GOPAL AGARWAL ,FIROZABAD vs. ITO WARD-2(2)1, FIROZABAD

This appeal in ITA No.34/Agr/2023 for the assessment year 2018- 19 has arisen from the appellate order dated 10.02.2023 [DIN & Order No. ITBA/NFAC/S/250/2022-23/1049615591(1)], passed by learned Commissioner of Income-tax (Appeals), NFAC, Delhi, which, in turn, has

arisen from the penalty order dated 16.03.2022 passed by Assessing Officer u/s. 271B of the Income-tax Act, 1961. 2. Brief facts of the case are that the assessee e-filed return of

income for the assessment year 2018-19 on 25.07.2018 ,declaring income of Rs.4,28,200/-. The case of the assessee was selected by Revenue for framing scrutiny assessment under CASS. Notices u/s.

ITA No.34/Agr/2023

143(2) and 142(1) were issued by the Assessing Officer to the assessee,

during the course of assessment proceedings. There was a cash deposit

to the tune of Rs.5,21,89,264/- in the bank accounts of the assessee with

the ICICI Bank. The assessee submitted during the course of

assessment proceedings that the assessee is engaged in commission

business of cash handling. The assessee submitted that Firozabad,

being a glass industries city,the customers from different parts of the

country come to Firozabad to buy bangles and other glass hardware. To

mitigate the risks, the assessee handles cash of customers and make

payments for purchases effected by them on their behalf. The AO called

for the details of customers who deposited cash in the assessee’s

account. The assessee expressed its inability in submitting details of

customers who deposited cash in the assessee’s bank account , and the

assessee submitted that the assessee has not maintained books for cash

handling business. The Assessing Officer applied the rate of 8% on the

cash deposit and accordingly computed the income of the assessee and

added Rs.44,76,376/- to the income of the assessee, vide assessment

order dated 01.12.2021 passed by the AO u/s 143(3) r.w.s. 143(3A) and

143(3B). Penalty Proceedings u/s. 271B of the Act were initiated by the

AO against the assessee on the ground that the assessee failed to get its

accounts audited under the 1961 Act, andfailed to furnish the audit 2 | P a g e

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report u/s. 44AB of the Act. The assessee submitted that the assessee

has filed appeal before the ld. CIT(Appeals) against the quantum

assessment order and prayers were made to keep the penalty

proceedings in abeyance. The Assessing Officer observed that the gross

receipts of the assessee are Rs.5,83,35,487/- and the assessee is liable

to get its accounts audited u/s 44AB and to furnish the report in

prescribed form within prescribed time, but the audit report has not been

filed by the assessee and hence, the assessee did not get its account

audited within the prescribed time. The AO observed that no reasonable

cause has been submitted by the assessee for non-compliance of

statutory provisions and hence, the Assessing Officer levied penalty of

Rs.1,50,000/- u/s. 271B of the Act against the assessee as the

assessee’s turnover/gross receipts of the assessee are to the tune of Rs.

5,83,35,487/-,vide penalty order dated 16.03.2022 u/s 271B.

CIT(Appeals). During first appellate proceedings, the ld. CIT(Appeals)

issued only one notice dated 29.12.2022 asking the assessee to submit

reply latest by 06.01.2023. The assessee did not file any reply and

hence, ld. CIT(Appeals) dismissed the appeal of the assessee on the

ground that the assessee has nothing to submit in this regard and the

penalty order passed by the AO was upheld by ld. CIT(A). 3 | P a g e

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Tribunal. When this appeal was called for hearing before the Tribunal,

none appeared on behalf of the assessee. The adjournment application

filed on behalf of the assessee stands rejected.

4.2 The Learned Sr. DR appeared and has filed status of the quantum

appeal by way of screen shot from ITBA portal, in which it is reflected

that the appeal of the assessee filed against the assessment order

passed by the AO u/s. 143(3) is still pending for disposal with the ld.

CIT(Appeals). Ld. Sr. DR submitted that the first appeal filed by the

assessee against quantum assessment is pending before the ld.

