1991 (5) TMI 98 - AT - Income Tax

Summary

Issues:
- Whether the assessee is a pucca Arhatia or Kutcha Arhatia (commission agent).
- Whether the assessee is required to get its accounts audited under section 44AB of the Income-tax Act.

Analysis:
1. The primary issue in this case is to determine whether the assessee is a pucca Arhatia or Kutcha Arhatia (commission agent) and whether the assessee is obligated to get its accounts audited under section 44AB of the Income-tax Act. The Assessing Officer imposed penalties on the assessee for not getting its accounts audited, leading to penalties under section 271B for two assessment years. The CIT (Appeals) upheld the penalty orders based on the Income-tax Officer's report, which indicated that the assessee was engaged in trading activities rather than acting solely as a commission agent. The CIT (Appeals) concluded that the assessee was required to get its accounts audited and confirmed the penalties.

2. The assessee argued that it operated as a commission agent, primarily acting as sales agents for Power Loom Cloth Manufacturers and receiving commission income without engaging in sales or purchases directly. The assessee contended that as a Kutcha Arhatia, it was not obligated to file an audit report under section 44AB, citing Circular No. 452 dated 17th March, 1968 of CBDT. The assessee's representative emphasized that the business model involved booking orders on behalf of manufacturers and facilitating transactions without issuing sale or purchase bills directly. The representative relied on the Circular's distinction between Kutcha and Pucca Arhatias to support the assessee's position.

3. The Tribunal analyzed the submissions and evidence presented by both parties. It noted that the CIT (Appeals) did not adequately consider the distinctions outlined in the Circular or the nature of the assessee's business as a commission agent. The Tribunal observed that the assessee's accounts did not reflect trading activities such as purchases, sales, or letter of credit for goods. Additionally, the Tribunal highlighted that the assessment order for a subsequent year described the assessee as a commission agent in textiles, further supporting the assessee's position. Consequently, the Tribunal concluded that the assessee, functioning as a Kutcha Arhatia, was not required to undergo audit under section 44AB and therefore, had not committed any punishable default under section 271B.

4. In the final judgment, the Tribunal allowed the appeals for both assessment years, overturning the CIT (Appeals)' decision to uphold the penalties imposed on the assessee. The Tribunal directed that no penalty be levied on the assessee for the alleged default under section 271B, emphasizing the assessee's classification as a Kutcha Arhatia and the absence of trading activities in its operations.