Piyush Bansal Vs ITO (ITAT Jaipur)
GST Turnover Alone Cannot Justify Tax Audit Penalty: ITAT Deletes ₹1.5 Lakh Levy on Commission Agent
The Income Tax Appellate Tribunal (ITAT), Jaipur Bench, has deleted a ₹1.5 lakh penalty under Section 271B, holding that the Revenue had not adequately examined the transactions before treating a commission agent’s agency sales as his own turnover.
In Piyush Bansal v. ITO, the Tribunal also held that the assessee’s bona fide belief, supported by a CBDT circular and judicial precedent, constituted reasonable cause under Section 273B, even assuming that tax audit provisions applied.
The order dated 5 November 2026 was passed in ITA No. 119/JPR/2026, concerning Assessment Year 2023-24, by Judicial Member Kuldip Singh and Accountant Member Prakash.
Background of the Dispute
The assessee, proprietor of M/s Bansal Industries, Baran, dealt in agricultural produce. He operated mainly as a commission agent or arahtia, while also undertaking a small amount of trading on his own account.
He held a licence issued by the Krishi Upaj Mandi Samiti. The assessment completed under Section 143(3) read with Section 144B on 25 February 2025 accepted his returned income.
However, the Assessing Officer concluded that the assessee also acted as a pucca arahtia and adopted GST turnover for determining the applicability of Section 44AB.
The officer relied on the mandi licence describing him as a trader, sales and balances recorded in the books, deduction of tax under Section 194Q by certain buyers, and the pattern of bank receipts and cash withdrawals.
A penalty of ₹1,50,000 under Section 271B followed and was confirmed by the CIT(A).
Own Trading and Agency Sales Separately Disclosed
The assessee reported own-account sales of ₹13,26,528 and commission income of ₹34,71,167, aggregating to ₹47,97,695.
Agency sales of ₹16,24,98,696 were separately disclosed as non-trading turnover in Table 5O of Form GSTR-9C. Annual turnover in Form GSTR-9 was ₹16,72,96,391, whereas the Assessing Officer adopted ₹16,75,89,661.
The assessee argued that only his own trading sales and commission receipts constituted turnover for income-tax audit purposes.
He emphasised that Form GSTR-9C had been filed on 11 December 2023, before any scrutiny notice, with an explanation for the separate treatment of agency sales. The distinction was therefore disclosed before the tax proceedings began.
CBDT Circular Requires Examination of Transactions
The assessee relied on CBDT Circular No. 452 dated 17 March 1986, the Institute of Chartered Accountants of India’s Guidance Note, and ACIT v. Hasmukh M. Shah [2003] 85 ITD 99 (Ahmedabad).
The Tribunal explained that the circular excludes agency sales from the turnover of a kachha arahtia, while including them for a pucca arahtia.
However, the circular also requires examination of each transaction with reference to its terms and states that no hard and fast rule applies.
The Tribunal referred to Abhay Kumar & Co. v. Union of India [1987] 164 ITR 148 (Rajasthan), as discussed in Hasmukh M. Shah. The relevant distinction depended on whether the agent sold the principal’s goods as his own, making the enquiry fact-specific.
Revenue Failed to Establish Pucca Arahtia Status
Applying that test, the Tribunal found that the conclusion treating the assessee as a pucca arahtia did not rest on examination of even one transaction.
The mandi licence merely permitted trading. The sales, debtors and creditors could relate to the assessee’s admitted own-account business.
Similarly, buyers deducting tax under Section 194Q, receipts through bank clearing and cash payments to farmers were also consistent with the activities of a kachha arahtia.
None established dominion over the goods, assumption of risk, or participation in the constituents’ profit or loss.
The Tribunal also noted that the adopted turnover did not match Form GSTR-9. Further, the penalty order proceeded as though no books existed, despite the trading account and cash book being before the officer.
These deficiencies could not support the penalty. Nevertheless, the Tribunal expressly recorded no final finding on the character of the agency transactions.
Bona Fide Belief Established Reasonable Cause
The Tribunal independently held that reasonable cause under Section 273B existed even if Section 44AB were assumed to apply.
The turnover bifurcation had been disclosed before scrutiny, the returned income was accepted, and the assessee’s understanding rested on recognised guidance and precedent.
Relying on Hasmukh M. Shah, the Tribunal accepted that a bona fide belief about the inapplicability of Section 44AB could provide protection under Section 273B.
It distinguished a conscious disregard of an obligation from an honest difference of opinion on a question that the CBDT itself recognised as requiring individual examination.
Final Decision
The Tribunal deleted the ₹1.5 lakh penalty, allowed all five grounds and allowed the appeal.
The ruling underscores that a tax audit penalty requires a properly supported examination of the transactions, while a substantiated bona fide belief may independently establish reasonable cause.
Cases Discussed
- ACIT v. Hasmukh M. Shah [2003] 85 ITD 99 (Ahmedabad) — cited regarding commission-agent turnover and reasonable cause.
- Abhay Kumar & Co. v. Union of India [1987] 164 ITR 148 (Rajasthan) — cited for the transaction-specific agency test.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
1. This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as “the learned CIT(A)”] dated 17.12.2025 arising out of the penalty order dated 28.08.2025 passed by the Assessing Officer (hereinafter referred to as “the AO”) under section 271B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2023-24.
2. The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as under:
“1. Erroneous application of Section 44AB: The learned authorities below erred in law and on facts in holding that the provisions of section 44AB were applicable by treating the entire value of goods handled on behalf of principals as the appellant’s turnover.
2. Ignoring CBDT Circular No. 452 dated 17.03.1986: The learned CIT(A) failed to appreciate that as per CBDT Circular No. 452, in the case of commission agents (kachcha arahtias), only the gross commission constitutes turnover for the purpose of section 44AB.
3. Incorrect reliance on GST turnover: The authorities erred in mechanically adopting GST turnover for income-tax purposes without appreciating that GST turnover includes value of goods belonging to principals and cannot override the settled position under the Income tax Act.
4. Mischaracterisation as Pucca Arahtia: The finding that the appellant acted as a pucca arahtia is based on presumption and surmises, without bringing any cogent evidence to establish ownership, risk, or independent trading in the goods handled on behalf of principals.
5. Penalty u/s 271B not automatic: Without prejudice, penalty u/s 271B is not automatic and cannot be levied unless there is a clear, conscious, and contumacious default. The appellant acted under a bona fide belief supported by CBDT circulars and judicial precedents.”
3. Briefly stated, the facts of the case are that the Assessee, proprietor of M/s Bansal Industries, Baran, is licensed by the Krishi Upaj Mandi Samiti and deals in agricultural produce, mainly as a commission agent (arahtia) and to a small extent on his own account. The assessment under section 143(3) read with section 144B of the Act dated 25.02.2025 accepted the returned income. Relying on the mandi licence, which registers the Assessee as a trader, the sales, debtors and creditors in the books, deduction of tax under section 194Q of the Act by some buyers and the pattern of bank credits by clearing and cash withdrawals, the AO held that the Assessee was also a pucca arahtia and adopted the turnover in Form GSTR-9 for section 44AB of the Act. The penalty of Rs 1,50,000 that followed was confirmed by the learned CIT(A). The figures are:
| Particulars | Amount (Rs) |
|---|---|
| Sales on own account as per trading account | 13,26,528 |
| Commission income as per profit and loss account | 34,71,167 |
| Agency sales disclosed in Form GSTR-9C (Table 5O) as non trading turnover | 16,24,98,696 |
| Annual turnover as per Form GSTR-9 | 16,72,96,391 |
| Turnover adopted by the AO | 16,75,89,661 |
4. The learned Authorised Representative (hereinafter referred to as “the learned AR”) submitted that the turnover is only Rs 47,97,695; that Form GSTR-9C filed on 11.12.2023, before any scrutiny notice, separately disclosed the agency sales with the reason; and that CBDT Circular No. 452 dated 17.03.1986 nowhere requires an agent who also trades to include agency sales in his turnover. Reliance was placed on the Guidance Note of the Institute of Chartered Accountants of India and ACIT v. Hasmukh M. Shah [2003] 85 ITD 99 (Ahd), and reasonable cause was pleaded in the alternative. The learned Departmental Representative (hereinafter referred to as “the learned DR”) relied on the orders of the authorities below.
5. We have heard both the parties and perused the material on record.
5.1 Circular No. 452 dated 17.03.1986 excludes agency sales from the turnover of a kachha arahtia, includes them for a pucca arahtia, and cautions in paragraph 3 that each transaction has to be examined with reference to its terms and that no hard and fast rule can be laid down. The Hon’ble Rajasthan High Court in Abhay Kumar & Co. v. Union of India [1987] 164 ITR 148 (Raj), as extracted at paragraph 5 of Hasmukh M. Shah (supra), laid down the same test for section 44AB of the Act: a commission agent who does not sell the goods of his principal as his own is outside the section, but if there is evidence that the goods remained with him and it is he who sold them, the sale is his turnover, the question depending on the facts of each case.
5.2 Tested on this touchstone, the finding that the Assessee acted as a pucca arahtia does not rest on the examination of even one transaction. The licence only permits trading; the sales, debtors and creditors relate to the admitted own trading; and deduction of tax under section 194Q of the Act by buyers, receipt of proceeds by clearing and cash payments to farmers are equally consistent with a kachha arahtia, who bills the buyer without disclosing his principal. None of these shows dominion over the goods, assumption of risk or a share in the profit or loss of the constituents. The AO also adopted a figure that does not tally even with Form GSTR-9, and the penalty order proceeds as if no books were maintained although the trading account and cash book were before the AO. A conclusion so drawn cannot found a penalty, though we record no final finding on the character of the agency transactions.
5.3 Even if section 44AB of the Act were assumed to apply, reasonable cause within the meaning of section 273B of the Act is made out. The bifurcation of the turnover was disclosed in Form GSTR-9C before any scrutiny began, the returned income was accepted, and the belief that agency sales are not turnover rests on the Circular, the Guidance Note and Hasmukh M. Shah (supra), which at paragraph 11 holds that a bona fide belief that section 44AB of the Act does not apply, judged on the preponderance of probabilities, absolves the assessee under section 273B of the Act. A penalty is the sanction for a conscious disregard of an obligation, not the price of an honest difference of opinion on a question which the Board itself says admits of no hard and fast rule. The penalty of Rs 1,50,000 levied under section 271B of the Act is therefore deleted. Grounds 1 to 5 are allowed.
6. In the result, the appeal filed by the Assessee is allowed.
Pronounced in the open court on 05/11/2026
