Appeal details
Counselvise Citation
[2020] 111 COUNSELVISE.COM (IT) 0293 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 4 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-03-2020
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
H
Assessment Year
2013-2014
Appeal Filed On
02-11-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO. 6321 / MUM . /201 8 ( ASSESSMENT YEAR : 20 13 14 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 5( 2 ) (1) , MUMBAI . APPELLANT V/S KIRAN GEMS PVT. LTD. FD 5011, G BLOCK BHARAT DIAMOND BOURSE BANDRA KURLA COMPLEX BANDRA (E), MUMBAI 400 051 PAN AADCK1665M . RESPONDENT REVENUE BY : SHRI AKHTAR HUSAIN ANSARI ASSESSEE BY : SHRI K.A. VAIDYALINGAN DATE OF HEARING 04 . 02 .20 20 DATE OF ORDER 20.03.2020 O R D E R PER SAKTIJIT DEY. J.M. T HE REVENUE HAS FILED THE PRESENT APPEAL CHALLENGING THE ORDER DATED 16 TH AUGUST 2018, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 56 , MUMBAI, DELETING THE PENALTY IMPOSED OF ` 61,45,46,880 UNDER SECTION 271G OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). 2 KIRAN GEMS PVT. LTD. 2. BRIEF FACTS ARE, THE ASSESSEE , A RESIDENT COMPANY , IS ENGAGED I N THE BUSINESS OF IMPORTING ROUGH DIAMOND, GETTING THEM CUT & POLISHED AND THEREAFTER E XPORTING TO VARIOUS PARTIES OUTSIDE THE COUNTRY INCLUDI NG THE ASSOCIATED ENTERPRISE (A E S ) OF THE ASSESSEE SITUATED ABROAD. IN TH E TRANSFER PRICING S TUDY REPORT, THE ASSESSEE BENCH MARKED THE INTER NATIONAL TRANSACTION WITH THE AES RELATING TO SALE OF POLISHED DIAMOND ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT / SALES AS THE PROFIT LEVEL INDICATOR (PLI). SINCE THE MAR GIN SHOWN BY THE ASSESSEE @ 6.00% WAS HIGHER THAN THE AVERA GE MARGIN OF T HE COMPARABLES WORKED OUT @ 3.55%, THE TRANSACTION WITH THE AES WAS CLAIMED TO BE AT ARM'S LENGTH. IN COURSE OF PROCEEDING THE TRANSFER PRICING OFFICER CALLED UPON THE ASSESSEE TO FURNISH NET PROFIT MARGIN OF THE AE AND N ON AE SEGMENTS . IN RE SPONSE TO THE QUERY RAISED, THE ASSESSEE FURNISHED THE NET PROFIT MARGIN OF AE AND NON AE SEGMENTS . THE TRANSFER PRICING OFFICER, HOWEVER, FOUND FAULT WITH THE SEGMENTAL PROFIT MARGIN FURNISHED BY THE ASSESSEE BY STATING THAT SUCH PROFIT MARGIN IS ON THE B ASIS OF COST OF GOODS SOLD (COGS) IN PROPORTION OF SALES . HE OBSERVED, NON FURNISHING OF INFORMATION CALLED FOR PREVENTED HIM FROM EVALUATING THE CORRECTNESS OF THE ARMS LENGTH PRICE OF THE TRANSACTION WITH AES. THOUGH, ULTIMATELY , HE ACCEPTED THE TRANSAC TIONS WITH AES TO BE AT ARMS LENGTH. HAVING DONE SO , ALLEGING NON 3 KIRAN GEMS PVT. LTD. MAINTENANCE OF SPECIFIED DOCUMENT S AS PER RULE 10D , HE INITIATED PR OCEEDINGS UNDER SECTION 271G THE ACT AND ULTIMATELY PASSED AN ORDER ON 30.05.2017 IMPOSING PENALTY OF ` 61,45,46,880, UNDER SECTION 271G OF THE ACT. THE ASSESSEE CHALLENGED THE PENALTY ORDE R BY PREFERRING APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF F ACTS AND MATERIAL ON RECORD, LEARNED COMMISSIONER (APPEALS) OBSERVED , THOUGH THE TRANSFER PRICING OFFICER OBJECTED TO THE COGS METHOD ADOPTED BY THE ASSESSEE, HOWEVER, HE HIMSELF HAS NOT STATED IN WHICH METHOD IT WAS REQUIRED TO BE FURNISHED. FURTHER, HE OBSERVED, THE TRANSFER PRICIN G OFFICER HAS NOT SATED WHETHER THE DATA SOUGHT FOR REALLY EXISTS CONSIDERING THE NATURE OF ASSESSEE S BUSINESS. H E OBSERVED, THE TRANSFER PRICING OFFICER HAS NOT SPECIFIED WHICH DOCUMENTS THE ASSESSEE WAS REQUIRED TO MAINTAIN AS PER RULE 10D BUT NOT MAINT AINED. FURTHER, HE OBSERVED, THE TRANSFER PRICING OFFICER HAS ULTIMATELY ACCEPTED THE TRANSACTION WITH AES TO BE AT ARMS LENGTH. IN VIEW OF THE ABOVE, LEARNED COMMISSIONER (APPEALS) DELETED THE PENALTY IMPOSED. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE ST RONGLY RELYING UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER IN THE PENALTY ORDER PASSED UNDER SECTION 271G OF THE ACT SUBMITTED , DUE TO NON 4 KIRAN GEMS PVT. LTD. MAINTENANCE OF DOCUMENTS THE TRANSFER PRICING OFFICER FOUND IT DIFFICULT TO DETERMINE THE ARMS LENGTH PRIC E OF THE TRANSACT ION WITH THE AES , HENCE, WAS COMPELLED TO ACCEPT THE PRICE CHARGED BY THE ASSESSEE. THUS, HE SUBMITTED , THE PENALTY IMPOSED UNDER SECT ION 271G OF THE ACT SHOULD BE RESTORED . 5. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE ASSESSEE HAS MAINTAINED ALL PRELIMINARY AND BASIC DOCUMENTS AND HAS ALSO PREPARED A TRAN SFER PRICING STUDY REPORT BENCH MAR KING THE TRANSACTION WITH THE A E S. HE SUBMITTED , BEING CALLED UPON BY THE TRANSFER PRICING OFFICER THE ASSESSEE HAD ALSO FURNISHE D THE SEGMENTAL PROFIT MARGINS. HE SUBMITTED , THE TRANSFER PRICING OFFICER HAS ULTIMATELY ACCE PTED THE TRANSACTION WITH THE AES TO BE AT ARM'S LENGTH. THEREFORE, THERE IS NO JUSTIFICATION IN IMPOSING PENALTY UNDER SECTION 271G OF THE ACT. FURTHER, HE SUBMI TTED, THE ISSUE IS OTHERWISE COVERED IN FAVOUR OF THE ASSESSEE AS WHILE DECIDING IDENTICAL MATTER IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011 12 THE TRIBUNAL HAS UPHELD DELETION OF PENALTY IMPOSED UNDER SECTION 271G OF THE ACT. 6. WE HAVE CONSIDERED RIVA L SUBMISSIO NS IN THE LIGHT OF THE DECISION RELIED UPON AND PERUSED THE MATERIAL ON RECORD. MATERIALS ON RECORD MAKE IT CLEAR THAT THE ASSESSEE HAS MAIN TAINED PRIMARY BOOKS OF ACCOUNT/ DOCUMENTS IN RESPECT OF ITS BUSINESS ACTIVITY. IN FACT, THE 5 KIRAN GEMS PVT. LTD. DOCUMENTS RELATING TO TRAN SACTION ENTERED INTO WITH THE AES HAVE ALSO BEEN MAINTAINED BY THE ASSESSEE WHICH IS EVIDENT FROM THE FACT THAT THE ASS ESSEE HAS PREPARED A TRAN SFER PRICING STUDY REPORT BENCH MAR KING THE TRANSACTION WITH THE AES UNDER TNMM. THIS SHOWS THAT THE AS SESSEE HAS MAINTAINED DOCUMENTS/ BOOKS OF ACCOUNT AS REQUIRED UNDER THE STATUTE. IT IS ALSO EVIDENT, IN THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, THE ASSESSEE HAS MADE SUBSTANTIAL COMPLIANCE BY FURNISHING TRANSFER PRICING STUDY RE PORT AS WELL AS MANY OTHER DOCUMENTS. IN FACT, BEING CALLED UPON THE ASSESSEE HAS ALSO FURNISHED SEGMENTAL PROFIT MARGINS. NOTABLY, THOUGH , THE TRANSFER PRICING OFFICER HAS ALLEGED THAT NON FURNISHING OF SEGMENTAL PROFITABILITY IN A PARTICULAR MANNER , TH OUGH NOT SPECIFIED BY HIM, MAKES IT DIFFICULT FOR HIM TO CORRECTLY ASCERTAIN THE ARMS LENGTH PRICE, HOWEVER, ULTIMATELY THE TRANSFER PRICING OFFICER HAS ACCE PTED THE TRANSACTION WITH THE A E S TO BE AT ARM'S LENGTH. IF THE TRANSFER PRICING OFFICER W AS NOT S ATISFIED WITH THE BENCH MARKING OF THE ASSESSEE UNDER TNMM, NOTHING PREVENTED HIM FROM REJECTING ASSESSEE S BENCH MARKING AND DETERMINING THE ARMS LENGTH PRIC E OF THE TRANSACTION WITH THE AES INDEPENDENTLY BY APPLYING ANY ONE OF THE PRESCRIBED METHODS. THE BLAME FOR FAILURE ON THE PART OF THE TRANSFER PRICING OFFICER TO DETERMINE THE ARMS LENGTH PRICE CANNOT BE FASTENED WITH THE ASSESSEE. IT IS WORTH MENTIONING, WHILE DECIDING IDENTICAL MATTER OF 6 KIRAN GEMS PVT. LTD. IMPOSITION OF PENALTY UNDER SECTION 271G OF THE ACT UNDER SIM ILAR FACTS AND CIRCUMSTANCES IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011 12, THE TRIBUNAL IN ITA NO.5626/MUM/2016 AND OTHERS DATED 01.11.2018 UPHELD THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN DELETING THE PENALTY. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED COMMISSIONER (APPEALS). GROUNDS RAISED ARE DISMISSED. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.03.2020 SD/ - G. MANJUNATHA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMB AI, DATED: 20.03.2020 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI
