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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
Assessee by: Shri Bhavesh Pabari, A.R. Revenue by: Shri B.D. Gupta, Sr. D.R. Date of hearing : 01-07-2022 Date of pronouncement : 16-09-2022 आदेश/ORDER PER BENCH:- This is an appeal filed by the assessee for A.Y. 2010-11 against the order of the ld. CIT(A)-3, Rajkot dated 16-11-2018, in CIT(A)-3/10075/17- 18, in proceedings under section 271B of the Income Tax Act, 1961; in short “the Act”.
The assessee has taken the following grounds of appeal:-
“The grounds stated here in below are without prejudice to one another.
Page No 2 Shri Kandarp Khimjibhai Charola vs. ITO
The order passed by Hon. CIT is bad in law 2. The Hon. CIT has erred in law as well as on facts upholding the Order passed by Learned AO confirming Penalty of Rs. 100000/- under section 271B of the Act. The appellant craves leave to add to, alter, delete or withdraw any of the aforesaid grounds of appeal.”
3. The brief facts of the case are that the assessee is an individual running a proprietary concern by the name of M/s Patel Enterprises trading in ceramic tiles and raw materials. During the impugned assessment year, the assessee deposited cash/credited in the bank account amounting to � 9,04,05,808/-. The AO served notices under section 147 of the Act, in response to which the assessee filed its return of income showing income of � 12,66,920/-. The AO observed that looking to the total cash/credit deposits/entries in the aggregate of � 9,04,05,808/-, the assessee was obliged to maintain his books of accounts in section 44AA of the Act and get the same audited under section 44AB of the Act. The AO initiated proceedings under section 271B of the Act on the ground that given the turnover which exceeded the statutory limit for auditing the books of accounts, the assessee has failed to audit the books of accounts u/s 44AB of the Act, and consequently passed order under section 271B of the Act levying a penalty of � 1,00,000/- for non-audit of books of accounts. While passing the order u/s 271B of the Act, the AO observed that in the assessment proceedings, the AO has taxed the total credit/cash deposit (constituting as turnover) of � 9,04,05,808/- @3%, which comes to � 27,12,174/- being commission earned from total receipt. Since the assessee’s Page No 3 Shri Kandarp Khimjibhai Charola vs. ITO turnover of � 9,04,05,808/- had exceeded the prescribed monetary limit of � 40 lakhs, and the assessee was required to get its books of accounts audited under section 44AB of the Act. Accordingly, the Ld. Assessing Officer levied penalty of � 1,00,000/- for non-audit of books of accounts. In appeal, Ld. CIT(Appeals) upheld the order of the AO with the following observations:
“Decision: 5. The penalty order u/s. 271B of the Act of the AO as well as statement of fact of the appellant have been considered. The appellant as per his statement of fact has stated that the AO has levied penalty for non audit of books of account though the appellant is not liable to audit u/s. 44AB of the Act. The appellant has not explained the reason as to why he is not liable for audit u/s. 44AB of the Act despite the fact that opportunities were granted to him during the course of appellate proceedings for doing the same. The AO in the penalty order u/s. 271B has mentioned that looking to the total cash/credit deposits/entries in aggregate of Rs. 9,04,05,808/-, the appellant was obliged to maintain his books of account u/s. 44AA of the Act and to get the same audited u/s. 44AB of the Act. In my opinion the appellant has not been able to explain any specific reason for not maintaining his books of account as required u/s. 44AA of the Act end also for not getting the books of account audited as required u/s. 44AB of the Act despite the fact that he had achieved total turnover of Rs. 9,04,05,808/- which exceeds prescribed monetary limit in the act. In view of these facts, it is held that the AO has correctly levied the penalty of Rs. 1,00,000/- u/s. 44AB of the Act and therefore, the same is confirmed. Thus the grounds of appeal of the appellant as reproduced in initial paragraph of this appeal order are hereby dismissed.
6. In result, the appeal of the appellant is dismissed.”
4. Before us, the counsel for the assessee submitted that in the course of assessment proceedings, the AO added the commission income purely on Page No 4 Shri Kandarp Khimjibhai Charola vs. ITO estimated adhoc basis. The assessee drew our attention to page 2 of the paper book and submitted that during the course of assessment the AO observed “ongoing to the reply/submission dated 25-11-2016 it is observed that the assessee is trader dealing in ceramic tiles and that he had actually earned commission at 1.58% of the turnover i.e. in this case the cash deposits in various bank accounts held by the assessee”. Therefore, the Ld. Counsel for the assessee stated that in the instant facts, the AO was not justified in estimating the commission @3%, which was purely on ad hoc basis. Accordingly, the counsel for the assessee submitted that the credits/ deposits in the bank account (i.e.� 9,04,05,808/-) does not represent a turnover of the assessee and deposits made in the bank account was on behalf of the supplier and the assessee has only earned commission of � 14,25,089/- on the same. The counsel for the assessee submitted that the actual turnover of the assessee as per its books of accounts is � 71,98,667/- being the sum total of sales of � 57,73,578/- and commission of � 14,25,089/-. He also drew our attention to books of accounts submitted that pages 11-13 of the paper book to substantiate the above figures. Accordingly, the counsel for the assessee submitted that the penalty u/s 271B of the Act may be restricted to 0.5% of the total turnover of the assessee � 71,98,667/- (which comes to � 33,993/-) under section 271B. In response, the Ld. DR relied on the observations made by the Ld. CIT(Appeals) in his appeal order.
We have heard the rival contentions and perused the material on record. In the instant facts, we note that the AO has computed commission of the assessee @3% of the total cash deposited /credited in the bank Page No 5 Shri Kandarp Khimjibhai Charola vs. ITO account amounting to � 9,04,05,808/- (which comes to which comes to � 27,12,174/-). The assessee’s submission is that this amount does not represent the turnover of the assessee and further the AO has also erred in computing commission 3% of the above turnover. While the assessee has admitted that its turnover is � 71,98,667/- which is above the statutory limit for getting the books of accounts audited, however in the instant facts, the penalty should be restricted to 0.5% of the above turnover or � 1 lakh, whichever is less. We are of the considered view, that on perusal of the books of accounts submitted by the assessee and interest of justice, the penalty may be restricted to 0.5% of the above turnover of � 71,98,667/- (i.e. � 33,993/-) under section 271B of the Act.
In the result, the appeal of the assessee is partly allowed.