2004 (10) TMI 311 - AT - Income Tax

Summary

Issues:
1. Applicability of penalty under section 271B for failure to get accounts audited under section 44AF.
2. Interpretation of the term "retail trader" under section 44AF.
3. Consideration of relevant legal provisions and circulars in determining the applicability of section 44AF.

Analysis:
1. The appeal was filed against the confirmation of a penalty under section 271B for failure to get accounts audited under section 44AF. The Assessing Officer (AO) imposed a penalty as the assessee, engaged in manufacturing and selling liquor, did not get the accounts audited despite disclosing a net profit of less than 5%. The CIT(A) upheld the penalty, leading to the appeal.

2. The crux of the dispute revolved around whether the assessee, a liquor manufacturer, could be considered a retail trader under section 44AF. The appellant argued that as a manufacturer, the provisions of section 44AF, applicable to retail traders, did not apply. The appellant cited legal precedents and a CBDT Circular clarifying the scope of section 44AF. The Department contended that selling liquor through retail outlets made the assessee a retail trader subject to the provisions of section 44AF.

3. The Tribunal analyzed the provisions of section 44AF, which prescribe a fixed rate of net profit for retail traders with turnovers below Rs. 40 lakhs. The absence of a statutory definition of "retail trader" led to a discussion on the legislative intent behind introducing section 44AF. The Tribunal considered the CBDT Circular emphasizing the simplified procedure for computing income of retail trades. Ultimately, the Tribunal held that a liquor producer, despite selling products through outlets, did not qualify as a retail trader under section 44AF. Consequently, the penalty under section 271B was deemed inapplicable, and the appeal was allowed.