Lucky Bajoria, Ahmedabad V. The ITO, Ward-6(1)(4), Ahmedabad

ITA 346/AHD/2021

AI Insights

This case involves an appeal by Lucky Bajoria against the penalty imposed by the Income Tax Officer (ITO) under section 271B for not getting his accounts audited as required under section 44AB of the Income Tax Act. The ITO had estimated the commission income of the assessee at 8% of total bank deposits, which amounted to a turnover exceeding the prescribed limit for audit. However, the assessee argued that only the actual commission income, which was much lower, should be considered. The Tribunal, referencing several precedents, agreed with the assessee's position and deleted the penalty.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131337 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-02-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 22-12-2021
• Other Referred Cases: ACIT v. Hasmukh M. Shah, Manoj S. Gugale v. ITO, Sachin Marotrao Rangari v. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect
• Section: 250; 271B; 44AB

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Lu cky Bajoria, D-6, Rajdeep Park, Meera Cine ma Char Rasta, Maninagar, Ah me dabad PAN: BPPP B64 21R (Appellant) Vs The ITO, Ward-6(1)(4), Ah med abad (Resp ondent) Asses see b y : Shri Vartik Cho ks hi, A. R. & Shri Biren Shah, A. R. Revenue by : Shri Vijay Kumar J aisw al, CIT-D. R . & Shri Atul Pandey , S r. D. R. Date of hearing : 01-03 -2 023 Date of pronouncement : 19-04 -2 023 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed against the order of the National Faceless Appeal Centre (NFAC), Delhi, in proceeding u/s. 250 of the Act, vide order dated 26/11/2021 passed for the assessment year 2016-17. ITA No. 346 /Ahd/2021 Assessment Year 2016-17 I.T.A No. 346/Ahd/2021 A.Y. 2016-17 Page No. Lucky Bajoria vs. ITO 2 2. The assessee has taken the following grounds of appeal: Grounds of Appeal Tax effect relating to each Ground of appeal 1 On the facts and in the circumstances of the case of the appellant, the Ld. CIT (A) has erred in confirming the penalty of Rs. 1,50,000/- levied by the Assessing Officer u/s. 271B of the Income Tax Act. Rs. 150,000/- 2 Ld. CIT (A) ought to have appreciated the explanation furnished before him and held that there was reasonable explanation given by the appellant, and accordingly, in terms of Section-273B, there was no justification for levying of penalty, as actual commission income is much less than the prescribed limit. 3 Without prejudice to the above ground, Ld. CIT (A) ought to have appreciated that the appellant is not maintaining books of accounts and the income was estimated only on the basis of bank statement and in such circumstances, there is no question of levying of penalty u/s. 271B for not getting the accounts audited u/s. 44AB. The turnover is only on the basis of pure estimation and therefore penalty should not be imposed. 4 The appellant craves leave to add, alter, amend and/or to raise any ground as occasion may arise before the Hon'ble ITAT either during the course of the appellate hearing. N.A. Total tax effect (including surcharge @ 12% and education cess @ 3%) Rs. 1,50,000/- I.T.A No. 346/Ahd/2021 A.Y. 2016-17 Page No. Lucky Bajoria vs. ITO 3 3. The brief facts of the case are that the assessee filed return of income for assessment year 2006-17 declaring total income of 4,55,650/ -. During the course of assessment proceedings, the assessing officer observed that there are voluminous financial transactions in the bank accounts held by the assessee. The assessing Officer observed that during the year under consideration, the total deposits in the bank accounts held by the assessee amounting to 158.23 crores. During the course of assessment, the assessee submitted that it is engaged in the business of earning commission income by carrying the business of cheque discounting and during the year under consideration, the assessee earned commission @0.05% on the aforesaid deposits of 158 crores. Therefore, the assessee earned commission of 7,89,900/- on total deposits of 158 crores approximately @ 0.05% and against the same, the assessee incurred expenses to the tune of 3,34,250/- and hence the net commission earned by the assessee during the year was 4,55,650/- which was offered to tax under the head “income from other sources”. Further, the assessee submitted that he is not maintaining any books of accounts and is also not