORE, IT WAS DIFFICULT TO IDENTIFY AND SAY WHETHER A POLISHED DIAMOND CAME OUT OF A PARTICULAR LOT OF ROUGH DIAMONDS OR THE OTHER AND/OR OUT OF THE POLISHED DIAMONDS PURCHASED LOCALLY BY THE ASSESSEE. WE FI ND THAT THE EXPORT BILLS OF THE CUT AND POLISHED DIAMONDS EXPORTED TO THE AES AND THE NON - AES REVEALED THAT THE DIAMONDS OF VARYING SIZE, QUALITY, COLOUR AND CARAT WEIGHT WERE EXPORTED AS WAS EVIDENT FROM THE PRICE PER CARAT CHARGED IN EACH BILL, AND SIMIL AR WOULD HAVE BEEN THE POSITION IN RESPECT OF CUT AND POLISHED DIAMONDS PURCHASED AND SOLD LOCALLY AND/OR PURCHASED FROM ABROAD BUT SOLD LOCALLY. WE ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE AFORESAID PECULIAR NATURE OF THE TRADE OF THE ASSESS EE, IT COULD SAFELY OR RATHER INESCAPABLY BE CONCLUDED THAT IT WAS EXTREMELY DIFFICULT TO IDENTIFY WHICH ROUGH DIAMOND GOT CONVERTED INTO WHICH POLISHED DIAMOND, UNLESS THE SINGLE PIECE ROUGH DIAMOND HAPPENED TO BE OF EXCEPTIONALLY HIGH CARAT VALUE, THEREI N MAKING THE TRACING OUT AND IDENTIFICATION OF THE POLISHED DIAMOND PHYSICALLY POSSIBLE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 24 AND CONVENIENT. WE FIND THAT THE AFORESAID PRACTICAL DIFFICULTIES IN PROVIDING THE DETAILS BEING FACED BY THE INDUSTRY CAN BE WELL GATHERED FROM THE LETTER OF THE GJEPC TO THE CIT - TRANSFER PRICING, MUMBAI, WHEREIN THE AFORESAID ASPECTS INVOLVED IN THE DIAMOND MANUFACTURING BUSINESS WERE EXPLAINED. 19 . WE FIND THAT THE ASSESSEE HAD IN THE BACKDROP OF THE VERY NATURE OF ITS BUSINESS, VIZ. MANUFACTURING OF DIAMONDS, HAD THOUGH EXPLAINED TO THE TPO THE PRACTICAL DIFFICULTY IN FURNISHING SEGMENT WISE PROFIT &LOSS ACCOUNT OF THE AE SEGMENT AND THE NON - AE SEGMENT, HOWEVER, THE TPO INSISTED FOR THE SAME AND INVOKED RULE 10D OF THE INCOME - TAX RULES, 1962, AND INSTEAD OF DETERMINING T HE ARMS LENGTH PRICE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES, RATHER WENT AHEAD AND LEVIED PENALTY UNDER SEC. 271G IN THE HANDS OF THE ASSESSEE. WE ARE NOT IMPRESSED WITH THE MANNER IN WHICH THE ASSESSEE HAD PROCEEDED WITH THE MATTER AND IMPOSED PENALTY UNDER SEC. 271G IN THE HANDS OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT IN LIGHT OF THE AFORESAID PRACTICAL DIFFICULTIES WHICH WERE BEING FACED BY THE DIAMOND INDUSTRY, THE TPO SHOULD HAVE EXERCISED THE VIABLE OPTIO N OF DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE, EITHER BY MAKING SOME COMPARISON OF REALISATION OF PRICES IN RESPECT OF EXPORT SALES TO AES AND NON - AES BY COMPARING PRICES OF DIAMONDS OF SIMILAR SIZE, QUALITY AND W EIGHT TO THE BEST EXTENT POSSIBLE, OR IN THE ALTERNATIVE COULD HAVE ASKED FOR THE COPIES OF THE PROFIT & LOSS ACCOUNTS AND THE BALANCE SHEETS OF THE AES IN ORDER TO MAKE AN OVERALL COMPARISON WITH THE GROSS PROFITABILITY LEVELS OF THE ASSESSEE WITH ITS AES , WHICH WOULD HAD CLEARLY REVEALED DIVERSION OF PROFITS, IF ANY, BY THE ASSESSEE TO ITS AES. WE ARE FURTHER UNABLE TO COMPREHEND THAT AS TO ON WHAT BASIS THE TPO EXPECTED THE ASSESSEE TO HAVE CARRIED OUT THE BENCHMARKING BY FOLLOWING CUP METHOD. WE ARE OF THE CONSIDERED VIEW THAT AS THE COMPARISON BY INTERNAL CUP METHOD COULD ONLY BE MADE IF TWO LOTS OF DIAMONDS WERE SIMILAR IN SIZE, COLOUR, SHAPE