TMI Blog2011 (8) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... good faith and with due diligence - Accordingly, the facts of the present case did not warrant or justify the imposition of penalty under section 271(1)(c) - Decided in favour of assessee. - 2570 OF (MUM.) of 2010 - - - Dated:- 26-8-2011 - PRAMOD KUMAR, VIJAY PAL RAO, JJ. ORDER Pramod Kumar The short issue that we are required to adjudicate in this appeal is whether or not the CIT(A) was justified in deleting the impugned penalty of ₹ 39,56,921 imposed on the assessee under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 2004-05, in respect of arm's length price (ALP) adjustments made to the value of international transactions entered into by the assessee. 2. The assessee before us is a corporate member of the Bombay Stock Exchange as also National Stock Exchange, and also holds a merchant banker licence from Securities and Exchange Board of India. During the relevant previous year, the assessee has carried out stock broking activities for foreign institutional investors, mutual funds, domestic financial institutions and banks. In the course of business so carried out, the assessee has also provided stock broking services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf serving letter . The TPO also observed that ..the contention of the assessee that no marketing and sales efforts are required in the case of the AEs is not acceptable in totality and that It is no possible that marketing and sales department would not have made any efforts in sourcing business from AEs . With these observations, the TPO rejected the TNMM method and proceeded to adopt CUP. It was mainly in this backdrop that the TPO made an adjustment of ₹ 1,10,29,746 to the arm's length price of broking service charges invoiced by the assessee to its AEs. This determination of the ALP was adopted by the Assessing Officer. The assessee did not pursue the matter in appeal, and this ALP adjustment of ₹ 1,10,29,746 thus attained finality. 3. The matter, however, did not rest there. 4. In the penalty proceedings, the Assessing Officer further observed that the TPO has calculated the arm's length price in a very systematic method and his calculation is based on a solid footing and thus the assessee has filed inaccurate particulars of his income to evade tax in respect of his true income to evade tax in respect of the same . He also noted that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is not an exact science and the arm's length price is an estimate only, and it is inherent in transfer pricing that reasonable people can end up drawing different conclusions on the same facts . Learned CIT(A) concluded that the explanation offered by the appellant is bona fide and there is neither any concealment of income nor furnishing of inaccurate particulars . The penalty was, accordingly, deleted. However, the Assessing Officer is not satisfied by the stand so taken by the CIT(A) and is in appeal before us. 6. We have heard the rival contentions, perused the material on record, and duly considered factual matrix of the case as also the applicable legal position. 7. The relevant portion of section 271(1)(c) and Explanations 1 and 7 thereto, which are relevant for the present purposes, are as follows : 271. Failure to furnish returns, comply with notices, concealment of income, etc. (1) If the Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceedings under this Act, is satisfied that any person ( a ) and ( b )** ** ** (c) has concealed the particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not even Assessing Officer's case that the penalty could have been imposed on the assessee under the main provisions of section 271(1)(c), and rightly so, because a penalty under the main section, as a plain reading of this section unambiguously indicates, can only be levied when there is something on record to lead to positive finding that the assessee has concealed income or furnished inaccurate particulars. 'Concealment' as also 'furnishing of inaccurate particulars' cannot be passive in nature, and, therefore, unless there is material on record demonstrate active conduct of the assessee towards concealment of income or towards furnishing of inaccurate particulars, penalty under the main section cannot be imposed. That is not the situation before us. However, in addition to the situation so envisaged, i.e., in the case of concealment of income or in the case of inaccurate particulars having been furnished, there are situations in which the assessee deemed to have concealed the income or furnished the inaccurate particulars. These are the situation in which, even without there being anything to indicate concealment of income or furnishing of inaccurate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied, on the facts of this case which is specifically dealing with an ALP adjustment under section 92C(4), is not difficult to answer. It is fairly well settled in law that general provisions do not override specific provisions, as aptly described by the maxim 'generalia specialibus non derogant'. A special provision normally excludes the operation of a general provision and we are of the view that such a principle governs the instant case also. In the case of South India Corporation (P.) Ltd. v. Secretary, Board of Revenue AIR 1964 SC 207, at p. 215, Hon'ble Supreme Court had an occasion to consider whether Art. 277 or Art. 372 of the Constitution of India should govern the particular situation involved therein. Their Lordships then pointed out that a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where specific provisions do not apply. Therefore, in a situation in which Explanation 7 comes into play, the provisions of Explanation 1 cannot be applied. It is thus clear that so far as the present case is concerned, the same is to be examined on the touchstone of legal position under Explanation 7 to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing the assessee has been negligent or not. There is no way that an assessee can prove his honesty, because honesty, in practical terms, only implies lack of dishonesty, and proving not being dishonest is essentially proving a negative, which, as Hon'ble Supreme Court has observed in the case of K.P. Verghese v. ITO (131 ITR 597), is almost impossible. However, as the expression 'good faith' is used alongwith 'due diligence', which refers to 'proper care, it is also essential that not only the action of the assessee should be in good faith, i.e., honestly, but also with proper care. An act done with due diligence, in our humble understanding, would mean an act done with as much as care as a prudent person would take in such circumstances. In view of these discussions, in our considered view, as long as no dishonesty is found in the conduct of the assessee and as long as he has done what a reasonable man would have done in his circumstances, to ensure that the ALP was determined in accordance with the scheme of section 92C, deeming fiction under Explanation 7 cannot be invoked. 10. Coming to the facts of the case before us, we find that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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