maintaining any cash book or bank book etc. During the course of assessment, the assessee was asked to submit details of cheque discounting business and to provide names and addresses and amount of commission earned in respect of transactions appearing in the bank accounts held by the assessee. However, the assessee was unable to provide any details regarding the commission earned on the deposits made in the bank accounts held by the assessee. Accordingly, in absence of any details forthcoming from the assessee, the AO estimated the commission income of the assessee @8% of the total credits/ deposits in the bank accounts held by the assessee under section 44AB of the Act. I.T.A No. 346/Ahd/2021 A.Y. 2016-17 Page No. Lucky Bajoria vs. ITO 4 Accordingly, the AO held that a sum of 12,65,84,000/- was the commission income of the assessee on the total turnover of 158.23 crores computed @8% of the credits appearing in the bank accounts held by the assessee. The AO also initiated proceedings under section 271B of the Act. 3.1 In the 271B proceedings, the AO held that since the assessee has a turnover of more than 158 crores as held during the assessment proceedings comprising of total credits/deposits in the bank account of the assessee, therefore, it is clear that the assessee was required to get its accounts audited as per the provisions of section 44AB of the Act, since the sale/gross receipts of business has been determined far in excess of the prescribed limit. Accordingly, the AO imposed penalty under section 271B of the Act on the assessee for failure to get its accounts audited under section 44AB of the Act, with the following observations: “6. In view of the above discussion, it is proved that the assessee has failed to get his books of accounts audited within the meaning of section 44AB of the Income Tax Act and I am satisfied that this is a fit case for levy of penalty u/s.271 B of the Act. As per section 271B of IT Act, "If any person fails to get his account audited in respect of any report of such audit as required under section 44AB, the AO may direct that such person shall pay, by way of penalty, sum equal to one-half per cent of this 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." Therefore, in the instant case, penalty leviable u/s.271 B should be lesser of one-half percent of gross turnover of Rs. 158.23 Crores which works out to be Rs.79,11,500 and Rs. 1,50,000/-. Accordingly, I levy a penalty of Rs.1,50,000/- on the assessee u/s.271 B of the Income Tax Act. Issue demand notice and challan. 6. This order is passed u/s.271(1)(c) of the I.T. Act 1961 after obtaining necessary approval from the Addl.CIT Range-6(1), Ahmedabad vide letter No. Addl.CIT/R- 6(1)/Ahd/Penalty 271(1 )(c)/LB/2019-207 dated 28/06/2019.” I.T.A No. 346/Ahd/2021 A.Y. 2016-17 Page No. Lucky Bajoria vs. ITO 5 4. In appeal before Ld. CIT(Appeals), he dismissed the appeal of the assessee by holding that the gross amounts received in connection with the entry / cheque discounting business have to be considered for the purpose of calculating the prescribed limit for getting the accounts audited under section 44AB of the Act. Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations: “5.3 In abovementioned case also the assessee was engaged only in the business of providing accommodation entries to the entry seekers and was earning commission there from. The commission earned was much less the limit of Rs.40 lacs for compulsory audit of accounts. The Hon'ble ITAT has held "In our view the claim had been rightly rejected by the CIT(A). A share broker only facilitates the share transaction of the clients through the stock exchanges and the payment/ receipts for purchase/ sale of shares are made through the stock exchanges. In case of the assessee he had himself received the money through the concerns in his control and in exchange thereof had issued cheques. Therefore the transaction was principle to principle basis and not as agent. Therefore in our view in case of the assessee gross amounts received in connection with entry business have to be considered for the purposes of ceiling of Rs.40 lacs under section 44AB." 5.4 Respectfully following the decision of above quoted decision of the ITAT Mumbai, I confirm the penalty imposed by the appellant. He has rightly passed the order u/s 271B for the failure of the provisions of section 44AB as in case of the assessee gross amounts received in connection with entry business have to be considered for the purposes of ceiling of Rs.1 crore under section 44AB. Here the total transaction is of Rs.158.23 Crore and the assessee is liable to get the accounts audited. Accordingly, the penalty order is confirmed and appeal is dismissed. 