Penalty u/s 271B deleted as assessee was unaware of Tax Audit Provision

Penalty u/s 271B deleted as assessee was not aware that section 44AB related to Tax Audit was applicable to him as he was only a commission agent

ABCAUS Case Law Citation:
ABCAUS 3757 (2023) (05) ITAT

In the instant case, the assessee had challenged the order passed by the National Faceless Appeal Centre (“NFAC”) confirming the penalty levied by the  under section 271B of the Income Tax Act, 1961 (the Act) passed by the Assessing Officer (AO).

The assessee was an individual engaged in retail trading of Dairy Products like milk, paneer, ghee, curd, etc. on day to day basis. The relevant Assessment Year was his first year of business.

The assessee did not file his return under section 139(1) of the Act or in pursuance of notice issued under section 142(1) of the Act through system on the ground that he had no knowledge of accounting and book writing.

However, in response to notice under section 142(1) issued during the course of assessment proceedings, the assessee filed his return. He also submitted copy of tax audit report.

It was found that the turnover of the assessee was in crores. The AO completed the assessment under section 144 of the Act accepting the income declared by the assessee in the return and initiating the penalty proceedings under section 271B of the Act for his failure to get his books of account audited by a qualified Chartered Accountant, thereby violating the provisions of section 44AB of the Act. 

During penalty proceedings, show cause notices remain uncomplied with. Hence, the penalty was imposed under section 271B of the Act against which the assessee filed appeal before the NFAC, Delhi. 

During the course of appellate proceedings, the assessee explained that je was engaged in the business of supply of milk of a reputed brand on behalf of the State Co.op Milk Federation in the assigned area and its daily proceeds were given to them via bank mode.

It was stated that the daily proceeds received by the assessee was firstly deposited by him in bank account maintained by him from where he transferred such deposits to Principal, i.e. State Co.op Milk Federation on that very day. It was contended that the assessee was providing the services and the receipts were not related to him, it was only on behalf of Principal concern from whom he was eligible to get fixed commission. The assessee also filed the certificate issued by the Principal concern.

It was submitted that the AO had accepted the above mode and the declared income has also been accepted by him. Services were also restricted to assigned area.

The assessee also relied upon the CBDT Circular No. F. No. 201/3/85/IT(A-II) dated 17.03.1986. Without prejudice to the above, it was also submitted that it was the first year of business of the assessee and he was absolutely not aware that section 44AB is applicable to him. Therefore, there was no wilful default by him.

However, the explanation of the assessee was not accepted by the appellate authority who confirmed the impugned penalty.

Before the Tribunal, the assessee submitted that the matter is covered in his favour by the order of the Co-ordinate Bench.

The Tribunal observed that no penalty is imposable if the assessee proves that there was reasonable cause for the failure as provided under section 273B of the Act. 

The Tribunal observed that during assessment proceedings as also before the  CIT(A) in penalty proceedings the assessee explained, inter alia that it was his first year of business and that he was under the bonafide belief that the provisions of section 44AB of the Act was inapplicable to him as he was only a commission agent supplying milk on behalf of a Brand. in the assigned area and was entitled to fixed commission only. 

The Tribunal opined that the explanation offered by the assessee constituted ‘reasonable cause’ and the assessee was eligible to the protection envisaged under section 273B of the Act. 

Further the Tribunal observed that admitted position was that during the course of assessment proceedings, the assessee got the tax audit done and submitted the tax audit report before the AO when he was made aware that initial receipts having been deposited by him in the bank account maintained by him necessitated tax audit as per the provisions of section 44AB. This factual position had altogether been ignored by the lower authority.

Further, the Tribunal noted that the contention of the assessee that he was only an agent and as per the assessment order he explained in detail the modus operandi of his business which after examination has been accepted by the AO. The assessee also submitted the copy of his account appearing in the books of Milk Federation that the assessee sold their milk and milk products in the assigned area implying thereby that the assessee was providing the services and acted only on behalf of his principal for earning the fixed commission. The explanation offered by the assessee was discarded by the CIT(A) without any valid and cogent reasons.

On the facts and in the circumstances of the case, and following the decision of Co-ordinate Bench the ITAT held that the impugned penalty was not sustainable.

Accordingly the appeal of the assessee was allowed.

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