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Assessment Year-2011-12 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 letters 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 tried to work out the gross profits and net profits by averaging the purchase 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 profitability of other 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 the 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 of Rs.12,79,00,215/- under section 271G of I.T. Act, 1961. In the instant case, in submissions before the TPO during penalty proceedings it was pointed out that the appellant's margins are higher than margins of the AEs.
"The decision and observation of the Hon'ble High Court of Delhi in Income Tax Appeal No. 410/2012 (decided on 30.08,2013 in the case of CIT-2 vs. M/s. Leroy Somer & Controls (India) Pvt. Ltd.), which confirmed the ITAT decision and dismissed the revenue appeal on the subject of penalty u/s. 271G supports this stand fully. Inter alia, the Hon'ble High Court after discussing the provisions of 92D, 271G & Rule 10D states as under:
"The tribunal has rightly concluded that with such a broad rule, which requires documentation and information voluminous and virtually unlimited, Section 271G has to be interpreted reasonably and in a rational manner..................................... When there is general and substantive compliance of the provisions of Rule 10D, it is sufficient.............................The documentation or information should be one specified in M/s. Girdharilal International Ltd.
13. The levy of penalty under section 271G is to be considered in the above circumstances. The penalty prescribed under section 271G is very severe. The quantum of penalty is 2 percent of the value of the international transaction for each failure on the part of the assessee. If there are more failures on the part of the assessee, the penalty may end up almost in a capital punishment. When the penalty provision is very severe, it should be applied with great caution and only if circumstances sufficiently justify invoking the penal provision".

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. 12,79,00,2157- under section 271G of I.T.Act, 1961 is hereby deleted.