Appeal Details
Counselvise Citation
[2024] 100 COUNSELVISE.COM (IT) 3516 (ITAT-RAJKOT)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
10 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-03-2024
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Next Hearing Date
10-12-2023
Assessment Year
2016-2017
Appeal Filed On
30-04-2023
Judgement Text
आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, राजकोट राजकोटराजकोट राजकोट यायपीठ, यायपीठ, यायपीठ, यायपीठ, राजकोट राजकोटराजकोट राजकोट IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court)] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.118/RJT/2023 Assessment Year :2016-17 Parag Hashmukhbhai Davda Street No.3, Satodiya Park Nr.ITI, Gondal. PAN : AUSPD 6798 E Vs ITO, Ward-1(2)(1) Rajkot. (Applicant) (Responent) Assessee by : Shri Rajendra Singhal, Ld.AR Revenue by : Shri Ashish Kumar Pandey, DR सुनवाई क तारीख/D a t e o f He a r in g : 11/12/2023 घोषणा क तारीख /D a t e o f P r o no u nc e me nt: 06/03/2024 आदेश आदेशआदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The present appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as “ld.CIT(A) dated 2016-17 under section 250(6) of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Year 2016-17. 2. The assessee has raised the following grounds in his appeal: 1. The penalty order under section271B of the Act is bad in law as well as facts. 2. The order of the ld.NAFC is bad in law as well as facts. 3. The ld.NAFC erred on facts as well as in law by confirming the penalty levied by the AO under section 271B of the Act of Rs.1,50,000/- ITA No.118/RJT/2023 2 3. We have heard both the parties. 4. Solitary challenge in the present appeal is against confirmation of levy of penalty under section 271B of the Act of Rs. 1.50 lacs. 5. The provisions of section 271B of the Act are reproduced in the assessment order, and a perusal of the same reveals that as per the said section, penalty is levied for failure to get accounts audited in terms of provisions of section 44AB of the Act. The provisions of section 44AB are reproduced in the assessment order also, a perusal of which reveals that every person carrying on business, if his total sales/turnover exceeds a prescribed limit, which in the impugned year is rupees one crore, they are required to get the accounts audited by an accountant. 6. For the sake of clarity, both the provisions of section 271B and provisions of section 44AB are being reproduced hereunder: Failure to get accounts audited. 271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less. . . . . .44AB. Every person,— (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year : Provided that in the case of a person whose— ITA No.118/RJT/2023 3 (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words "one crore rupees", the words" 73[ten] crore rupees" had been substituted: 74[Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or] (b) carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or (d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or (e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year” 7. Therefore, in the present case, the charge on the assessee for levy of penalty is not getting his books of accounts audited in terms provisions of section 44AB of the Act despite its turnover exceeding Rs. 1 Cr. The AO noted the turnover of the assessee from sale of shares ITA No.118/RJT/2023 4 as being Rs.6,06,87,030/- and levied penalty @ ½ % of turnover amounting to Rs.1.50 lacs 8. Before proceeding, it is relevant to note that as per section 44AB of the Act audit of the Books of accounts is prescribed when – (i) assessee is carrying on some business or profession, and; (ii) the turnover/receipts of this business of profession exceed a specified limit, which is Rs.1 crore in the present case. 9. The facts in the present case, as emanate from the assessment order passed under section 143(3) of the Act dated 10.12.2018 ( copy of which was placed before us) reveals that the assessee is as noted by the AO, to be engaged in the business of share trading, and also earned income from other sources. His income returned to tax was accepted in scrutiny assessment/s 143(3) of the Act. Copy of the return of income filed by the assessee before us at PB Page No.15 to 48 reveals that the assessee had returned the following incomes to tax: i) Income from business and profession : Rs. 10,758/- ii) Short term capital gain : Rs.4,13,202/- iii) Income from other sources : Rs. 2,056/- 10. The return of income further reveals that the business income returned by the assessee of Rs.10,758/- comprised of commission income of Rs.1,55,614/-, against which expenses were claimed and net profit of Rs.10,758/- returned to tax. The submissions made by the assessee before the ld.CIT(A) in the appellate proceedings against the penalty levied u/s 271B of the Act reveals that the assessee had contended to have earned commission income from the sub-broker activity of shares and had ITA No.118/RJT/2023 5 also earned capital gains from the purchase and sales of shares which was accordingly returned to tax accepted. 11. Having stated the facts as above, it is now to be seen, whether in the light of the above facts, the assessee was liable to get its books of accounts audited under section 44AB of the Act, and if so, whether levy of penalty under section 271B of the Act, was justified or not. 12. The contentions of the ld.counsel for the assessee before us was that being in the business of sub-brokerage, its turnover or gross receipts to be considered, for the purpose of determining whether it was liable to get its Books audited in terms of section 44AB of the Act, was to be confined only to the commission income earned by it and that the AO/CIT(A) had taken the figure of sale consideration of shares on which the commission income had been earned, which was grossly incorrect for the reason that - (i) Guidance Note of the ICAI stated that for businesses where commission was earned, only the commission was to be treated as the turnover the business, and (ii) ITAT, Ahmedabad Bench in the