2014 (12) TMI 1336 - AT - Income Tax

Levying penalty u/s 271B - reasonable cause which existed in not getting the accounts audited as provided u/s 44AB - failure to get account audited - Held that - In the perspective of reasonable cause still it can be said that the assessee, under the facts available on record was under a reasonable belief that since in the case of a commission agent the assessee has received only commission charges, consequently, other reimbursable expenses are not to be includable as income of the assessee thus from this angle also the assessee was under a bona-fide belief that he is not to get his account audited since the income was below prescribed monetary limit. Thus, there was a reasonable cause in not getting the accounts audited, so from this angle also the penalty is not imposable. In view of these facts, the appeal of the assessee is allowed.

Summary

Issues:
- Penalty u/s 271B of the Income-tax Act,1961 for not getting accounts audited as per section 44AB.
- Whether the assessee, a forwarding agent, is liable to get accounts audited under section 44AB.
- Applicability of reasonable cause under section 273B for not getting accounts audited.

Analysis:

Issue 1: Penalty u/s 271B
The Appellate Tribunal ITAT Mumbai addressed the issue of levying a penalty u/s 271B of the Income-tax Act,1961 on the assessee for not getting the accounts audited as per section 44AB. The ld. Assessing Officer imposed a penalty of Rs. 1 lakh as the total turnover exceeded the prescribed limit of Rs. 40 lakhs. The ld. Commissioner of Income tax (Appeals) upheld the penalty, leading to the appeal before the Tribunal.

Issue 2: Liability to get accounts audited under section 44AB
The Tribunal examined the nature of the assessee's business as a clearing and forwarding agent, where expenses incurred were later reimbursed by clients. The assessee argued that these reimbursements should not be considered as part of sales or turnover, thus not attracting the provisions of section 44AB. The Tribunal analyzed the income details and guidance notes from ICAI, concluding that the amounts collected as reimbursement do not form part of turnover/gross receipts for section 44AB purposes. Referring to relevant case law and circulars, the Tribunal found that the penalty was unjustified as the assessee acted as an agent for commission only.

Issue 3: Applicability of reasonable cause under section 273B
The Tribunal also considered the aspect of reasonable cause for not getting the accounts audited under section 273B. It noted that the assessee had a reasonable belief that only commission charges were to be included as income, not the reimbursable expenses. This bona-fide belief led to the conclusion that there was a reasonable cause for not getting the accounts audited, making the penalty not imposable. The Tribunal allowed the appeal based on these findings.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the provisions of section 44AB were not applicable to the facts of the case. The Tribunal highlighted the reasonable cause for not getting the accounts audited, leading to the penalty being deemed not imposable. The order was pronounced in the open court in December 2014.