2022 (12) TMI 283 - AT - Income Tax

Penalty u/s 271A - non maintenance of books in infringement of S. 44AA - Penalty u/s 271B - not furnishing tax audit report enjoined by S. 44AB of the Act - HELD THAT - We straightaway take notice of Circular No.452 dated 17th March, 1986 issued by the CBDT wherein the question of applicability of Section 44AB in the case of commission agents/arhatias was addressed. The Board has clarified that the turnover does not include the sales affected on behalf of the principals and only the gross commission has to be considered for the purposes of section 44AB where the agents act only as an agent of his constituent and never acts as a principal. In the instant case also, it is an admitted position that the assessee is only acting as a commission agent on behalf of the constituent. In view of such clarification, only the commission income is required to be reckoned for the purposes of determination of his obligation u/s 44AA of the Act as well as Section 44AB of the Act. The commission being turnover/receipt for the purposes of 44AA and 44AB, which is far below the threshold limit prescribed for the relevant assessment year, the assessee can not treated as assessee in default in terms of S. 271A and S. 271B of the Act. The assessee thus has demonstrated reasonable cause for failure to maintain books of account as well as compliance of Section 44AB of the Act in term of Section 271B of the Act. The penalty imposed u/s 271A and Section 271B of the Act is quashed. Appeal of assessee allowed.

Summary

Issues Involved:
- Challenge against penalty under Section 271A for non-maintenance of books
- Challenge against penalty under Section 271B for not furnishing tax audit report

Analysis:
1. The appeals were filed against penalty orders under Section 271A and 271B of the Income Tax Act, 1961 for AYs 2010-11. The Assessee challenged the penalties of Rs. 25,000 under Section 271A and Rs. 1,50,000 under Section 271B. The matter was heard together and disposed of in a consolidated order.

2. The Assessing Officer alleged that the Assessee's gross turnover exceeded the threshold provided by Section 44AA of the Act, necessitating the maintenance of proper books of account and audit under Section 44AB. The penalties were imposed for non-compliance. The CIT(A) upheld the penalties, leading the Assessee to appeal before the Tribunal.

3. The Tribunal reviewed the penalty orders, the first appellate orders, and considered the Revenue's contentions. It analyzed whether sales by a commission agent or on consignment basis constitute turnover for book maintenance and tax audit purposes.

4. The Assessee, engaged in cheque/draft discounting on a commission basis, contended that income was declared and assessed on commission basis, following the Negotiable Instrument Act, 1881. The Assessee maintained accounts based on commission received, with the property in goods belonging to the constituent. Circular No. 452 clarified that turnover for commission agents excludes sales on behalf of principals, requiring only gross commission for Section 44AB.

5. The Tribunal noted that the Assessee acted solely as a commission agent, and as per the CBDT circular, only commission income should be considered for obligations under Section 44AA and 44AB. The commission income, below the threshold limit, did not warrant penalties under Section 271A and 271B, as the Assessee had reasonable cause for non-compliance.

6. Consequently, the penalties under Section 271A and 271B were quashed, and both appeals of the Assessee were allowed ex-parte. The order was pronounced on 19/10/2022.