2024 (9) TMI 1379 - AT - Income Tax

Penalty u/s 271B - failure to get accounts audited - Applicability of section 44AB to the assessee - as argued arrangement of the Mother Dairy with the Appellant as per terms conditions of the agreement, according to which the relationship between them is that of Principal Agent and, therefore, there is no requirement of tax audit - HELD THAT - We are inclined to agree with the AR that the DGR has used word Commission which shows that the relationship between the Mother Dairy is that of Principal (Mother Dairy) to agent (Assessee). Even though the Mother Dairy has given nomenclature of Principal-to- Principal in its certificate, the nature of activity undertaken by the assessee shows the actual relationship between the Mother Dairy and assessee is that of Principal to Agent. We are of the opinion that the sales proceeds belonged to Mother Dairy and the assessee turnover was only commission from the sales of Dairy and milk products. The ld DR has not controverted the fact that in earlier years, no penalty was levied u/s 271B on this issue. As the value of gross commission received from the aforesaid business as turnover is much below than the prescribed limit of Rs. 1 Crore u/s 44AB of the Act, we hold that the provisions of section 44AB of the Act were not attracted in his case. The CBDT Circular No. 452 F. No. 201/3/85-IT(A- II) , dated 17-3-1986 also supports our view which in cases of kachha arahati has advised that the turnover did not include sales effected on behalf of the principals and only gross commission has to be considered for the purpose of section 44AB. The remuneration of a kachha arahtia consists solely of commission and he is not interested in the profits and losses made by his constituent as is not the case with the pucca arahtia. In the instant case, we are of the opinion that the assessee is similarly placed to that of the kachha arahtia, who gets remuneration which consists solely of commission and he is neither interested into nor entitled to the profit and losses made by his principal (ie., Mother Dairy in given case). Thus penalty levied u/s 271B upheld by the ld. CIT(A) CIT/NFAC is quashed - Decided in favour of assessee.

Issues:
1. Penalty under section 271B upheld by CIT(A) NFAC
2. Applicability of section 44AB to the assessee
3. Nature of relationship between the assessee and Mother Dairy
4. Interpretation of gross commission as turnover
5. Reliance on CBDT circular No. 452
6. Comparison with similar case laws
7. Quashing of penalty under section 271B

Analysis:
The appeal was filed by the assessee against the order of the NFAC, Delhi, upholding a penalty of Rs. 1,23,313 under section 271B for the assessment year 2017-18. The assessee contended that there was no requirement for tax audit as the relationship with Mother Dairy was that of Principal & Agent, not necessitating tax audit as per Circular No. 452 F.No.201/3/85-IT(A-II) dated 17/03/1986. The assessee, an ex-serviceman, operated a Milk Booth of Mother Dairy on a commission basis under a Self-Employment Scheme. The Assessing Officer considered cash deposits as turnover and levied the penalty under section 271B. The CIT(A) NFAC upheld the order, leading to the appeal before the ITAT. The assessee argued that the turnover was below the prescribed limit of Rs. 1 crore under section 44AB, citing the commission as taxable income rather than total sales.

The ITAT analyzed the relationship between the assessee and Mother Dairy, emphasizing the terms of the arrangement. It was observed that the DGR used the term "commission," indicating a Principal-Agent relationship. The ITAT held that the turnover was only the commission received by the assessee and not the sales proceeds. The ITAT also noted that in previous years, no penalty was imposed on this issue. Additionally, the CBDT Circular No. 452 supported the view that only gross commission should be considered for section 44AB purposes.

The ITAT compared the case with similar judgments where penalties were vacated for Milk booth agents. Relying on the legal position and factual circumstances, the ITAT quashed the penalty under section 271B, directing the Assessing Officer to delete the imposed penalty. The ITAT allowed the appeal of the assessee, emphasizing the similarity of the assessee's position to that of a kachha arahtia, where remuneration consists solely of commission without interest in the principal's profits or losses.

In conclusion, the ITAT ruled in favor of the assessee, highlighting the correct interpretation of turnover, the nature of the relationship with Mother Dairy, and the applicability of section 44AB. The penalty under section 271B was quashed based on the legal position and precedents, ultimately allowing the appeal of the assessee.

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