DCIT-12(1)(1), MUMBAI V. AMORE JEWELS P. LTD, MUMBAI

ITA 6009/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7185 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 25-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Reasonable cause; Non compliance
• Section: 92C; 273B; 92D; 27; 92

Judgement Text

1 AMORE JEWELS PVT LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 6009/MUM/2017 - AY 2012-13 ITA NO. 716/MUM/2018 - AY 2009-10 DCIT-12(1)(1), MUMBAI VS M/S AMORE JEWELS P LTD PLOT NO.3A, PANDIT MOTILAL NEHRU MARG BEHIND PATEL ALUMINIUM, ITT BHATTI GOREGAON (W), MUMBAI 400 062 PAN : AAECA7184J APPELLANT RESPONDEDNT APPELLANT BY SHRI AJAY MALIK RESPONDENT BY SMT. ARATI VISSANJI DATE OF HEARING 27-02-2019 DATE OF PRONOUNCEMENT 10-04-2019 O R D E R PER G MANJUNATHA, AM : THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE CIT(A)-55, MUMBAI, BOTH DATED 28-06-2017 AND 08- 09-2017 AND THEY PERTAIN TO AYS 2009-10 AND 2012-13 . SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED O RDER. 2 AMORE JEWELS PVT LTD 2. THE REVENUE, HAS MORE OR LESS, RAISED COMMON GRO UNDS OF APPEAL FOR BOTH THE ASSESSMENT YEARS. FOR THE SAKE OF BREVITY , GROUNDS OF APPEAL TAKEN FOR AY 2012-13 ARE EXTRACTED BELOW:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE PENALTY U/S.271G IN THE ASSESSEE CASE EVEN WHEN THE ASSESSEE HAD CLEARLY FAILED IN MAINTAINING THE DOCUMENTATION AS REQUIRED U/S.92D(3) OF THE INCOME TAX ACT, 1961. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE DECISION OF CIT(A) IS VITIATED FOR THE REASON THAT THE CIT(AJ H AS NOT GIVEN ANY FINDINGS ON HOW THE ASSESSEE HAS COMPLIED WITH THE CLAUSES (D), (G) ,(H) AND (M) OF RULE 10D(1), THAT HAS BEEN SPECIFICALLY INVOKED BY THE T PO. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN STATING THAT THE TPO SHOULD HAVE ASKED FOR COPIES OF PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS OF AES TO MAKE AN OVERA LL COMPARISON WITH THE GROSS PROFITABILITY LEVELS OF THE ASSESSEE WITH THE AE'S TO ASCERTAIN DIVERSION OF PROFITS, IF ANY, IGNORING THE FINDINGS OF THE ITAT IN THE CASE OF AZTEC SOFTWARE TECHNOLOGY SERVICES LTD VS ACIT(ITA NO.584/BAN/2Q06), IN WHICH IT HAS BEEN HELD THAT THERE IS NO LEGAL REQUIREMENT FOR THE AO TO PRIMA FACIE D EMONSTRATE TAX AVOIDANCE BEFORE INVOKING THE PROVISIONS OF SECTION 92 AND 92 CA OF THE INCOME TAX ACT, 1961. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THERE WAS REASONABLE CAUSE FO R NONCOMPLIANCE OF SEC 92D R/W RULE 10D(1) WITHOUT SPECIFYING THE CAUSE OF SUC H NONCOMPLIANCE OR DEMONSTRATING HOW THE SAME WAS REASONABLE. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE PENALTY FOR THE REASON THAT N O ADJUSTMENT WAS MADE TO THE ALP, FAILING TO NOTE THAT BY NOT PRODUCING THE MATE RIAL DOCUMENTS NECESSARY TO DETERMINE THE ALP UNDER ANY OF THE PRESCRIBED METHO DS U/S.92C(L), THE ASSESEE EFFECTIVELY PREVENTED THE TPO TO MAKE DETERMINATION AS RECORDED BY THE TPO IN PARA 5 OF THE ORDER U/S.92CA(3). 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW ,THE CIT(A) WAS NOT JUSTIFIED IN ARRIVING AT THE CONCLUSION THAT THE TP O COULD HAVE TRIED TO WORK OUT THE GROSS PROFITS AND NET PROFITS BY AVERAGING THE PURCHASE PRICES AND THE EXPENSES IN PROPORTION OF EXPORTS SALES OF EACH ONE OF THE S EGMENTS TO ARRIVE AT AVERAGE PROFITABILITY OF EACH SEGMENT AND THEN TO COMPARE T HE SAME WITH THE AVERAGE PROFITABILITY OF OTHER PUBLIC COMPANIES WHOSE DETAI LS WERE AVAILABLE IN PUBLIC DOMAIN, WHEN IT WAS NOT POSSIBLE TO DO SO IN THE AB SENCE OF PROPER DOCUMENTATION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF BUYING ROUGH AND POLISHED DIAMONDS, PRO CESSING OF ROUGH 3 AMORE JEWELS PVT LTD DIAMOND, MANUFACTURING POLISHED DIAMONDS AND SELLIN G POLISHED DIAMONDS. THE ASSESSEE IS ALSO ENGAGED IN PURCHASE OF RAW MAT ERIALS (GOLD, GOLD MOUNTINGS, POLISHED DIAMONDS AND OTHER ITEMS), ASSO RTMENT OF POLISHED DIAMOND, MANUFACTURING OF JEWELLERY AND SALE OF JEW ELLERY. DURING THE CURRENT FINANCIAL YEAR, THE ASSESSEE HAS ENTERED INTO INTER NATIONAL TRANSACTIONS OF PURCHASE AND SALE OF ROUGH AS WELL AS POLISHED DIAM ONDS FROM ITS ASSOCIATE ENTERPRISES. THE ASSESSEE HAS APPLIED TNMM TO BENC HMARK INTERNATIONAL TRANSACTIONS WITH ITS AES. DURING ASSESSMENT PROCE EDINGS, A REFERENCE U/S 92CA(1) OF THE INCOME-TAX ACT, 1961 WAS MADE TO THE TPO TO DETERMINE ALP OF INTERNATIONAL TRANSACTIONS WITH ITS AE. DURING THE COURSE OF PROCEEDINGS, THE ASSESSEE JUSTIFIED TNMM BY COMPARING ITS PROFITS MA RGIN WITH THE MARGIN EARNED BY THIRD PARTIES ENGAGED IN SIMILAR ACTIVITI ES. HOWEVER, THE ASSESSEE DID NOT FURNISH SEGMENTAL PROFITABILITY BETWEEN THE AE. THE TPO HAS ACCEPTED ASSESSEES INTERNATIONAL TRANSACTIONS WITH ITS AE I S AT ALP WITHOUT MAKING ANY ADJUSTMENT U/S 92CA(3); HOWEVER, THE TPO HAS MADE O BSERVATION WITH REGARD TO NON FURNISHING OF CERTAIN DOCUMENTS WITH REGARD TO THE RPM OR CUP METHOD TO DETERMINE ALP OF ITS INTERNATIONAL TRANSACTIONS. THEREFORE, HE HAD ACCEPTED TNMM METHOD SELECTED BY THE ASSESSEE TO BENCHMARK I TS INTERNATIONAL TRANSACTIONS WITHOUT ANY ADJUSTMENT. 