case of ACIT Vs. Hasmukh M. Shah, 85 ITD 99 (Ahd) in an identical issue deleted the levy of penalty, holding that in the case of broker, it is the only commission income which is to be treated as turnover for the purpose of 44AB of the Act. 13. The assessee contended that since the commission income earned by it during the year admittedly was only to the tune of Rs. 1.5 lacs there was no question of the assessee being liable to get its books audited as per section 44AB of the Act and no case for levy of penalty therefore for not getting its books audited, in terms of section 271B of the Act. ITA No.118/RJT/2023 6 The ld.DR, on the other hand, has contended that the proviso to section 44AB refers to aggregate of amounts received, and therefore, contentious of the ld.counsel for the assessee that only the commission income is to be considered for the purpose of turnover, is not acceptable. And its aggregate receipts including sale turnover of shares, which was noted by the AO Rs.6,06,87,030/- was to be considered. 14. We have gone through the decision of the ITAT, Ahmedabad Bench in the case of Hasmukh M. Shah (supra), and we find that ITAT has exhaustively deliberated on what constitutes turnover in case of persons acting as agents earning only commission or brokerage. The Tribunal has dealt with all the aspects of the transaction and found that commission earned by a broker is by way of an agent in bringing together buyer and seller, and it is the charges for his labour of bringing two parties together. That the broker does not have any interest, whatsoever, in the goods, agreeing to be transacted, and he does not sell of goods of its principal as his own, and only charges commission for bringing two parties together for the purpose of sales and purchase. That therefore it is the commission income which constitutes turnover of such agents and not the sale price of commodities transacted in. The ITAT also took note of Circular No.452 dated 17.3.1986 and found that principle laid down in the said circular relating to kachcha addtia would apply to the stock-broker also, since even the kachcha addtia works as an agent of its constituent and not as principal; that this Board Circular supports the case of the assessee, and that the transactions in the account of the constituent are to be considered for the purpose of turnover under section 44AB of the Act. The Tribunal also took note of the interpretation of word “turnover” as made by the Institute of Chartered Accountants of India in the context of section 44AB in its ITA No.118/RJT/2023 7 Guidance Note on tax audit under section 44AB of the Act, and found it clearly noted that shares purchased/sold by the share brokers for and on behalf of their constituent do not belong to the brokers, and therefore, the transaction cannot be considered as his transaction for treating as turnover for section 44AB of the Act. The relevant decision of the ITAT at para-5 & 6 are as under: “5. We have carefully considered the arguments of the learned Departmental Representative and gone through the orders of the tax authorities. The entire controversy arising in the present appeal centers round the connotation of the expression used in Clause (a) of Section 44AB which reads : "If his total sales, turnover or gross receipts, as the case may be in business exceed or exceeds 40 lakh rupees in any previous year." In the instant case the transactions of sale and purchase of shares done by the assessee as a stock broker for and on behalf of his constituents are far in excess of the ceiling limit of Rs. 40 lakhs. If such transactions are to be considered as sales and turnover of the assessee, the case would be hit by the mischief of Section 44AB. The point to be considered is the nature of function and activities of a broker or an agent who brought the seller and buyer of equity market together. In our considered opinion the word turnover, as appearing in Section 44AB is not appropriate to the transaction which is done by an agent in the way of bringing together a buyer and a seller for brokerage or commission. The commission is the charges for his labour of bringing together the two parties to the transactions of sale and purchase of shares and the transaction cannot amount to his "sale, turnover or receipts". As a share broker, the assessee does not have any interest whatsoever in the goods agreed to be purchased or sold on behalf of his constituents. In fact a share broker is subject to rules and regulations of the stock exchange, whose working is monitored and overseen by the SEBI so as to ensure transparency in the transactions entered into by the share broker on behalf of his principals. There is no dispute that the share broker does not sell the goods of his principal as his own and only charges commission for bringing the two parties together for the purpose of sale and purchase. The share broker would, therefore, not obviously come within the ambit of Section 44AB. At this stage we may usefully refer to the decision of Rajasthan High Court in the case of Abhay Kumar & Co. v. Union of India (1987) 164 ITR 148 (Raj) wherein their Lordships observed at p. 150: "Section 44AB is, therefore, valid. In the case of a commission agent, if the commission agent does not sell the goods of his principal as his own and only charges commission for bringing together two persons for the purpose of effecting a sale, he will not come within the ambit of Section 44AB if his professional receipts do not exceed Rs. 10 lakhs. However, if there is evidence to show that the goods have remained with him and it is he who has sold the goods to perspective buyers, then it will amount to sale or turnover and if it exceeds the limits prescribed in Section 44AB, i.e., Rs. 40 lakhs, the provision will apply. No hard and fast rule can be laid down. The determination of the question whether the commission agent has sold goods for brokerage or as seller would depend on the facts of each case." ITA No.118/RJT/2023 8 Insofar as a share broker is concerned he has no authority whatsoever to treat the goods as his own. His only interest in the goods is to receive his brokerage on the transaction from the principals. 