CIT(Appeals).

material on record. I have observed that the assessee filed its return of

income for the impugned assessment year on 25.07.2018 declaring

income of Rs.4,28,200/-. The case of the assessee was selected for

framing scrutiny assessment by Revenue under CASS. Statutory notices

u/s. 143(2) and 142(1) were issued by the Assessing Officer during the

course of assessment proceedings. The assessee participated in the

assessment proceedings. It was observed by the Assessing Officer in

quantum assessment proceedings that the assessee has deposited cash

of Rs.5,21,89,264/- in the bank accounts with ICICI Bank. The AO 4 | P a g e

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observed that the assessee has gross receipts/turnover of Rs.

5,83,35,487/- during the assessment year. The assessee was asked by

the AO to explain the same . The assessee submitted during the course

of assessment proceedings that the assessee is engaged in commission

business of cash handling. The assessee submitted that Firozabad,

being a glass industries city, the customers from different parts of the

country come to Firozabad to buy bangles and other glass hardware. To

mitigate the risks, the assessee handles cash of customers and make

payments for purchases effected by them on their behalf. The AO called

for the details of customers who deposited cash in the assessee’s

account. During quantum assessment proceedings , the assessee

expressed its inability in submitting details of customers who deposited

cash in the assessee’s bank account , and the assessee submitted that

the assessee has not maintained books for cash handling business. The

AO applied profit rate of 8% to the cash deposits,and made additions to

the tune of Rs. 44,76,376/- as income of the assessee. The penalty

proceedings u/s 271B were initiated by the AO against the assessee, for

failure to get accounts audited or failed to furnish a report of such audit

as is required u/s 44AB of the 1961 Act. During penalty proceedings u/s

271B conducted by the AO, the assessee submitted that the first appeal

filed by the assessee against quantum assessment is pending before ld. 5 | P a g e

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CIT(A) , and the penalty proceedings u/s 271B be kept in abeyance. The

AO observed that the gross turnover/receipts of the assessee are

exceeding threshold limits as prescribed u/s 44AB, and the assessee is

liable to get its accounts audited u/s 44AB.The Assessing Officer

observed that the assessee has not filed any tax audit report nor has got

its accounts audited u/s. 44AB of the Act, which led to imposition of

penalty u/s. 271B of the Act to the tune of Rs.1,50,000/-.

5.2 On being asked by the Bench, ld. Sr. DR has filed status report of

the first appeal filed by the assessee against the assessment order in

quantum, which as per the status vide IT portal, the ld. Sr. DR submitted

is still pending for disposal before the ld. CIT(Appeals).As per portal , the

assessee has also filed an first appeal before ld. CIT(A) against the

penalty imposed by the AO u/s 271A against the assessee, which is also

still pending for disposal before ld. CIT(A). Section 271A concerns itself

with imposition of penalty for failure to keep, maintain or retain books of

accounts, documents etc. . As per provisions of section 44AB, the tax

audit , inter-alia, is applicable only when gross receipts ,total sales or

turnover from business exceed one croreof rupees. The assessee in its

first appeal filed before the ld. CIT(Appeals) vide ground No. 2 has stated

that the assessee was not carrying on any business activities, which

require maintaining of books of account/audit in terms of section 44AB 6 | P a g e

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and the Assessing Officer has erred in holding entire receipts from

business and holding the assessee in default for not getting the accounts

audited in terms of section 44AB of the Act. This plea of the assessee is

required to be adjudicated by the ld. CIT(Appeals) in the first appeal .

Thus, in nut-shell, the ld. CIT(A) has to first adjudicate in the first appeal

filed against quantum assessment as to what is the business turnover or

gross receipt or total sales from business of the assessee, and whether

or not the assessee falls within the four corner and/or ambit of tax-audit

as is prescribed u/s 44AB. The assessee has raised legal challenge

before ld. CIT(A) that the assessee did not fall within the ambit of tax-

audit u/s 44AB and hence there is consequently no default u/s 44AB ,

thus, no penalty is leviable u/s 271B, thus, this plea is to be adjudicated

firstly by the ld. CIT(A) to give conclusive finding on the same to

ascertain conclusively whether or not the assessee falls within the

threshold limits of tax-audit u/s 44AB , before penalty u/s 271B is

confirmed by ld. CIT(A). Thus, this legal challenge is required to be

adjudicated first by ld. CIT(A) in appeal against quantum assessment .

The first appeal filed by the assessee against the quantum assessment is

still pending for disposal with ld. CIT(Appeals). The ld. Sr. DR has filed

screen short of IT portal wherein it is reflected that the first appeal filed by

the assessee against quantum assessment is still pending with ld. 7 | P a g e

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CIT(A). However, ld. CIT(Appeals) has dismissed the appeal filed by the

assessee against levy of penalty of Rs.1,50,000/- u/s. 271B of the Act,

without first deciding the first appeal filed by the assessee against

quantum assessment . The assessee has raised grounds before the

ITAT raising legal challenge that the assessee’s was not liable to tax-

audit u/s 44AB ,vide ground of appeal number 2 raised in memo of

appeal filed with ITAT . The assessee has also raised vide ground of

appeal vide ground number 3 in memo of appeal filed before ITAT that

provisions of Section 271B cannot be invoked before finalization of the

quantum appeal by ld. CIT(A). In any case, the ld. CIT(A) has passed an

ex-parte appellate order dated 10.02.2023 confirming the penalty of Rs.

1,50,000/- levied by the AO u/s 271B by dismissing the appeal of the

assessee. During appellate proceedings conducted by ld. CIT(A), only

one notice dated 29.12.2022 was issued by the ld. CIT(A) to the

assessee . The principles of natural justice are clearly breached as

proper opportunity of being heard was not granted to the assessee. The

assessee has also raised this ground of not providing proper opportunity

of being heard and breach of principals of natural justice by ld. CIT(A),

vide ground of appeal number 4 raised in the memo of appeal filed with

ITAT. Thus, in the interest of justice and fairness to both the parties, it will

be fit and appropriate to set aside the first appellate order passed by ld. 8 | P a g e

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CIT(A) confirming penalty of Rs. 1,50,000/- u/s 271B. I directthat the ld.

CIT(Appeals) first adjudicate the appeal filed by the assessee against

quantum assessment , and to give its conclusive finding as to the

business turnover , gross receipts of sales achieved by the assessee,

and whether or not the assessee falls within four corners and ambit of

provisions of Section 44AB, so as to determine/adjudicated the

imposition of penalty u/s 271B. It is only when there is a conclusive

finding of the CIT(Appeals) on the issue of business turnover or gross

receipts or sales achieved by the assessee (which is disputed by the

assessee before ld. CIT(Appeals)), the appeal against penalty order u/s.

271B be adjudicated accordingly by ld. CIT(A), keeping in view the

threshold limit u/s. 44AB of the Act. Thus, in the interest of justice and

fairness to both the parties, the appellate order dated 10.02.2023 passed

by ld. CIT(Appeals) is set aside and the matteris restored back to the file

of ld. CIT(Appeals) to adjudicate afresh the first appeal filed by the

assessee against the penalty levied by the AO u/s 271B ,which appeal

shall be decidedafter the adjudication of the first appeal filed by the

assessee against quantum assessment , after providing reasonable

opportunity of hearing to both the parties. I clarify that I have not

commented upon the merits of the issues arising in this appeal. I also

direct the assessee to co-operate in the first appellate proceedings , and 9 | P a g e

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does not seek un-necessary adjournments, otherwise the ld. CIT(A) shall

be free to adjudicate the first appeal(s) of the assessee on merits in

accordance with law.I order accordingly.

purposes.

Order pronounced in the open court on 15/01/2025.

Sd/-

(RAMIT KOCHAR) ACCOUNTANT MEMBER Dated: 15/01/2025 *aks/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, Agra

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