TMI Blog2023 (6) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... pals and only the gross commission has to be considered for the purpose of section 44AB. Thus admittedly, the appellant being a Kachha Arahtiya, it would be justified to apply a net profit rate of 1.5% as against 5% applied by the AO, on the Total Turn Over estimated. Levy of penalty u/s 271(1)(b) - non-compliance of notices u/s 142(1) - HELD THAT:- It is settled law that the imposition of penalty u/s 271(1)(b) is not mandatory rather is discretionary provided the appellant proves that there was a reasonable cause for the said failure of non-compliance. In the present case, it was duly informed to the AO that the appellant was not served with any notice u/s 142(1) of the act and moreover, the email id given on the online portal was that of the accountant who was expired on 19.04.2021. The Parliament has used the words may and not shall , thereby making legislative intention clear in as much as that levy of Penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act which provides that Penalty not to be imposed in certain cases . Thus considering the nationwide COVID Pandemic and death of the account whose email I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. That the appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off. 3. In ITA Nos. 33 34/Asr/2023: The appellant has raised common grounds of appeal in respect of confirming levy of penalty u/s 271(1)(b) of the Act for noncompliance of notices. 4. At the outset, the Ld. counsel for the appellant submitted that the Ld. CIT(A) has erred in law and on facts in confirming the addition of Rs. 10,95,406/- in each appeal on account of excess NP @ 5% on estimating turn over comprising of cash deposited in ICICI Bank Account No. 202105000180 to the tune of Rs. 2,52,86,429/- without appreciating the fact that the rate of profit/commission in this line of Kachha Ahartiya business is limited to 1% subject to incidental expenses. He argued that the CIT(A) has not appreciated the facts that the assessee was a Kachha Ahartiya dealing as commission agent of fresh vegetables and that rate of profit/ commission in such a trade is limited to 1% subject to further reduction on account of expenses. In support, he has filed a written synopsis and relevant part of which reads as under: 2. That the appellant had filed return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of the following working: - Cash Deposited 25327125 Commission @ 1.10% 253271 Less: Bank Charges -51206 Less: Returned income -173110 Less: Other Indirect Expenses -28955 Net Income 0 As regard the benefit of bank charges taken above, the copy of bank statement is enclosed at page no 46-47 of the PB. b)That the appellant Santokh Singh having PAN DEFPS1336D is a Kacha Arhtiya/ Commission agent of fresh fruits and vegetables in Vallah Mandi. The appellant has been declaring income from brokerage on commission earned for sale and purchase made on year to year basis. c) That the same facts have been admitted by the AO that the deposits in the bank account are not the turnover of the assessee which is visualized from the fact that the AO has not invoked the penalty u/s 271B i.e. failure to get the accounts audited meaning thereby that the AO has taken into consideration the binding circular no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no hard and fast rule can be laid down as to whether the agent is acting only as an agent or also as a principal. 4. The Board are advised that so far as kachha arahtias are concerned, the turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. But the position is different with regard to pacca arahtias. A pacca arahtia is not, in the proper sense of the word, an agent or even del credere agent. The relation between him and his constituent is substantially that between the two principals. On the basis of various Court pronouncements, following principals of distinction can be laid down between a kachha arahtia and a pacca arahtia: (1) A kachha arahtia acts only as an agent of his constituent and never acts as a principal . A pacca arahtia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent s goods on his personal account and thus he acts as regards his constituent. (2) A kachha arahtia brings a privity contract between his c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a arhatias, who are an integral part of the trading sector, that instructions issued by the Board as respects kacha and pacca arhatias could not be applied to the case of the assessee who has arranged finances for other for a fee. The assessee may choose to label the fee as brokerage or even as commission. But the fee or to use a generic expression receipt could not be regarded as turnover proper. RELIED ON IN - The above circular was relied on in ITO v. Shantilal Chuni-lal Co. [1993] 45 ITD 581 (Pune - Trib.), with the following observa-tions : . . . Further, reference was made by assessee to pages 52 to 54 which contains Board s Circular No. 452, dated 17-3-1986 which has been issued in connection with section 44AB of the Income-tax Act, 1961. Reliance was placed on para 4 of the said circular according to which the Board were advised that so far as kachha arahatias were concerned, the turnover did not include sales effected on behalf of the principals and only gross commission has to be considered for the purpose of section 44AB. The submis-sion of the learned counsel for the assessee was that the case of the assessee is one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow 1%. CIT(A) has determined the addition @ 1.5% and as per settled law when the books of account are rejected, the profit is determined on estimation basis In determining the profit on estimation basis, the past history plays a vital role. Therefore, we are of the considered view that the net profit rate of 1.5% sustained by the Ld. CIT(A) is on higher side in view of the past history. Hence, we find merit in the contention of the Ld. counsel that 1.5% profit rate estimated by the Ld. CIT(A) is on higher side. Accordingly, in the interest of justice, we partly allow the appeal of the assessee and modify the order passed by the Ld. CIT(A) and restrict the net profit rate to 1% of the gross receipts, which is more than the percentage in the last 3 years. We therefore, direct the Assessing Officer to compute the addition @ 1% of the gross receipts. Appeal filed by the assessee is partly allowed. 5. Per contra, the Ld DR although supported the impugned order, however, he failed to rebut the contention raised by the counsel. 6. We have heard rival contentions, perused the material on record, impugned order, written submission and case law cited before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarifications given by the Board in its Circular No. 452, dated 17-3-1986, he has categorised the assessee as kachha arahatia and he has charged expenses incurred on such business which resulted in gross profit rate of 1.09 per cent. Therefore, it is very much relevant to clinch the issue whether the assessee is a kachha arahatia or not. Going by the clarifica-tion issued by the Board in the aforesaid Circular No. 452, dated 17-3-1986 the case of the assessee fits in with the kachha araha-tia vis-a-vis case of pucca arahatia. . . . (pp. 585-586). 9. It is pertinent to mention here that in the present case of the appellant; the Ld. AO has made an addition of Rs. 1095406/- as net profit @ 5% by treating the entire alleged bank deposits of Rs. 25327125/- as turnover, in contradiction to the Board s Circular No. 452, dated 17-3-1986. In our view, the CIT(A) s decision in affirming the said action of the AO, by passing ex parte order would be liable to be set aside. However, the assessee has earned commission income as a kachha Arahtia ought to be estimated either at the rate given in the aforesaid Board Circular or on the basis of past history of commission percentage receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome, business activities, source of cash deposits, etc. Your Honor will appreciate that the email address on the online portal was that of the accountant who expired on 19.04.2021 and the appellant as not aware about any proceedings. The copy of death certificate is enclosed at page no 27. 4. That the assessment was completed under section 147 r.w.s 144 of the Income Tax Act, 1961 ( the Act ) vide order dated 22.03.2022 making an addition of Rs. 1095406/- i.e. net profit @ 5% by treating the total bank deposits of Rs. 25327125/- as turnover. The copy of assessment order u/s 147 r.w.s 144 r.w.s 144B is enclosed at page 06-12 of PB for your ready reference. 5. The appellant was not served with any notice and the same is evident from the fact that the order u/s 147 has been served by way of affixture. The copy of order of affixture is enclosed at page no 18. 6. That the appellant was served with notice u/s 274 r.w.s 271(1)(b) asking the appellant as to why the penalty in default of notice u/s 142(1) should not be levied. In response to the said notice, the appellant submitted that he is a senior citizen and illiterate person who cannot operate computers and is not aware of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utomatic. The said conclusion is further justified by Section 273B of the Act namely Penalty not to be imposed in certain cases . A careful reading of Section 273B encompasses that certain penalties shall not be imposed in cases where reasonable cause is successfully pleaded. In the facts of the present case, it is seen that the explanation offered by the assessee have been ignored by the A.O. as well as the Ld. CIT(A)-NFAC but confirmed the levy of penalties u/s. 271(1)(b) and u/s. 271F of the Act without considering u/s. 273B - Applying the provisions of Section 273B we have no hesitation in deleting the penalties levied u/s. 271(1)(b) and u/s. 271F of the Act since reasonable cause is clearly demonstrated by the assessee. Therefore the penalties levied u/s. 271(1)(b) and u/s. 271F are deleted. - Appeal of assessee allowed. b) 3 SOT 414 (KOL.)IN THE ITAT KOLKATA BENCH B Mrs. Manju Katarukav.Income-tax Officer Section 271F, read with section 273B, of the Income-tax Act, 1961 - Penalty - For failure to furnish return of income - Assessment year 2000-01 - Whether penalty under section 271F is to be imposed as per law prevailing on date of default - Held, yes - Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had not complied with notice under Section 142(1) but assessment order was passed under Section 143(3) and not under Section 144, that meant that subsequent compliance in the assessment proceedings was considered as a good compliance and defaults committed earlier were ignored by Assessing Officer and, therefore, penalty under Section 271(1)(b) was not justified. As find that similar view was followed in a series of decisions as has been relied by the ld. AR for the assessee in his submission. Thus, considering the fact that assessment in the present case was completed u/s 153A/143(3) in accepting return of income, find that it was sufficient compliance, merely because the assessee could not make compliance due to some bonafide reason, no penalty under Section 271(1)(b) of the Act could be levied on the assessee. In view of aforesaid factual and legal position, direct the Assessing Officer to delete the entire remaining impugned penalty. In the result, ground of appeal raised by assessee is allowed. b) 2015 (5) TMI 1100 - ITAT DELHI SMT. REKHA RANI, VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-8, NEW DELHI. Penalty levied under Section 271(1)(b) - no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e qua the assessee under section 147 r.w.s 144 of the Income Tax Act, 1961 ( the Act ) vide order dated 22.03.2022 making an addition of Rs. 1095406/- i.e. net profit @ 5% by treating the total bank deposits of Rs. 25327125/- as turnover(APB, Pgs. 06-12) which has been served by way of affixture (APB, Pg. No. 18). 15. The AO was not satisfied with the reply of the appellant in response to notice u/s 274 r.w.s 271(1)(b) whereby the appellant was asked as to why the penalty in default of notice u/s 142(1) should not be levied and consequently, penalty u/s 271(1)(b) of an amount of Rs. 30000/- was levied vide order passed by the AO on 19.09.2022 against three defaults in respect of not replying to notice u/s 142(1) dated 29.11.2022, 10.02.2022 and 18.02.2022. 16. It is settled law that the imposition of penalty u/s 271(1)(b) is not mandatory rather is discretionary provided the appellant proves that there was a reasonable cause for the said failure of non-compliance. In the present case, it was duly informed to the AO that the appellant was not served with any notice u/s 142(1) of the act and moreover, the email id given on the online portal was that of the accountant who was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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