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5. Aggrieved, the assessee carried the matter in appeal before the CIT(A).The CIT(A) after deliberating on the contentions advanced by the assessee, was of the considered view that the penalty under Sec.271G levied on the assessee was neither fair nor reasonable. It was observed by the CIT(A), that keeping in view the nature of the business of diamond trade, substantial compliances made by the assessee, reasonable cause shown for its inability to furnish certain details called for by the TPO, and also the fact that no adjustment was P a g e |5 The ACIT-19(2) Vs. M/s Jasani made to the ALP by the TPO, the levy of penalty under Sec. 271G was not found to be justified. On the basis of his aforesaid observations the CIT(A) deleted the penalty of Rs.90,98,948/- imposed by the TPO under Sec.271G of the Act.

6. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short „D.R‟) relied on the order passed by the TPO under Sec.271G of the Act. It was submitted by the ld. D.R, that as the assessee had deliberately and wilfully withheld information/documents pertaining to its segmental accounts in respect of the purchases and sales made with AE and Non-AEs, and by so doing had prevented the TPO from performing any comparability analysis for determining the ALP in a fair manner as envisaged under Sec.92C, therefore, it was rightly visited with penalty under Sec. 271G of the Act. It was submitted by the ld. D.R, that the CIT(A) was in error in setting aside the penalty which was rightly imposed by the TPO under Sec.271G of the Act.

10. We find that the TPO pursuant to the notice u/s 92CA(2) along with a questionnaire issued to the assessee, had in order to verify as to whether the transactions entered into by the assessee with its AEs were at arms length, had called upon the assessee to submit documents mentioned as per Rule 10D(1) and 10D(3) of the Income tax Rules, 1962 along with other specific details. Also, the TPO had directed the assessee to furnish the documents specified under Sec. 92D and Sec. 92E of the Act. We find that the TPO after examining the P a g e |8 The ACIT-19(2) Vs. M/s Jasani details and documents available on record, had therein called upon the assessee to submit the segmental profitability for AE transactions and non-AE transactions. However, as the assessee had not maintained separate books of accounts for AE and non-AE segments, therefore, it expressed its inability to furnish the details in the manner the same were called for by the TPO. We find that the TPO in the absence of the segmental breakup of the AE and non-AE transactions, as was required by him, therein concluded that the failure of the assessee to furnish the requisite details had prevented him from benchmarking the international transactions of the assessee. Accordingly, the TPO for the failure of the assessee to furnish the requisite details initiated penalty proceedings under Sec. 271G of the Act. As the TPO did not found favour with the explanation of the assessee that no penalty under Sec. 271G was liable to be imposed in its hands, therefore imposed a penalty of Rs. 90,98,948/- i.e @ 2% of the aggregate value of the international transactions of Rs. 45,49,47,403/- in the hands of the assessee.

12. We find that the assessee had in the backdrop of the very nature of its business, viz. manufacturing and trading of diamonds, had though explained to the TPO the practical difficulties in furnishing P a g e | 10 The ACIT-19(2) Vs. M/s Jasani 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. In fact, the TPO instead of determining the arms length price in respect of the international transactions of the assessee with its AE, 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 TPO had proceeded with the matter and imposed penalty under Sec. 271G on 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 option 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 AE and non-AEs by comparing prices 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 & loss accounts and the Balance sheets of the AE in order to make an overall comparison with the gross profitability levels of the assessee with its AE, which would had clearly revealed diversion of profits, if any, by the assessee to its AE. 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. In our considered view, 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, in light of the peculiar nature of the 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 P a g e | 11 The ACIT-19(2) Vs. M/s Jasani evaluate the price of each diamond. We also cannot be oblivious of the fact that even otherwise in the diamond industry 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. We have deliberated on the aforesaid peculiar facts involved in the business of diamond industry 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 AE, the same would had revealed the gross profit margins and levels of profitability earned by the AE in their businesses and any abnormal variation in their gross profitability would had revealed the aberrations in the international transactions.