AND CLARITY, WHICH WE ARE AFRAID, AS OBSERVED BY US AT LENGTH HEREINABOVE, IN LIGHT OF THE PECULIAR NATURE OF T HE TRADE OF THE ASSESSEE WOULD NOT BE POSSIBLE. WE FIND OURSELVES TO BE IN AGREEMENT WITH THE CIT(A) THAT IF ONE LOT HAD DIAMONDS OF VARIETY OF SIZE, COLOUR, SHAPE AND CLARITY, THE PRICES WOULD VARY FROM DIAMOND TO DIAMOND AND LOT TO LOT, AND FURTHER, NOW WHEN THE ENTIRE LOT OF DIAMONDS HAD A COMMON PRICE TAG PER CARAT FOR THE WHOLE LOT, THEREFORE, IT WAS NOT POSSIBLE TO EVALUATE THE PRICE OF EACH DIAMOND. WE ALSO CANNOT BE OBLIVIOUS OF THE FACT THAT EVEN OTHERWISE IN THE DIAMOND TRADE LINE, UNLESS A DIAMON D WOULD WEIGH HALF CARAT OR MORE OR ONE CARAT OR MORE, THE SAME WOULD ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 25 NOT BE PRICED SEPARATELY IN THE BILL BECAUSE IT WAS NOT PRACTICAL TO PRICE DIAMONDS OF WEIGHTS OF LOWER THAN HALF CARAT OR ONE CARAT SEPARATELY WEIGHT WISE PER DIAMOND IN THE LOT. WE HAV E DELIBERATED ON THE AFORESAID PECULIAR FACTS INVOLVED IN THE BUSINESS OF DIAMOND TRADING AND ARE OF THE CONSIDERED VIEW THAT THE INSISTENCE OF THE TPO THAT THE ASSESSEE SHOULD HAVE FOLLOWED CUP METHOD WAS MISCONCEIVED AND IMPRACTICAL. WE ARE IN AGREEMENT WITH THE CIT(A) THAT IF THE TPO WOULD HAD CARRIED OUT A COMPARISON OF THE PROFIT & LOSS ACCOUNT AND BALANCE SHEETS OF THE AES, THE SAME WOULD HAD REVEALED THE GROSS PROFIT MARGINS AND LEVELS OF PROFITABILITY EARNED BY THE AES IN THEIR BUSINESSES, AND AS SU CH ANY ABNORMAL VARIATION IN THEIR GROSS PROFITABILITY WOULD HAD REVEALED THE ABERRATIONS IN THE INTERNATIONAL TRANSACTIONS. 20 . WE FURTHER FIND THAT AS STANDS GATHERED FROM THE RECORDS, THE NATURE AND LEVEL OF BUSINESS OF THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION HAD INCREASED ALMOST TWO FOLD. WE FIND THAT WHILE FOR THE GROSS PROFITS OF THE ASSESSEE HAD ALSO INCREASED FROM 7.42% FOR A.Y. 2010 - 11 TO 8.71% FOR THE YEAR UNDER CONSIDERATION, VIZ. A.Y. 2011 - 12, THE NET PROFIT HAD ALSO WITNESSED A GROWTH FRO M 3.9% IN THE IMMEDIATE PRECEDING YEAR TO 4.9% DURING THE YEAR UNDER CONSIDERATION. WE FURTHER FIND THAT AS OBSERVED BY THE CIT(A) THAT IN THE PRECEDING YEAR, I.E A.Y. 2010 - 11 THE TPO DID NOT PROPOSE ANY ADJUSTMENT IN THE ALP. WE ARE NOT INSPIRED BY THE FA ULT FINDING APPROACH ADOPTED BY THE TPO WITHOUT UNDERSTANDING THE INTRICACIES OF THE DIAMOND MANUFACTURE AND TRADING BUSINESS, AND ARE OF THE CONSIDERED VIEW THAT HE INSTEAD OF DETERMINING THE ARMS LENGTH PRICE BY ASKING FOR THE PROFIT & LOSS A/C AND BALAN CE SHEETS OF THE AES AND COMPARING THE FINANCIAL RATIOS IN GENERAL, HAD RATHER HUSHED THROUGH THE MATTER AND IMPOSED PENALTY UNDER SEC. 271G OF RS. 2,15,98,527/ - ON THE ASSESSEE. WE ALSO FIND THAT THE ASSESSEE TO THE EXTENT POSSIBLE IN THE BACKDROP OF THE N ATURE OF ITS TRADE HAD FURNISHED SEVERAL DETAILS ON SEVERAL OCCASIONS FROM TIME TO TIME WITH THE TPO. WE THUS ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAD SUBSTANTIALLY COMPLIED WITH THE DIRECTIONS OF THE TPO AND PLACED ON HIS RECORD THE REQUISITE INFO RMATION, TO THE EXTENT THE SAME WAS PRACTICALLY POSSIBLE IN LIGHT OF THE VERY NATURE OF ITS TRADE. WE THOUGH ARE NOT OBLIVIOUS OF THE FACT THAT THE ASSESSEE MAY NOT HAVE