4 AMORE JEWELS PVT LTD 4. THEREAFTER, THE TPO INITIATED PENALTY PROCEEDING S U/S 271G OF THE I.T. ACT, 1961 AND ISSUED A SHOW CAUSE NOTICE DATED 27-0 1-2016 AND ASKED AS TO WHY PENALTY SHALL NOT BE LEVIED FOR NON FURNISHING OF DOCUMENTS SPECIFIED U/R 10D(1) OF I.T. RULES, 1962. IN RESPONSE, THE ASSES SEE, VIDE ITS LETTERS DATED 12- 02-2016 AND 18-02-2016 SUBMITTED THAT IT HAS FURNIS HED NECESSARY INFORMATION IN CONNECTION WITH TNMM METHOD SELECTED FOR BENCHMA RKING ITS INTERNATIONAL TRANSACTIONS. HOWEVER, WHEN THE AO HAS ASKED FOR F URTHER DOCUMENTATION IN RESPECT OF RPM AND CPU, THE INFORMATION WAS NOT REA DILY AVAILABLE INCLUDING SEGMENT-WISE P&L ACCOUNT, THEREFORE, IT IS NOT CORR ECT TO SAY THAT THERE IS NO COMPLIANCE TO THE PROVISIONS OF RULE 10D(1), WHICH WARRANTS LEVY OF PENALTY U/S 271G OF THE ACT. 5. THE AO, AFTER CONSIDERING SUBMISSIONS OF THE ASS ESSEE AND ALSO ON ANALYSIS OF PROVISIONS OF RULE 10D(1) HELD THAT THE ASSESSEE HAS FAILED TO COMPLY WITH THE REQUIREMENTS OF RULE 10D(1) IN VIEW OF FAI LURE TO FILE SPECIFIC DETAILS REQUIRED UNDER LAW, AS PER THE PROVISIONS OF RULE 1 0D(1) TO COMPUTE ALP OF ITS INTERNATIONAL TRANSACTIONS. THE AO / TPO FURTHER O BSERVED THAT THE CONTENTION OF THE ASSESSEE THAT IT WAS PREVENTED BY REASONABLE CAUSE FOR NOT MAINTAINING AND FURNISHING THE INFORMATION RELATING TO INTERNAT IONAL TRANSACTIONS AS WELL AS COMPARABLE UNCONTROLLED TRANSACTIONS, AS CALLED FOR FROM TIME TO TIME, CANNOT BE ACCEPTABLE MERELY FOR THE REASON THAT THE DETAIL S CANNOT BE MAINTAINED 5 AMORE JEWELS PVT LTD CONSIDERING THE NATURE AND COMPLEXITY OF TRADE. TH EREFORE, HE OPINED THAT REASONS GIVEN BY THE ASSESSEE FOR NOT MAINTAINING O R FURNISHING NECESSARY DOCUMENTATION OR INFORMATION AS REQUIRED UNDER LAW CANNOT COME UNDER THE PURVIEW OF REASONABLE CAUSE AS PROVIDED U/S 273B AN D ACCORDINGLY, IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271G OF THE ACT. ACCO RDINGLY, HE LEVIED PENALTY OF 2% OF TOTAL INTERNATIONAL TRANSACTIONS WHICH COMES T RS.3,56,02,903. 6. AGGRIEVED BY THE PENALTY ORDER, ASSESSEE PREFERR ED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSUE WHICH HAS BEEN REPRODUCED AT PARA 5 ON PAGES 7 TO 45 OF THE ORDER OF LD.CIT(A). THE SUM AND SUBSTANCE OF ARGUM ENTS OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE AO / TPO WAS ERRED I N LEVYING PENALTY U/S 271G OF THE I.T. ACT, 1961 WHEN THE DOCUMENTS REQUIRED A S PER LAW IN RESPECT OF METHOD SELECTED BY THE ASSESSEE WERE FILED IGNORING THE FACT THAT THE OTHER DOCUMENTS / INFORMATION IN RESPECT OF DIFFERENT MET HOD SELECTED BY THE TPO TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS WITH AES W ERE NOT READILY AVAILABLE AND ALSO WHICH COULD NOT BE FURNISHED CONSIDERING T HE NATURE AND COMPLEXITY OF DIAMOND TRADE INDUSTRY. THE LD.CIT(A), AFTER CO NSIDERING SUBMISSIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRE CEDENTS, HELD THAT LEVY OF PENALTY U/S 271G OF THE ACT, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE IS NEITHER FAIR NOR REASONABLE AND, THEREFORE, DOES NO T JUSTIFY IN FACTS OF THE CASE, 6 AMORE JEWELS PVT LTD I.E. THE NATURE OF DIAMOND TRADE, SUBSTANTIAL COMP LIANCE MADE BY THE ASSESSEE AND THE REASONABLE CAUSE SHOWED BY THE ASSESSEE AND ABOVE ALL, WHEN THERE IS NO ADJUSTMENT MADE IN THE ALP. ACCORDINGLY, HE DEL ETED PENALTY LEVIED U/S 271G OF THE ACT. THE RELEVANT FINDING OF THE LD.CI T(A) IS EXTRACTED BELOW:- 6.12 IN THIS REGARD, RELIANCE IS ALSO PLACED O N FOLLOWING DECISIONS: 1) ITQ-V/S. NETS SOFT INDIA LTD. -2013/35/TAXMANN. .COM/579/MUMBA: 1TAT 2) AC1TV/S.GILLETTE INDIA LTD.2015/54/TAXMAN.COM/313/ JAIPUR ITAT 1 HAVE GONE THROUGH THE ABOVE AND FOUND THAT THE FA CTS OF THE ABOVE CASE LAWS ARE SIMILAR TO THE FACTS OF' THE ASSESSEE'S CASE. I N VIEW OF THE ABOVE, 1 AM OF THE OPINION THAT LEVY OF PENALTY U/S.271G OF THE L. T.ACT,1961 IS NEITHER FAIR NOR REASONABLE AND THEREFORE II IS NOT JUSTIFIED IN FACTS OF THE CASE, VIZ., THE NATURE OF DIAMOND TRADE, SUBSTANTIAL COMPLIANCE MAD E BY THE ASSESSEE AND THE REASONABLE CAUSE SHOWED BY THE ASSESSEE AND ABOVE A LL, WHEN THERE IS NO ADJUSTMENT MADE IN THE ALP. IN NUTSHELL, THE LEVY OF PENALTY OF RS.35,602,903/- UNDER SECTION 271G OF I.T.ACT, 1961 IS HEREBY DELETED. 7. IN VIEW OF THE FACT THAT LEVY OF PENALTY UNDER S ECTION 271G OF IT.ACT, 1961 IS ITSELF DELETED, OTHER OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE TPO AND IN APPEAL ARE NOT CONSIDERED RELEVANT AND A RE NOT DISCUSSED. IN NUTSHELL, LEVY OF PENALTY UNDER SECTION 271G OF I.T .ACT, 1961 IS HEREBY DELETED. 7. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN DELETING PENALTY LEVIED U/S 271G OF THE ACT, EVEN WHEN THE ASSESSEE HAD CLEARLY FAILED IN MAINTAINING THE DOCUMENTATION AS REQUIRED U/S 92D(3 ) OF I.T. ACT, 1961. THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) WAS ERRE D IN NOT CONSIDERING FACTS BROUGHT OUT BY THE TPO IN LIGHT OF PROVISIONS OF RU LE 10D(1)(II)(B) & (M) AND ALSO CLEAR FACTS IN THE LIGHT OF DOCUMENTATION FURN ISHED BY THE ASSESSEE TO COME TO THE CONCLUSION THAT REQUIREMENT OF LAW HAS NOT BEEN COMPLIED WITH. 7 AMORE JEWELS PVT LTD THEREFORE, IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271G OF THE ACT. THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) WAS NOT CORREC T IN STATING THAT THE TPO SHOULD HAVE ASKED FOR COPIES OF P&L ACCOUNT AND BAL ANCE-SHEETS OF AE TO MAKE AN OVERALL COMPARISON WITH GROSS PROFITABILITY LEVE LS OF THE ASSESSEE WITH THE AES TO ASCERTAIN DIVERSION OF PROFITS, IF ANY IGNOR ING THE FINDINGS OF THE ITAT IN THE CASE OF AZTEC TECHNOLOGY SERVICES LTD VS ACIT ( ITA NO.584) TO PRIMA FACIE DEMONSTRATE TAX AVOIDANCE BEFORE INVOKING THE PROVI SIONS OF SECTIONS 92 AND 92C OF THE ACT. 8. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG, SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH K IN THE CASE OF ACIT VS D NAVINCHAN DRA EXPORTS (P) LTD (2017 87 TAXMANN.COM 306. THE TRIBUNAL HAS CONSIDERED TH E ISSUE OF LEVY OF PENALTY U/S 271G OF THE ACT IN LIGHT OF NATURE AND COMPLEXI TY OF DIAMOND TRADE INDUSTRY AND HELD THAT WHERE TPO DIRECTED ASSESSEE DIAMOND M ERCHANT TO FURNISH SEGMENTAL PROFITABILITY FOR AE TRANSACTIONS AND NON AE TRANSACTIONS, THE PRACTICAL DIFFICULTY IN FURNISHING SEGMENT-WISE P&L ACCOUNT OF AE SEGMENT AND NON AE SEGMENT WAS EXPRESSED BY DIAMOND INDUSTRY, P ENALTY U/S 271G WAS NOT CALLED FOR. THE LD.AR FURTHER SUBMITTED THAT IT IS NOT A CASE OF THE TPO THAT NO DOCUMENT WAS FURNISHED. IN FACT, THE ASSESSEE HAS FILED COMPLETE SET OF DOCUMENTS IN RESPECT OF TNMM METHOD INCLUDING SEPAR ATE TRADING RESULTS FOR 8 AMORE JEWELS PVT LTD AE AS WELL AS NON AE SEGMENT. HOWEVER, THE TPO WAS ASKING FOR FURTHER DOCUMENTATION / INFORMATION IN RESPECT OF EACH LOT OF GOODS MANUFACTURED. THE LD.AR FURTHER SUBMITTED THAT IT IS DIFFICULT TO FURNISH SEGMENT-WISE DETAILS IN RESPECT OF EACH LOT OF GOODS MANUFACTURED, BECAU SE WHEN A ROUGH DIAMOND IS CUT INTO POLISHED DIAMONDS, EACH DIAMOND POCKET LOSS ITS INDIVIDUAL IDENTITY AND GET MIXED IN THE LOTS PURCHASED FROM AE AS WELL AS NON AES. THEREFORE, IT IS INCORRECT ON THE PART OF THE TPO TO COME TO THE CON CLUSION THAT THERE WAS FAILURE TO COMPLY WITH THE PROVISIONS OF RULE 10D(1 ) OF THE I.T. RULES, WHICH WARRANTS LEVY OF PENALTY U/S 271G OF THE ACT. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDIN ATE BENCH IN THE CASE OF ACIT VS D NAVINCHANDRA EXPORTS (P) LTD (SUPRA). TH E CO-ORDINATE BENCH, AFTER CONSIDERING RELEVANT FACTS AND DIFFICULTIES EXPRESS ED BY DIAMOND TRADE INDUSTRY FOR MAINTENANCE OF DOCUMENTS AS REQUIRED BY THE TPO IN VIEW OF RULE 10D(1) OF I.T. RULES, 1962 AND ALSO AFTER CONSIDERING THE PROVISIONS OF SECTION 271G, RULE 10D(1) AND 10D(3), CAME TO THE CONCLUSION THAT THERE IS REASONABLE CAUSE OF THE ASSESSEE FOR NOT MAINTAINING SPECIFIC INFORM ATIONS / DOCUMENTATION IN LIGHT OF PROVISIONS OF RULE 10D(1) AND 10D(2) WHICH COMES WITHIN THE AMBIT OF REASONABLE CAUSE AS PROVIDED U/S 273B AND HENCE, THE AO WAS ERRED IN 9 AMORE JEWELS PVT LTD LEVYING PENALTY U/S 271G FOR FAILURE TO FILE SEGMEN T-WISE P&L ACCOUNT OF AE SEGMENT AND NON AE SEGMENT WHEN THE ASSESSEE HAS EX PRESSED ITS DIFFICULTY BY CONSIDERING THE NATURE AND COMPLEXITY OF TRADE. TH E RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER:- A CAREFUL PERUSAL OF THE VERY NATURE OF THE BUSINE SS 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. THE