6. In result, the appeal is dismissed.” 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the penalty imposed on the assessee under section 271B of the Act. Before us, the counsel for the assessee submitted I.T.A No. 346/Ahd/2021 A.Y. 2016-17 Page No. Lucky Bajoria vs. ITO 6 that it is the commission income which has been earned by the assessee, and not the gross receipts as credited in the bank accounts of the assessee that should be taken for the purpose of computing the turnover of the assessee. In the instant case, the Ld. CIT(Appeals) while confirming the penalty under section 271B of the Act has taken the gross receipts as appearing in the bank accounts held by the assessee as the total turnover of the assessee. Accordingly, the counsel for the assessee submitted that the Ld. CIT(Appeals) has erred in facts and in law in confirming the penalty under section 271B of the Act on the assessee, on account of failure to get its books of accounts audited under section 44AB of the Act. In response, DR relied upon the observations made by the AO and the Ld. CIT(Appeals) in their respective orders. 6. We observe that in the case of ACIT v. Hasmukh M. Shah 85 ITD 99 (Ahd.), the Ahmedabad ITAT held that where share broker does not sell goods of its constituents as his own and only charges commission for bringing two parties together to transactions of sale and purchase of shares, such transactions cannot amount to ‘sale, turnover or receipt’ of share broker himself within meaning of section 44AB of the Act. In the case of Manoj S. Gugale v. ITO 80 taxmann.com 193 (Pune - Trib.), the ITAT held that the assessee was carrying on business of advertising agency. During assessment proceedings, Assessing Officer took the view that since receipts of assessee was to extent of Rs. 4.40 crores which was in excess of limit prescribed by section 44AB, assessee was under an obligation to get his books of account audited and file audit report as required under section 44AB of the Act. On being confronted, assessee submitted that since he is engaged in the business I.T.A No. 346/Ahd/2021 A.Y. 2016-17 Page No. Lucky Bajoria vs. ITO 7 of advertising agency, only commission could be considered as income and not total receipts. The Assessing Officer having rejected assessee's explanation, imposed penalty under section 271B of the Act. The ITAT held that since the assessee was under the bona-fide belief that commission income earned by him was not in excess of limits prescribed under section 44AB and, thus, he was not required to get books of account audited, impugned penalty order deserved to be set aside. In the case of Sachin Marotrao Rangari v. ACIT 143 taxmann.com 318 (Rajkot - Trib.), the ITAT held that where assessee was under bona fide belief that as per Guidance Note issued by ICAI on 'tax audit under section 44AB' net result in derivative transaction was to be considered as turnover and accordingly, he would not be liable to get his books audited as turnover did not exceed more than Rs. 1 crore, penalty levied under section 271B was to be deleted. 7. We observe that in the quantum proceedings for the captioned assessment year, the ITAT Ahmedabad in assessee’s own case in ITA number 345/Ahd/2021 for assessment 2016-17 has directed that the commission income of the assessee be computed @0.25% of the deposits amounting to 158 crores. Accordingly, since the commission income so directed to be computed is falling below the threshold limit of 1 crore as prescribed in section 44AB of the Act for getting the accounts audited, and in light of the judicial precedents highlighted above which have held that it is the commission income earned by the agent which should be taken as their turnover for the purpose of computing the threshold limit under section 44AB of the Act, we are hereby deleting the penalty under section 271B of the Act, imposed on the assessee. I.T.A No. 346/Ahd/2021 A.Y. 2016-17 Page No. Lucky Bajoria vs. ITO 8 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 19-04-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 19/04/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद