M S ROADLINES ,MUMBAI vs. ITO WARD 28(2)(1), MUMBAI

Ld. Counsel for the assessee, at the outset, submitted that the Assessing Officer levied penalty u/s 271B of the Act for not getting the accounts audited, holding that the assessee is not a Kachha Arathia but is a sub-contractor and, therefore, the accounts are liable for audit u/s 44AB of the Act. Ld. Counsel for the assessee submitted that the assessee is only a commission agent for lorry owners and declared only commission income in the return. Ld. Counsel submitted that since the assessee is only a facilitator between the lorry owners and the persons who wanted to transport the goods, the assessee is not a sub-contractor but only a commission agent. The assessee received only commission and, therefore, is nothing but a Kachha Arathia and not a sub-contractor. Accordingly, Ld. Counsel submitted that the accounts of the assessee were not required to be audited u/s 44AB of the Act since the commission income is below the specified limit for the purpose of audit u/s 44AB of the Act.

Not convinced with the submissions of the assessee, the Assessing Officer levied penalty u/s 271B of the Act for failure to get the accounts audited by the assessee. Upon appeal, the Ld. CIT(A) sustained the penalty levied. Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. Ld. Counsel also invited our attention to the submissions made before the Ld. CIT(A), which are placed at page 2 to 7 of the paper book and also to the decision of this Tribunal in the case of Girish Roadways vs. ITO in ITA No. 3483/Mum/2007 dated 08.10.2007 and Bandenawaz Mulla vs. ACIT in ITA No. 137/Bang/2023 dated 07.06.2023.

Heard rival submissions and perused the orders of the authorities below. In the course of the proceedings before the Assessing Officer and in response to the show cause notice issued by the Assessing Officer as to why penalty u/s 271B should not be levied, the assessee explained that assessee was carrying on business in the name and style of M/s. M. S. Road Lines as a commission agent in the transport business, which is a “Kachha Arathia”, and acted only as an agent and not as a principal and its income represents only commission, the assessee had nothing to do with the profit and loss made by the lorry owners. The assessee also relied upon the clarification issued by the CBDT in Circular No. 452[F.No.201/3/85-IT(A-II) dated 17.03.1986. The assessee also placed reliance on the decision of the Hon'ble Rajasthan High Court in the case of Abhay Kumar & Co. vs. Union of India as reported in (1987) 164 ITR 148 (Raj.), for the proposition that if a commission agent does not sell the goods of his principal and charges only commission, he will not come within the ambit of the provisions of section 44AB of the Act. However, the Assessing Officer, not being convinced with the explanation, levied penalty u/s 271B of the Act.

We observed that the Tribunal in the case of Girish Roadways vs. ITO in ITA No. 3483/Mum/2007 dated 08.10.2007 on identical facts, held as under:

In the case of Abhay Kumar & Co. vs. Union of India as reported in (1987) 164 ITR 148 (Raj.), the Hon'ble Rajasthan High Court held as under:

In the present case, there is no evidence on record led by the Revenue to establish the fact that the goods remained with the Assessee and the assessee had sold the goods to prospective buyers as his own. In the absence of such a finding and supported by evidence in the assessment order, the assessee cannot be treated as a sub-contractor for the purpose of the provisions of section 44AB of the Act. The only income derived by the assessee in its business is commission income for acting as a facilitator between two parties. Therefore, the provisions of section 44AB of the Act are attracted only if the commission income exceeds the threshold limit specified under the provisions of section 44AB of the Act. In the present case, for the assessment year 2009-10, since the commission income earned by the assessee has not exceeded the prescribed limit specified under the provisions of section 44AB of the Act, the assessee was not required to get its accounts audited u/s 44AB of the Act, in which case the provisions of section 271B are not attracted.

Even otherwise, the assessee had reasonable cause for not getting its accounts audited, as the assessee was under the bona fide impression that it was acting only as a “Kachha Arathia” and in view of the CBDT Circular its income was only commission income and the provisions of section 44AB of the Act are not attracted since the commission income did not exceed the threshold limit. The assessee has rightly relied upon the decisions in the cases of Girish Roadways in ITA No. 3483/Mum/2007 dated 08.10.2007 and Bandenawaz Mulla vs. ACIT in ITA No. 137/Bang/2023 dated 07.06.2023.

In view of the facts in the Assessee’s case and the decisions discussed above, we direct the Assessing Officer to delete the penalty levied u/s 271B of the Act. The grounds raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.