6. Regarding the Circular No. 452, dt. 17th March, 1986, referred by the AO we may point out that by applying the principles laid down in the said circular it is evidently clear that a stock broker, like a kachcha adatia in foodgrains is merely entitled to brokerage and does not have any domain over the goods. The remuneration of a share broker, like a kachcha adatia consists solely of brokerage and he is not interested in the profits and losses made by his constituents. Similarly, like a kachcha adatia, a stock broker acts only as an agent of his constituent and never acts as a principal. So whatever be the modalities of the transactions for the purchase and sale of shares made by the share broker for and on behalf of his constituents, the position is undisputed that a share broker does not have any interest whatsoever in the transactions except brokerage for the services rendered by him in bringing the purchaser and seller together. Thus, the Board's circular cited by the AO rather supports the case of the assessee that the transactions in the accounts of the constituents are not to be considered for the purposes of turnover under Section 44AB.” 15. In the facts in the present case also, the assessee is admittedly a share broker, therefore, the decision of the ITAT in the case of Hasmukh M. Shah(supra) will clearly apply to the present case, following which we hold that the sale consideration of the shares sold by the assessee, on which it earned commission/brokerage is not turnover, and cannot be constitute its turnover. It is only the commission income earned by it which can be rightly treated as its turnover and the income in the present case falling well below the limit prescribed by section 44AB of the Act for subjecting the Books of accounts to audit, amounting to Rs.1,55,614/- only, there was no case for the assessee to have got its books audited in terms of provisions of the said section. In the light of the same, therefore, we find that there is no case for levy of penalty under section 271B of the Act for not getting its books audited u/s 44AB of the Act. The penalty levied in the present case therefore of Rs. 1.5 lacs, we hold, is not sustainable and we direct deletion of the same. ITA No.118/RJT/2023 9 16. The reliance placed on by the ld.DR on the proviso to section 44AB, for the contention that it refers to aggregate amount and hence sale consideration for sale of shares would constitute turnover, we find, is totally misplaced. 17. We have reproduced section 44AB along with first proviso above. Before interpreting the first proviso, we may state that the proviso to any section only provides an exception to the applicability of the main section. It does not take away the import and the meaning section itself. Section 44AB(a) in clear terms requires audit to be conducted in businesses where turnover exceeds specified limit, which is one crore in the present case. What the first proviso does is that, it raises the bar for getting the tax audit done from Rs. one crores to Rs. five crores, where the receipts are majorly not in cash. The proviso states that where the turnover in cash does not exceed 5% of the total turnover, then the limit for getting audit done is raised from rupees one crores to rupees five crores. Thus, in the background that where the majority of the transactions are through transparent banking channel, the requirement of getting books audited gets diluted to a certain extent, and therefore, the proviso raises the limit of getting audit done from the turnover of rupees one crores to rupees five cores. The basic plank for audit to be done, where the “turnover” exceeds a particular limit, is not taken away by the proviso. It only raises the bar from rupees one crores to rupees five crores. Therefore, the contentions of the ld.DR that the proviso refers to the aggregate of receipts, is an incorrect understanding of the provision. Therefore, the contention of the ld.DR, we find is of no merit, and is rejected. 17. We have gone through the order of the ld.CIT(A), and we find that despite the assessee making all the submissions, as noted by us above, the ld.CIT(A) ignored all of them, and confirmed the order of ITA No.118/RJT/2023 10 the AO without even applying his mind to the contentions of the ld.counsel for the assessee. The finding of the ld.CIT(A) in this behalf is found at para-7 is as under: “7.0 Discussion of the issue: As per sec. 273B taxpayer has to pass the test of ‘reasonable cause’ which prevented the taxpayer from getting his accounts audited. The reason cited by the taxpayer is – the definition of turnover not clear, it vague and abstract. It includes gross sales which is running into more than six cr in this case. But taxpayer says his income is only from commission earned from the transaction and he is not covered under the ambit of tax audit. Tax audit covers the entire gamut of transactions and sales turnover is one major yard stick which defines business. The net result is not the criteria. The reason cited by the taxpayer is ignorance of law, which cannot be taken as a reason for not getting tax audit done. In the event the assessing officer is right in levying penalty u/s 271B.” 18. It is, but, obvious from the bare perusal of the order of the ld.CIT(A) that he has confirmed the order of the AO based on general finding, without applying his mind to the submissions of the ld.counsel for the assessee before us. Since, we have found merit in the contentions raised by the ld.counsel for the assessee before us, therefore, we set aside the order of the ld.CIT(A) directing the deletion of penalty imposed under section 271B of the Act amounting to Rs.1,50,000/-. 19. The ground of the appeals of the assessee accordingly are allowed. 20. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 6 th March, 2024 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 06/03/2024 vk*
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