Kopperla Patan Anwar Hussain Vs ITO (ITAT Hyderabad)
Hyderabad ITAT: Kachha Arhtia’s Turnover Is Only Commission; Penalties under Sections 271A & 271B Cannot Be Sustained Without Statutory Basis
The Hyderabad ITAT granted relief to a commission agent engaged in facilitating the sale of agricultural produce, holding that the Revenue had erred in levying penalties under sections 271A and 271B. As regards section 271A, the Tribunal observed that while the Assessing Officer had imposed penalty on the premise that the assessee’s gross receipts exceeded the threshold for maintaining books of account, the CIT(A) sustained the penalty on an entirely different ground by referring to the assessee’s income in one of the preceding years. Since neither the assessment nor the penalty order examined the statutory conditions under section 44AA(2) with reference to the three immediately preceding previous years, the Tribunal restored the matter to the Assessing Officer for fresh examination after granting due opportunity to the assessee. In respect of section 271B, the Tribunal held that once the assessee had been accepted as a kachha arhtia (commission agent), only the commission income, and not the entire sale proceeds handled on behalf of farmers, constituted his turnover in view of CBDT Circular No. 452 dated 17.03.1986. Since the commission income was below the audit threshold prescribed under section 44AB, no audit obligation arose. The Tribunal further held that where the Revenue itself alleged failure to maintain books and had initiated penalty under section 271A, it could not simultaneously levy penalty under section 271B for failure to audit such non-existent books, relying on the decisions of the Gauhati and Allahabad High Courts. Accordingly, the penalty under section 271B was deleted, while the penalty under section 271A was remanded for fresh adjudication.
Cases Discussed
- • Vidya Shankar Jaiswal vs. ITO (Supreme Court), (2025) 305 Taxman 83 (SC)
- • CIT v. S.K. Gupta & Co. (Allahabad High Court), (2010) 322 ITR 86 (All)
- • CIT v. Bisauli Tractors (Allahabad High Court), (2008) 299 ITR 219 (All.)
- • Suraj Mal Parsuram Todi v. CIT (Gauhati High Court), (1996) 222 ITR 691 (Gauhati)
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeals filed by the assessee are directed against the respective orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (for short, “CIT(A)”) confirming the penalty imposed by the Assessing Officer (AO) under section 271A of the Income Tax Act, 1961 (for short, “the Act”) and under section 271B of the Act, both dated 20/08/2025. We shall now take up the appeal filed by the assessee in ITA No.2154/HycV2025, wherein the impugned penalty imposed by the AO under section 271A of the Act has been assailed before us.
2. Succinctly stated, the AO, during the reassessment proceedings, accepted the assessee’s explanation that he was carrying on business as a commission agent in the sale of agricultural produce and estimated his commission income at Rs.4,01,626/-. However, the AO, while concluding the assessment proceedings, initiated penalty proceedings under section 271A of the Act, holding that the assessee had failed to maintain books of account as required under section 44AA of the Act. Thereafter, the AO levied a penalty of Rs.25,000/-.
3. Aggrieved, the assessee carried the matter in appeal before the CIT(A) who confirmed the penalty by observing that the assessee’s business income in one of the three immediately preceding previous years exceeded the monetary limit prescribed under section 44AA(2) of the Act.
4. We find that the AO levied the impugned penalty on the premise that the assessee had gross receipts of Rs.2,00,81,310/- and was, therefore, liable to maintain books of account under section 44AA of the Act. However, the CIT(A) has sustained the penalty on an altogether different footing by referring to the assessee’s business income in one of the three immediately preceding previous years. In our view, the very basis on which the penalty has been sustained is different from the basis on which it was originally levied.
5. We further find that section 44AA(2) casts an obligation to maintain books of account where the income from business or profession or the turnover exceeds the prescribed limits in any one of the three years immediately preceding the relevant previous year. However, we find that neither the assessment order nor the penalty order contains any examination of the applicability of the said provision with reference to the preceding three previous years. Although the CIT(A) has referred to the income determined for the immediately preceding assessment year, neither any verification has been undertaken by the AO regarding the statutory requirements contained in section 44AA(2), nor has any opportunity been afforded to the assessee to explain the factual position with reference to the preceding three years.
6. Considering the totality of the facts and in the interest of justice, we are of the view that the issue requires fresh examination by the AO. Accordingly, we set aside the impugned order of the CIT(A) and restore the matter to the file of the AO with a direction to examine afresh whether the assessee was under a statutory obligation to maintain books of account under section 44AA of the Act having regard to the conditions prescribed therein, particularly with reference to the income and turnover, as the case may be, in the three immediately preceding previous years. Needless to say, the AO shall, in the course of the set aside proceedings, afford an opportunity of being heard to the assessee and thereafter pass a speaking order in accordance with law.
7. Before parting, we make it clear that we have not expressed any opinion on the merits of the levy of penalty under section 271A of the Act and all contentions of both the parties are left open.
8. In the result, the appeal of the assessee is allowed for statistical purposes.
ITA No. 2155/Hyd/2025
AY: 2020-21
9. We shall now take up the appeal filed by the assessee in ITA No.2155/HycV2025 against the penalty imposed by the AO under section 271B of the Act vide his order, dated 20/08/2025.
10. Succinctly stated, the AO, while framing the reassessment in the case of the assessee, accepted his explanation that he was engaged only as a commission agent for facilitating the sale of mosambi fruits belonging to farmers and estimated his commission income at 2% of the sale proceeds amounting to Rs.4,01,626/-. However, the AO, while concluding the assessment, initiated penalty proceedings under Section 271B of the Act, and after treating the aggregate sale proceeds of Rs.2,00,81,310/- as the assessee’s turnover, held him liable to get his accounts audited under Section 44AB of the Act for the subject year. Accordingly, the AO imposed a penalty of Rs.1,00,406/- under Section 271B of the Act.
11. Aggrieved, the assessee carried the matter in appeal before the CIT(A), who confirmed the penalty imposed by the AO.
12. The assessee, aggrieved with the CIT(A) order, has carried the matter in appeal before us.
13. We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.
14. Ostensibly, the AO in the assessment order has accepted that the assessee was merely acting as a commission agent and earned only commission income. Also, the Profit and Loss Account placed before us shows that the assessee was functioning as a kachha arhtia.
15. We find that the CBDT, in Circular No. 452 dated 17.03.1986, while explaining the scope of Section 44AB, has clarified that in the case of a kachha arhtia, only the commission earned constitutes his turnover or gross receipts and not the sale proceeds of goods belonging to the principals. For the sake of clarity, we deem it apposite to cull out the aforesaid CBDT Circular No.452 (relevant extract), as under:
“In the case of a kachha arhtia, the turnover is only the commission and does not include the sales effected on behalf of the principals.”
As the aforesaid Circular is beneficial in nature, the same is binding upon the Department.
16. We thus are of a firm conviction that once the assessee is accepted to be a kachha arhtia, the entire sale proceeds of Rs.2,00,81,310/- could not have been treated as his turnover for the purpose of Section 44AB of the Act. As the commission income accepted by the AO is far below the monetary limit prescribed under Section 44AB of the Act, the assessee was under no statutory obligation to get his accounts audited.
17. Alternatively, we are of the view that as the AO has levied penalty on the assessee under Section 271A of the Act for failure on his part to maintain books of account, thereafter it was not permissible for him to impose penalty under Section 271B of the Act for failure of the assessee to get such books of accounts audited. Our aforesaid view is supported by the judgments of the Hon’ble High Court of Gauhati in Suraj Mal Parsuram Todi v. CIT (1996) 222 ITR 691 (Gauhati) and the Hon’ble High Court of Allahabad in CIT v. Bisauli Tractors (2008) 299 ITR 219 (All.) and CIT v. S.K. Gupta & Co. (2010) 322 ITR 86 (All), wherein it is held that where the Revenue proceeds on the footing that no books of account were maintained, penalty under section 271B for failure to get such books audited is not exigible, since audit necessarily presupposes the existence of books of account.
18. We thus, in view of the aforesaid facts and respectfully following the CBDT Circular No. 452 dated 17.03.1986, as well as the judicial precedents referred hereinabove, hold that the authorities below were not justified in levying and sustaining the penalty under Section 271B of the Act. Accordingly, we set aside the CIT(A) order and vacate the impugned penalty of Rs.1,00,406/- imposed by the AO.
19. In the result, the appeal of the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 24th July, 2026.
