Failure to furnish segmental details of AE and Non-AE transactions would not invite penalty u/s 271G [Transfer Pricing]

The brief facts are that the assessee is engaged in the business of purchasing rough diamonds within and outside India, cutting / polishing the same into finished goods and selling the polished diamonds to customers including foreign entities. The assessment order under section 143(3) read with section 92CA(3) of the Income Tax Act. 1961 (The Act) dated 21/01/2016 was passed. During the course of the assessment proceedings, the Assessing Officer made reference to the Transfer Pricing Officer (TPO) to determine the arms length price for some international transactions. The TPO had sought for details and documents from the Assessee as per rule 10D(1) and 10D(3) of the I.T. Rules, 1962 and upon furnishing the said details, the Assessee was called for specific details of the segmental profitability for Associated Enterprise (AE) and non AE transactions. The Assessee had failed to furnish the segmental profitability of AE and non AE transactions on the pretext that the Assessee had not maintained separate books of account for AE and non-AE segments. Subsequently, the TPO after issuing a show cause notice under section 271G of the Act levied penalty under section 271G of the Act of Rs.8,05,66,760/- on the ground that non furnishing of segmental transaction has hampered the TPO from benchmarking various transactions.

Aggrieved by the said order, the Assessee was in appeal before the Ld.CIT(A). The Ld CIT(A) held that the Assessee had made substantial compliance of providing all necessary information sought for by the TPO for determining the ALP which was accepted by the TPO thereby deleted the penalty levied under section 271G of the Act. The Revenue filed appeal before the tribunal against the order of Ld. CIT(A) in deleting the penalty levied under section 271G.

ITAT observed that the Assessee has furnished the necessary details for determination of the arm’s length price though (ALP) was unable to provide segment-wise profit & loss account of the AE segment and the non AE segment since the Assessee did not maintain separate books of account for AE & non AE segments. Apart from this, the Assessee has complied with the TPO’s requirement. It further held that due to the peculiar nature of the trade in diamond industry, failure to furnish segmental details of AE transactions and non-AE transactions in the diamond industry, penalty under Sec. 271G could not be justifiably imposed. Therefore, findings of the Ld. CIT(A) stands confirmed.

The issues of Revenue’s appeal are dismissed.