2023 (6) TMI 566 - AT - Income Tax

Estimation of income on Cash Deposited in Bank Account - Estimation of Net Profit (NP) @ 5% instead of 1% as claimed by the assessee - appellant being a Kachha Arahtiya - Addition made assuming the total cash deposited as turnover without giving the benefit of rotation of funds - HELD THAT - Appellant is not making independent sale and is only acting as an agent on behalf of the principle. The said contention of the appellant is further proved from the fact that the cash has been deposited at different locations where the buyer is placed and the payment is made to the vendor in Mandi on behalf of buyer. In these circumstances, the turnover of a Kachha Arhtiya would not include the sale consideration and only includes the commission earned by him. CBDT circular No 452 dated 17.03.1986 make it apparently clear that in the case of Kachha Arhtiyas, only the commission has to be considered while working out the turnover, as above. In our view, so far as kachha arahtias are concerned, the turnover does not include the sales affected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. Thus admittedly, the appellant being a Kachha Arahtiya, it would be justified to apply a net profit rate of 1.5% as against 5% applied by the AO, on the Total Turn Over estimated. Levy of penalty u/s 271(1)(b) - non-compliance of notices u/s 142(1) - HELD THAT - It is settled law that the imposition of penalty u/s 271(1)(b) is not mandatory rather is discretionary provided the appellant proves that there was a reasonable cause for the said failure of non-compliance. In the present case, it was duly informed to the AO that the appellant was not served with any notice u/s 142(1) of the act and moreover, the email id given on the online portal was that of the accountant who was expired on 19.04.2021. The Parliament has used the words may and not shall , thereby making legislative intention clear in as much as that levy of Penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act which provides that Penalty not to be imposed in certain cases . Thus considering the nationwide COVID Pandemic and death of the account whose email ID was given for correspondence, certainly demonstrate reasonable cause on the part of the appellant assessee for the said non-compliance of notices issued u/s 142(1) - levy of penalties u/s 271(1)(b) set aside. Decided in favour of assessee.

Summary

Issues Involved:

1. Dismissal of the appeal by CIT(A) under section 250(6) of the Income Tax Act.
2. Confirmation of addition of Rs. 10,95,406/- by estimating 5% profit on cash deposits.
3. Levy of penalty under section 271(1)(b) for non-compliance with notices.

Summary:

1. Dismissal of the Appeal by CIT(A) under section 250(6):
The appellant argued that the CIT(A) erred in dismissing the appeal and sustaining the addition made by the AO without examining the merits of the case. The CIT(A) passed an ex-parte order confirming the addition made by the AO without adjudicating the case on merits due to the appellant's failure to respond to notices.

2. Confirmation of Addition of Rs. 10,95,406/- by Estimating 5% Profit on Cash Deposits:
The appellant contended that the CIT(A) erred in confirming the addition of Rs. 10,95,406/- by estimating a 5% profit on cash deposits in the ICICI Bank Account, without considering that the appellant is a Kachha Ahartiya dealing as a commission agent of fresh vegetables. The standard commission rate in such trade is 1%, subject to further reduction on account of expenses. The Tribunal observed that the appellant, being a Kachha Ahartiya, only acts as an agent and earns commission from the sale of fruits/vegetables. The CBDT Circular No. 452 dated 17.03.1986 clarifies that for Kachha Arahtiyas, only the commission should be considered while working out the turnover. The Tribunal directed the AO to apply a net profit rate of 1.5% instead of 5% on the total turnover estimated at Rs. 2,53,27,125/-.

3. Levy of Penalty under Section 271(1)(b) for Non-Compliance with Notices:
The appellant challenged the CIT(A)'s orders confirming the levy of penalties under section 271(1)(b) for non-compliance with notices. The appellant argued that the non-compliance was due to reasons beyond control, such as the death of the accountant whose email was registered for correspondence. The Tribunal noted that the imposition of penalty under section 271(1)(b) is discretionary and not mandatory, provided there is a reasonable cause for the failure. Considering the nationwide COVID pandemic and the death of the accountant, the Tribunal found reasonable cause for the non-compliance and deleted the penalties imposed under section 271(1)(b).

Conclusion:
The Tribunal partly allowed the appeals, directing the AO to apply a net profit rate of 1.5% on the turnover and deleted the penalties imposed under section 271(1)(b) due to reasonable cause for non-compliance with notices.