2016 (7) TMI 1551 - AT - Income Tax

Penalty u/s 271B - failure to audit account under section 44AB - assessee was reimbursed various expenses incurred by it by clients/principles and should not have been considered and taken for determination for applicability of section 44AB - HELD THAT - Turnover of the assessee as accounted for by the assessee was to the tune of ₹ 14,51,994/- whereas the total receipts as per TDS certificates on which TDS was deducted were ₹ 56,46,246/- which was inclusive of reimbursement of expenses to the tune of ₹ 26 lakhs and thus, if we subtract the amount reimbursement from the gross receipt as per TDS certificate which is ₹ 56,46,246/-, the turnover of the assessee would be less than ₹ 40 lakhs. As find merit in the case of assessee that the CBDT circular mentioned above provides that in case of agent who was placed as the kaccha arhatia, the turnover would be the commission service charges only and not gross receipt received by the assessee including the reimbursements. The case of the assessee is also supported by the decision of GA Road Carriers 2010 (5) TMI 513 - ITAT, HYDERABAD wherein it has been held that the deduction of TDS cannot lead to conclusion that freight charges constituted assessee s firm turnover or gross receipts. AO has not brought any material on record to prove that the amount received by the assessee as per the TDS certificates were actual turnover of the assessee and no net element of reimbursement included in the gross receipt. The purpose of applicability of provisions of section 44AB - We are of the considered view that the case of the assessee is squarely covered by the above decision. Accordingly, we set aside the order of ld. CIT(A) and direct the AO to delete the penalty. Appeal of the assessee stands allowed.

Summary

Issues:
Confirmation of penalty under section 271B of the Income Tax Act, 1961.

Detailed Analysis:

1. Issue of Penalty Confirmation:
The appeal was against the penalty imposed under section 271B of the Income Tax Act, 1961. The assessee, a clearing and forwarding agent, was reimbursed various expenses by clients/principles. The return of income filed by the assessee showed a loss, and the case was reopened under section 147 due to discrepancies in the declared receipts. The assessment was completed at a loss, and penalty proceedings were initiated for failure to audit accounts under section 44AB. The AO imposed a penalty, which was confirmed by the First Appellate Authority. The assessee argued that the turnover should exclude reimbursed expenses, relying on a CBDT circular and case law supporting this position.

2. Judgment Analysis:
The Tribunal considered the submissions, including the CBDT circular and case law. It noted that the assessee's turnover, as per TDS certificates, included reimbursed expenses, resulting in a higher figure than the actual turnover. The Tribunal found merit in the assessee's argument that, as a clearing and forwarding agent, the turnover should only include service charges, not gross receipts with reimbursements. Citing the CBDT circular and relevant case law, the Tribunal held that the turnover calculation should exclude reimbursed expenses. The AO failed to provide evidence that the TDS receipts constituted the actual turnover without the reimbursement component. Therefore, the Tribunal set aside the penalty, directing the AO to delete it based on the assessee's case being covered by the cited decisions.

3. Conclusion:
The Tribunal allowed the appeal, emphasizing that the turnover calculation for the assessee, a clearing and forwarding agent, should not include reimbursed expenses. The decision was based on the CBDT circular, case law, and the absence of evidence proving the TDS receipts represented the actual turnover. The penalty under section 271B was deleted, providing relief to the assessee.