Dharam Singh Vs ITO (ITAT Delhi)
Background of the Case
The present appeal involves the assessee, Dharam Singh, who was allotted a Mother Dairy milk booth under a self-employment scheme designed for ex-servicemen by the Directorate General Resettlement (DGR). In the assessment year 2017-18, Dharam Singh earned a commission of ₹4.62 lakhs by selling Mother Dairy products. However, the case arose when the Assessing Officer (AO) considered cash deposits made by the assessee, amounting to ₹2.46 crores, as his business turnover. Consequently, the AO levied a penalty of ₹1,23,313 under section 271B of the Income Tax Act for failing to comply with section 44AB, which mandates tax audits for businesses with turnover exceeding ₹1 crore.
Key Issue
The primary issue in this case was whether the cash deposits of ₹2.46 crores should be considered as the assessee’s turnover, thereby attracting a penalty for non-compliance with the tax audit provisions under section 44AB. The assessee argued that his actual turnover was only the commission earned (₹4.62 lakhs) and not the gross sales proceeds.
Assessee’s Argument
The counsel for Dharam Singh argued that the relationship between Mother Dairy and the assessee was that of Principal and Agent, not Principal-to-Principal. Therefore, only the commission earned by the assessee should be considered for the purposes of turnover. The assessee’s counsel also referenced Circular No. 452 [F. No. 201/3/85-IT(A-II)] dated 17-03-1986 issued by the Central Board of Direct Taxes (CBDT). This circular clarifies that in cases where agents (such as kachha arahtias) sell goods on behalf of principals, only the gross commission, and not the total sales, should be considered as the turnover for the purpose of section 44AB.