COMMISSIONER (APPEALS) HAD OBSERVED THAT AS THE ASS ESSEE HAD PURCHASED A MIX OF IMPORTED ROUGH AND POLISHED DIAMONDS FROM AE S AND NON-AES, AND HAD ALSO SOLD/EXPORTED ROUGH AND POLISHED DIAMONDS TO AES AS WELL AS THE NON- AES, THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE REFL ECTED A MIXTURE OF PURCHASES AND SALES BOTH FROM THE AES AND THE NON-AES. THE VI EW OF THE COMMISSIONER (APPEALS) WAS TO BE AGREED THAT NOW WHEN THE ROUGH/ POLISHED DIAMONDS WERE TRADED ON LOT WISE BASIS, IT WAS DIFFICULT TO IDENT IFY AND SAY WHETHER A POLISHED DIAMOND CAME OUT OF A PARTICULAR LOT OF ROUGH DIAMO NDS OR THE OTHER AND/OR OUT OF THE POLISHED DIAMONDS PURCHASED LOCALLY BY THE A SSESSEE. THE EXPORT BILLS OF THE CUT AND POLISHED DIAMONDS EXPORTED TO THE AES A ND 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 CH ARGED IN EACH BILL, AND SIMILAR WOULD HAVE BEEN THE POSITION IN RESPECT OF CUT AND POLISHED DIAMONDS PURCHASED AND SOLD LOCALLY AND/OR PURCHASED FROM AB ROAD BUT SOLD LOCALLY. IN THE BACKDROP OF THE AFORESAID PECULIAR NATURE OF TH E TRADE OF THE ASSESSEE, IT COULD SAFELY OR RATHER INESCAPABLY BE CONCLUDED THA T IT WAS EXTREMELY DIFFICULT TO IDENTIFY WHICH ROUGH DIAMOND GOT CONVERTED INTO WHICH POLISHED DIAMOND, UNLESS THE SINGLE PIECE ROUGH DIAMOND HAPPENED TO B E OF EXCEPTIONALLY HIGH CARAT VALUE, THEREIN MAKING THE TRACING OUT AND IDE NTIFICATION OF THE POLISHED DIAMOND PHYSICALLY POSSIBLE AND CONVENIENT. THE AFO RESAID PRACTICAL DIFFICULTIES IN PROVIDING THE DETAILS BEING FACED B Y THE INDUSTRY CAN BE WELL GATHERED FROM THE LETTER OF THE GJEPC TO THE CIT-TRANSFER PR ICING, WHEREIN THE AFORESAID ASPECTS INVOLVED IN THE DIAMOND MANUFACTU RING BUSINESS WERE EXPLAINED. [PARA 18] IN LIGHT OF THE AFORESAID PRACTICAL DIFFICUL TIES WHICH WERE BEING FACED BY THE DIAMOND INDUSTRY, THE TPO SHOULD HAVE EXERCISED THE VIABLE OPTION OF DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATI ONAL TRANSACTIONS OF THE ASSESSEE, EITHER BY MAKING SOME COMPARISON OF REALI SATION OF PRICES IN RESPECT OF EXPORT SALES TO AES AND NON-AES BY COMPARING PRI CES OF DIAMONDS OF SIMILAR SIZE, QUALITY AND WEIGHT TO THE BEST EXTENT POSSIBLE, OR IN THE ALTERNATIVE COULD HAVE ASKED FOR THE COPIES OF THE PROFIT & LOS S ACCOUNTS AND THE BALANCE SHEETS OF THE AES IN ORDER TO MAKE AN OVERALL COMPA RISON WITH THE GROSS PROFITABILITY LEVELS OF THE ASSESSEE WITH ITS AES, WHICH WOULD HAVE CLEARLY REVEALED DIVERSION OF PROFITS, IF ANY, BY THE ASSES SEE TO ITS AES. IT CANNOT BE 10 AMORE JEWELS PVT LTD COMPREHENDED AS TO ON WHAT BASIS THE TPO EXPECTED T HE ASSESSEE TO HAVE CARRIED OUT THE BENCHMARKING BY FOLLOWING CUP METHO D. AS THE COMPARISON