EFFECTED ABSOLUTE COMPLIANCE TO THE DIRECTIONS OF THE TPO AND FURNISHED ALL THE REQUIS ITE DETAILS AS WERE CALLED FOR BY HIM ON ACCOUNT OF PRACTICAL DIFFICULTIES AS HAD BEEN DELIBERATED BY US AT LENGTH HEREINABOVE, BUT HOWEVER, IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS, WE ARE OF THE CONSIDERED VIEW THAT THE FAILURE TO THE SAID EXTENT ON THE PART OF THE ASSESSEE TO COMPLY WITH THE DIRECT IONS OF THE TPO CAN SAFELY BE HELD TO BE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 26 BACKED BY A REASONABLE CAUSE, WHICH THUS WOULD BRING THE CASE OF THE ASSESSEE WITH THE SWEEP OF SEC. 273B OF THE ACT. WE THUS IN THE BACKDROP OF OUR AFORESAID OB SERVATIONS FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW TAKEN BY THE CIT(A,) AND FINDING NO REASON TO DISLODGE HIS WELL REASONED ORDER, THEREFORE, UPHOLD THE SAME. WE THUS UPHOLD THE ORDER OF THE CIT(A) AND THE RESULTANT DELETION OF THE PENALTY OF RS. 2 ,15,98,527/ - IMPOSED BY THE TPO. 21.THE APPEAL OF THE REVENUE IS DISMISSED . 8 . WHEN THIS WAS POINTED OUT TO THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE, HE ONLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES I.E. AO /TPO. HE ALSO RELIED ON THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHATRUNJAY DIAMONDS (2003) 261 ITR 258 (BOM) WHICH IS IN RELATION TO THE ISSUE OF DISALLOWANCE U/S 40A(2)(B) OF THE ACT. 9 . AFTER HEARING BOTH THE SIDES AND GOING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE VIEW THAT THE CO - ORDINATE BENCH HAS ELABORATELY DEALT WITH THIS ISSUE AND FINALLY HELD THAT THE ASSESSEE HAS SUBSTANTIALLY COMPLIED WITH THE DIRECTIONS OF THE TPO AND PLACED ON RECORD THE REQUISITE INFORMATION AS OBSERVED BY CIT(A). THE REV ENUE COULD NOT DISLODGE THE FINDINGS OF CIT(A). HENCE, ACCORDING TO US, THERE IS A REASONABLE CAUSE IN NOT COMPLYING WITH THE PROVISIONS OF SECTION 92D(3) OF THE ACT. RESPECTFULLY, FOLLOWING THE CO - ORDINATE BENCH DECISION IN THE CASE OF DILIPKUMAR V. LAKHI (SUPRA), WE CONFIRM THE ORDER OF CIT(A) AND DISMISS THIS APPEAL OF REVENUE. 10 . RESULTANT, ALL OTHERS APPEALS OF REVENUE ARE IDENTICAL AND HENCE, DISMISSED. 11 . IN THE RESULT, ALL THE APPEALS OF REVENUE ARE DISMISSED. 5.1. WE ALSO FIND THAT THE LD. CIT(A) HAD PLACED RELIANCE ON THE DECISION OF THE JAIPUR TRIBUNAL IN THE CASE OF ACIT VS. GILLETTE INDIA LTD REPORTED IN 54 TAXMANN.COM 313 DATED 16/01/2015 WHICH IS ALSO APPLICABLE TO THE FACTS OF THE INSTANT CASE. IN VIEW OF THE AFORESAID OBSERVATIONS AND RESPECTFU LLY FOLLOWING THE AFORESAID JUDICIAL PRECEDENTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) DELETING THE PENALTY U/S.271G OF THE ITA NO. 5931/MUM/2017 M/S. LEO SCHACHTER DIAMONDS INDIA 27 ACT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE INSTANT CASE BEFORE US. WE WOULD LIKE TO MAKE IT CLEAR THAT THE SAID DECISION SHALL NOT STAND AS A PRECEDENT FOR OTHER CASES. ACCORDINGLY, THE GROUNDS RAISED BY REVENUE ARE DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 / 02 /201 9 SD/ - ( SAKTIJIT DEY ) SD/ - ( M. BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 28 / 02 /201 9 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDE NT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//