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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
This appeal arises out of quantum proceeding. Brief facts are, the assessee a company is engaged in the business of network marketing and consumer products. For the assessment year under consideration,
2 M/s. Real Touch India Trading P. Ltd. the assessee had filed its return of income on 31st March 2010, declaring total income of ` 2,92,306. In the course of assessment proceedings, the Assessing Officer noticed that the direct expenditure of ` 50,28,597, debited to the Profit & Loss account actually relates to commission paid by the assessee. After calling for necessary details and examining the same, he found that the assessee had paid commission and brokerage to different agencies. He further found that in case of payments exceeding the amount of ` 2,500, assessee had deducted tax at source. From the details submitted, the Assessing Officer found that in respect of commission paid to 242 person, amounting to ` 14,48,825, assessee had deducted tax at source. However, in respect of commission paid to 1,359 persons amounting to ` 35,79,773, assessee has not deducted tax at source. The Assessing Officer observed, as far as these persons are concerned, the assessee except furnishing their name has not furnished their address or any other details. He, therefore, called upon the assessee to furnish full details of the persons to whom commission was paid without deduction of tax at source. As alleged by the Assessing Officer, the assessee did not comply to the query raised by the Assessing Officer. Therefore, the Assessing Officer proceeded to verify the genuineness of the assessee’s claim on the basis of material on record. On going through the list of persons to whom commission payment was made,
3 M/s. Real Touch India Trading P. Ltd. the Assessing Officer found that names were provided in alphabetical order with common name having different surname and amount of commission paid in each case is less than ` 2,500. He, therefore, concluded that these payments are in the name of fictitious persons. Therefore, holding that the assessee had failed to prove the genuineness of the commission payment, he disallowed the amount of ` 25,79,772. Being aggrieved of the assessment order, the assessee preferred appeal before the learned Commissioner (Appeals). However, as it appears, the learned Commissioner (Appeals) alleging that the appeal was filed with a delay of 143 days, which could not be properly explained by the assessee, dismissed the appeal in limine without deciding the issue on merit. Being aggrieved, assessee is in appeal before us.
Learned Authorised Representative referring to the cause of delay before the learned Commissioner (Appeals) submitted, assessment order was never served on the assessee and the claim of the Department that it was served on the learned Authorised Representative is also not correct as the Department could not conclusively prove the service of assessment order on the the Authorised Representative of the assessee. He, therefore, submitted, dismissal of assessee’s appeal on the ground of limitation without deciding it on merit is improper. As far as the merit of the disallowance
4 M/s. Real Touch India Trading P. Ltd. is concerned, it was submitted, the assessee in the mean time has collected all evidences to prove the commission payment of ` 35.79.772 to the brokers. He submitted, commission paid to each of these persons was through account payee cheque which could be proved from the bank statement. Learned Authorised Representative submitted, given a opportunity, assessee would be able to prove the genuineness of the commission payment.
Learned Departmental Representative, though supported the order of the learned Commissioner (Appeals), but at the same time, he has no objection if the genuineness of the commission payment is sent for re–examination of the Assessing Officer.
We have considered the submissions of the parties and perused the material available on record. As far as the dismissal of assessee’s appeal in limine on the ground of delay is concerned on a perusal of the first appellate order, it is evident that the assessment order sent by post returned back unserved as the assessee had closed down its business and vacated its premise. However, it is the claim of the Department that the assessment order was ultimately served on the Authorised Representative of the assessee Shri Dilip S. Shah & Associates. In this context, it is worth mentioning that in the course of proceedings before the learned Commissioner (Appeals) Shri Dilip S.
5 M/s. Real Touch India Trading P. Ltd. Shah, filed an affidavit stating therein that the acknowledgment slip in support of service of assessment order, does not bear his signature. Thus, it is evident from the facts and material on record, the Department has failed to conclusively prove through documentary evidence that the assessment order was served on a person properly authorised by the assessee. That being the case, in our view, the assessee’s explanation regarding delay in filing of appeal required to be considered sympathetically. Be that as it may, it is noticed that the main ground on which assessee’s claim of commission payment has been disallowed by the Assessing Officer is, assessee has failed to prove the genuineness of the commission by furnishing necessary and relevant details of the persons to whom such payments have been. Learned Authorised Representative has submitted before us that commission paid to each person is through account payee cheque and assessee through documentary evidence would be able to demonstrate the genuineness of such payment. Considering the aforesaid submissions of the learned Authorised Representative, we are inclined to give an opportunity to the assessee to prove the genuineness of the commission payment through proper documentary evidence. Accordingly, we set aside the impugned order of the learned Commissioner (Appeals) and restore the matter back to the file of the Assessing Officer for deciding afresh after due opportunity of being
6 M/s. Real Touch India Trading P. Ltd. heard to the assessee and considering all the evidence and material brought on record by the assessee.
In the result, assessee’s appeal is allowed for statistical purposes.
ITA no.2582/Mum./2014
In this appeal, assessee has challenged the imposition of penalty under section 271B of the Act for the assessment year 2009–10.
Brief facts are, while completing the assessment for the impugned assessment year, vide order dated 12th December 2011, the Assessing Officer observing that the assessee has failed to comply to the provisions of section 271B of the Act initiated proceeding for imposition of penalty. As alleged by the Assessing Officer, in response to the show cause notice issued by him, the assessee did not submit any explanation showing cause for failure to submit the audit report as specified under section 44AB. He, therefore, proceeded to levy penalty of ` 40,811 under section 271B of the Act. Being aggrieved of the penalty order so passed, assessee preferred appeal before the learned Commissioner (Appeals).
The first appellate authority also confirmed the imposition of penalty.
7 M/s. Real Touch India Trading P. Ltd.
Learned Authorised Representative, though, initially on the technical issue raised in additional ground challenging the penalty order on the ground that it is only a draft for approval and not a final order and there was no satisfaction recorded by the prescribed authority, but, ultimately he proceeded to argue the issue on merit. The learned Authorised Representative referring to the provisions of section 44AB and CBDT circular no.3 of 2009 dated 21st May 2009, submitted, after the procedure of e–filing of return of income came into effect, it was neither necessary nor mandatory to file the audit report along with return of income as it is not possible to file the audit report online. He submitted, as per Board’s circular, the assessee should obtain the audit report in terms of section 44AB on/or before the due date of furnishing the return of income. Only if any income tax authority in course of proceeding under the Act, requires furnishing of such report then it will be incumbent upon the assessee to furnish / produce the same in original. Learned Authorised Representative submitted, in the impugned assessment year assessee has filed his return of income electronically, however, it has obtained the audit report from a Chartered Accountant in terms of section 44AB, before the due date. He, further submitted, in the course of assessment proceedings, the assessee had also submitted the audit report. Therefore, penalty under section 271B cannot be imposed.
8 M/s. Real Touch India Trading P. Ltd.
Learned Departmental Representative relied upon the order of the learned Commissioner (Appeals) and the Assessing Officer.
We have considered the submissions of the parties and perused the material available on record. On a perusal of the provisions contained under section 44AB of the Act, it is evident that as per the said provision, assessee should get his accounts of the previous year audited by a accountant before the specified date and furnish by that date, the report of such audit in the prescribed format duly signed and verified by such accountant. It is further necessary to observe that by Finance Act, 1995, effective from 1st July 1995, the provisions of section 44AB was amended by substituting the words “furnish by” in place of “obtained before”. Thus, as per the provisions of section 44AB, the assessee was required to furnish the audit report before the due date of return. However, the CBDT issued circular no.3/2009 dated 21st May 2009, clarifying as under:–
“7. Following clarifications are also issued in respect of certain issues arising from furnishing the returns in the above mentioned forms: (i) An assessee should obtain the report of audit from an accountant under section 44AB of the Act on or before the due date of the furnishing of the return and should fill out the relevant columns of the return forms on the basis of such report. However, the report of audit should not be attached with the return or furnished separately any time before or after the due date. The assessee should retain the report with himself. If called for by any income-tax authority during any proceeding under the Act, it shall
9 M/s. Real Touch India Trading P. Ltd. be incumbent upon the assessee to furnish/produce the same in original. No penalty under section 271B shall be initiated or levied for not furnishing the tax audit report on or before the due date. However, if the audit report has not been obtained before the due date, provisions of section 271B shall continue to be attracted.”
On a plain reading of the aforesaid circular, it appears after introduction of e–filing of return, it would be sufficient compliance to the provisions of section 44AB if the assessee obtains the audit report on/or before the due date of filing of return of income and fills up the return of income on the basis of such audit report. However, it is incumbent upon the assessee to furnish / produce the audit report in original if called for in any proceedings before the Income–tax authorities. The circular also makes it clear that no penalty under section 271B shall be initiated or levied in a case where the assessee has obtained the audit report before the due date of return of income but has not furnished it before the Income–tax authorities. It is the contention of the assessee that the audit report for the year under consideration was obtained before the due date of return. On a perusal of the copy of audit report submitted in the paper book it appears that the audit report was signed on 3rd August 2009, by the Chartered Accountant. It is also the claim of the assessee that in the course of assessment proceedings, the assessee has furnished the audit report before the Assessing Officer. Considering the aforesaid submissions of the assessee, we restore the matter back to the file of the Assessing
10 M/s. Real Touch India Trading P. Ltd. Officer to verify whether the assessee has obtained the audit report before the due date of return of income and whether the audit report was submitted before the Assessing Officer in the course of assessment proceedings. In case, assessee’s claim is found to be correct after verification of record, no penalty under section 271B need be imposed.
In the result, assessee’s appeal is allowed for statistical purposes.
To sum up, both the appeals are allowed for statistical purposes. Order pronounced in the open Court on 13.05.2016