BY INTERNAL CUP METHOD COULD ONLY BE MADE IF TWO LO TS OF DIAMONDS WERE 'SIMILAR IN SIZE, COLOUR, SHAPE AND CLARITY, WHICH IN LIGHT OF THE PECULIAR NATURE OF THE TRADE OF THE ASSESSEE WOULD NOT BE POSSIBLE. IF ONE LOT HAD DIAMONDS OF VARIETY OF SIZE, COLOUR, SHAPE AND CLARITY, THE PRI CES WOULD VARY FROM DIAMOND TO DIAMOND AND LOT TO LOT, AND FURTHER, NOW WHEN TH E ENTIRE LOT OF DIAMONDS HAD A COMMON PRICE TAG PER CARAT FOR THE WHOLE LOT, THE REFORE, IT WAS NOT POSSIBLE TO EVALUATE THE PRICE OF EACH DIAMOND EVEN OTHERWISE I N THE DIAMOND TRADE LINE, UNLESS A DIAMOND WOULD WEIGH HALF CARAT OR MORE OR ONE CARAT OR MORE, THE SAME WOULD 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. THE INSISTENCE OF THE TPO T HAT THE ASSESSEE SHOULD HAVE FOLLOWED CUP METHOD WAS MISCONCEIVED AND IMPRACTICA L. IF THE TPO WOULD HAVE CARRIED OUT A COMPARISON OF THE PROFIT & LOSS ACCOU NT AND BALANCE SHEETS OF THE AES, THE SAME WOULD HAVE REVEALED THE GROSS PROFIT MARGINS AND LEVELS OF PROFITABILITY EARNED BY THE AES IN THEIR BUSINESSES , AND AS SUCH ANY ABNORMAL VARIATION IN THEIR GROSS PROFITABILITY WOULD HAVE R EVEALED THE ABERRATIONS IN THE INTERNATIONAL TRANSACTIONS. [PARA 1 9] THE NATURE AND LEVEL OF BUSINESS OF THE ASSESSEE DU RING THE YEAR UNDER CONSIDERATION HAD INCREASED ALMOST TWO FOLD. WHILE FOR THE GROSS PROFITS OF THE ASSESSEE HAD ALSO INCREASED FROM 7.4 PER CENT FOR A SSESSMENT YEAR 2010-1 1 TO 8.7 PER CENT FOR THE YEAR UNDER CONSIDERATION, VIZ. ASSESSMENT YEAR 201 1-12, THE NET PROFIT HAD ALSO WITNESSED A GROWTH FROM 3.9 PER CEN T IN THE IMMEDIATE PRECEDING YEAR TO 4.9 PER CENT DURING THE YEAR UNDER CONSIDER ATION. AS OBSERVED BY THE COMMISSIONER (APPEAL) THAT IN THE PRECEDING YEAR, I.E ASSESSMENT YEAR 2010-1 1 THE TPO DID NOT PROPOSE ANY ADJUSTMENT IN THE ALP. THERE IS THE FAULT FINDING APPROACH ADOPTED BY THE TPO WITHOUT UNDERSTANDING T HE INTRICACIES OF THE DIAMOND MANUFACTURE AND TRADING BUSINESS, HE INSTEA D OF DETERMINING THE ARM'S LENGTH PRICE BY ASKING FOR THE PROFIT & LOSS ACCOUN T AND BALANCE SHEETS OF THE AES AND COMPARING THE FINANCIAL RATIOS IN GENERAL, HAD RATHER HUSHED THROUGH THE MATTER AND IMPOSED PENALTY UNDER SECTION 27 1G ON T HE ASSESSEE. THE ASSESSEE TO THE EXTENT POSSIBLE IN THE BACKDROP OF THE NATURE O F ITS TRADE HAD FURNISHED SEVERAL DETAILS ON SEVERAL OCCASIONS FROM TIME TO TIME WITH THE TPO. THUS, THE ASSESSEE HAD SUBSTANTIALLY COMPLIED WITH THE DIRECTIONS OF T HE TPO AND PLACED ON HIS RECORD THE REQUISITE INFORMATION, TO THE EXTENT THE SAME WAS PRACTICALLY POSSIBLE IN LIGHT OF THE VERY NATURE OF ITS TRADE. THOUGH THE A SSESSEE MAY NOT HAVE EFFECTED ABSOLUTE COMPLIANCE TO THE DIRECTIONS OF THE TPO AN D FURNISHED ALL THE REQUISITE DETAILS AS WERE CALLED FOR BY HIM ON ACCOUNT OF PRA CTICAL DIFFICULTIES FAILURE TO THE SAID EXTENT ON THE PART OF THE ASSESSEE TO COMPLY W ITH THE DIRECTIONS OF THE TPO CAN SAFELY BE HELD TO BE BACKED BY A REASONABLE CAU SE, WHICH THUS WOULD BRING THE CASE OF THE ASSESSEE WITH THE SWEEP OF SECTION 273B . THUS, IN THE BACKDROP OF AFORESAID OBSERVATIONS THE VIEW TAKEN BY THE COMMIS SIONER (APPEALS) WAS TO BE AGREED. [PARA 20] 11 AMORE JEWELS PVT LTD 8. A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS LEROY SOMER AND CONTROLS (INDIA) P. LTD (SUPRA). THE HONBLE DELHI HIGH COURT, AFTER CONSIDERING RELEVANT FACTS AND ALSO PROVISIONS OF SECTION 271G, HELD THAT WHEN THE ASSESSEE HAS FURNISHED SPE CIFIC INFORMATION OR DOCUMENTATION, THE OTHER DOCUMENTATION OR INFORMATI ON RELATING TO DATA BASE OR TRANSACTIONS ENTERED INTO BY THIRD PARTIES MAY R EQUIRE COLLECTION FROM TIME TO TIME, THEREFORE, WHEN THE ASSESSEE HAS FURNISHED DETAILS, THE AO WAS ERRED IN LEVYING PENALTY U/S 271G FOR NON COMPLIANCE WITH PROVISIONS OF RULE 10D WITHOUT SPECIFYING WHICH PARTICULAR DOCUMENTATION W AS NOT FURNISHED BY THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE COURT A RE AS UNDER:- HELD, DISMISSING THE APPEAL, THAT THE ORDER PASSED BY THE ASSESSING OFFICER MERELY RECORDED THAT THERE WAS FA ILURE TO FILE RULE 10D DOCUMENTATION WITHOUT SPECIFYING OR STATIN G WHICH DOCUMENT OR INFORMATION WAS NOT FURNISHED IN SPITE OF THE NOTICE CALLING FOR THE INFORMATION OR DOCUMENT UNDER SECTI ON ,92D(3). IN THE ABSENCE OF THE BASIC DETAILS OR FACTS, THE ORDE R OF THE PENALTY UNDER SECTION 271G COULD NOT BE SUSTAINED. 9. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOLL OWING THE CASE LAWS DISCUSSED HEREINABOVE, WE ARE OF THE CONSIDERED VIE W THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD.CIT(A) WHILE DELETI NG PENALTY LEVIED U/S 271G OF THE ACT. HENCE, WE ARE INCLINED TO UPHOLD THE ORDE R OF LD.CIT(A) AND DISMISS APPEAL FILED BY THE REVENUE. 12 AMORE JEWELS PVT LTD 10. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NO.716/MUM/2018 11. THE FACTS AND ISSUE INVOLVED IN THIS APPEAL ARE IDENTICAL TO THE FACTS AND ISSUE, WHICH WE HAVE ALREADY CONSIDERED IN ITA NO.6 009/MUM/2017 FOR AY 2012-13. THE REASONS GIVEN BY US IN PRECEDING PARA GRAPHS IN ITA NO.6009/MUM/2017 SHALL MUTATIS MUTANDIS APPLY TO TH IS APPEAL ALSO. THEREFORE, FOR THE DETAILED REASONS GIVEN IN PRECED ING PARAGRAPHS, WE DISMISS APPEAL FILED BY THE REVENUE. 12. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10-04-2019 . SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 10 TH APRIL, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI