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TMI Blog2023 (6) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... law. 3. That the CIT(A) has erred in confirming the addition of Rs. 1095406/- on account of NP @ 5% on cash deposited to the tune of Rs. 25286429/- in ICICI Bank Account No 202105000180 assuming the total cash deposited as turnover without giving the benefit of rotation of funds. 4. That the CIT(A) has erred in confirming the addition of Rs. 1095406/- by estimating 5% profit on cash deposited in ICICI Bank Account No 202105000180 without appreciating that the assessee is a Kachha Ahartiya dealing as commission agent of fresh vegetables. That CIT(A) has failed to appreciate that rate of profit/ commission in such a trade is limited to 1% subject to further reduction on account of expenses. 5. That the CIT(A) has erred in confirming the addition made by the AO in assessment order passed u/s 147 r.w.s 144 as the same has been passed without providing the copy of reasons recorded and sanction letter u/s 151. 6. That the Ld. CIT(A) has erred in not appreciating that the assessee has been regularly filing income tax returns and has duly disclosed commission income. 7. That the appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Ld. CIT(A) passed an ex-parte order u/s 250(6) on account of failure of the appellant to respond to notices dated 11.10.2022 and 15.11.2022 without adjudicating the case on merits. 9.2 BENEFIT OF EXEPENSES NOT GIVEN AND HAS ERRED IN APPLYING COMMISSION RATE OF 5% a) That the Ld. AO has failed to appreciate that the total amount withdrawn was consumed for making payment in respect of purchases made on behalf of the customer. The income which the appellant has earned was only the commission income and not the trading profits. The Ld. AO has accepted the fact that the appellant is a broker. However, while making the assessment, the AO realized the mistake that the reasons recorded are incorrect and therefore, while making the addition, the AO has taken into consideration the entire deposits amounting to Rs. 25327125/-. The Ld. AO has erred in applying the commission @ 5% as against standard rate of 1.1%. That if the rate of 1.1% is applied on the total credits in bank account of Rs. 2.53 crores, then also, no addition is called for on the basis of the following working: - Cash Deposited 25327125 Commission @ 1.10% 253271 Less: Bank Charges -51206 Less: Returned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of his principal, such sales/turnover have to be treated as the sales/turnover of the agent for the purpose of section 44AB. 3. The matter was examined in consultation with the Ministry of Law. There are various trade practices prevalent in the country in regard to agency business and no uniform pattern is followed by the commission agents, consignment agents, brokers, kachha arahtias and pacca arahtias dealing in different commodities in different parts of the country. The primary necessity in each instance is to ascertain with precision what are the express terms of the particular contracts under consideration. Each transaction, therefore, requires to be examined with reference to its terms and conditions and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en into consideration for determining the applicability of the provisions of section 44AB. Circular : No. 452 [F. No. 201/3/85-IT(A-II)], dated 17-3-1986. JUDICIAL ANALYSIS EXPLAINED IN - In Jeyar Consultant & Investment (P.) Ltd. v. Assistant Commissioner [1993] 46 ITD 71 (Mad.-Trib.), it was observed that it is ex facie clear from the CBDT Circular No. 452 of 17-3-1986 which came to be issued in relation to kacha and pacca 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. Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross receipts holding that the assessee has failed to account for the receipts appearing in Form 26AS - CIT(A) restricted the addition to 1.5% of the gross receipts - HELD THAT:- As pointed out by the Ld. counsel, in the past three years, the gross commission of the total receipts remained below 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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross commission has to be considered for the purpose of section 44AB of the Income-tax Act, 1961. . . . The CIT (Appeals) has excluded the adat receipt as well as interest receipt from the purview of turnover for the purpose of section 44AB. Relying on the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25286429/- in his ICICI Bank Account No 202105000180. (Please refer page no 16-45) Thereafter notices u/s 142(1) were issued on 29.11.2022, 10.02.2022 and 18.02.2022 requesting the assessee to furnish explanation in regard to nature of income, 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 appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(1) - Penalty u/s 271F - non-filing of the Return of Income - HELD THAT:- Parliament has used the words "may" and not "shall", thereby making their 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 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 273 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee failed to comply notice u/s 142(1) - scope of bonafide reason - HELD THAT:- Division Bench of Delhi Tribunal in Akhil Bhartiya Prathmik Shmshak Sangh Bhawan Trust [2007 (8) TMI 386 - ITAT DELHI-G] held that where 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee was not aware about either the assessment proceedings and thus, he was unaware about the notices issued u/s 142(1) of the Act. The AR further argued that the assessment was completed ex parte 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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