2024 (9) TMI 1374 - AT - Income Tax

Penalty proceedings u/s 271B - failure to get accounts audited or initiated - HELD THAT - Levy of penalty is discretion on the part of the AO in the current case, it is fact on record that the main income of the assessee is only earning of commission out of sales of milk, therefore, the assessee is getting only agency commission from the mother dairy and the gross sales reported by the assessee are not the actual sales of the assessee and it is the sales of mother dairy. Since, the assessee is a small time agent working for the mother dairy, he purchases milk pockets in bulk and sells the same on daily basis. His real income is only percentage of commission received from mother dairy, therefore, as per assessee is concern, the gross income is only the commission income. As per the facts on record even the Assessing Officer observed that the assessee has not maintained any books of account and he merely purchases milk on daily basis and sell the same on daily basis remitting the amount collected to the mother dairy and retains the commission income with him. Therefore, as per the facts on record it is not possible on the part of the assessee to maintain any books based on the nature of activities carried on by the assessee. In order to maintain the books and requirement to get his book audited depends upon the gross income, in this case, it is only the gross commission not the sales, therefore, we do not see any reason to levy the penalty u/s 271B - Decided in favour of assessee.

Summary

Issues:
1. Penalty imposed under section 271B for failure to get accounts audited.
2. Discretionary power of the Assessing Officer in levying penalties.
3. Lack of approval from Jt. CIT before imposing penalties.
4. Applicability of penalty in cases of commission income agents.
5. Maintenance of books of account and audit requirements.

Detailed Analysis:

1. The appeal was filed against the penalty under section 271B for not getting accounts audited. The Assessing Officer observed that the gross turnover of the assessee exceeded Rs. 1 crore, triggering the provisions of section 44AB. Despite several notices, no response was received from the assessee, leading to the imposition of a penalty of Rs. 85,236 under section 271D. The CIT(A) upheld the penalty, prompting the assessee to appeal.

2. The appellant argued that the penalty order was passed without jurisdiction and that the penalty under section 271B is discretionary, not mandatory. The appellant contended that being illiterate in financial and tax laws, he could not comprehend the implications of his transactions, and the penalty was unfair. The appellant also raised concerns about the lack of prior approval from Jt. CIT before imposing the penalty.

3. The appellant, being a commission agent for Mother Dairy, relied on various ITAT decisions to support his case that commission agents are not subject to penalties under section 271B. The appellant emphasized that his income was solely from commission, not actual sales, and he did not maintain books of account due to the nature of his activities. The ITAT noted the impossibility for the appellant to maintain books based on his operations and directed the Assessing Officer to delete the penalty as the gross income was only the commission.

4. The ITAT's decision highlighted the discretionary power of the authorities in imposing penalties and the need to consider the nature of income and activities of the assessee. It was established that the appellant, as a commission agent, did not fall under the purview of mandatory audit requirements, and the penalty was deemed unjust in his case. The ITAT allowed the appeal, emphasizing the importance of assessing each case on its individual merits.

5. Ultimately, the ITAT ruled in favor of the assessee, directing the deletion of the penalty imposed under section 271B. The decision was based on the understanding that the appellant's income structure as a commission agent did not warrant the penalty, considering the nature of his business operations and the impossibility of maintaining books of account as per the requirements of the Act.