Case Law Details

Case Name : Manoj S. Gugale Vs. ITO (ITAT Pune)
Appeal Number : IT Appeal No. 417 (Pune) of 2016
Date of Judgement/Order : 03/03/2017
Related Assessment Year : 2011- 12
Courts : All ITAT (7475) ITAT Pune (254)

Manoj S. Gugale Vs. ITO (ITAT Pune)

The issue is with respect to levy of penalty under section 271B of the Act. It is an undisputed fact that assessee is engaged in the business of Advertising Agency and during the year under consideration the commission earned from the Advertising Agency was not in excess of the limits prescribed under section 44AB for the purpose of getting the books audited. Before us, it is assessee’s submission that the entire receipts will not form part of turnover and therefore he had not got the books audited and for which reliance was placed on CBDT Circular and also on the decision of Bombay High Court in the case of Heros Publicity Services (supra). The aforesaid submission of the assessee prima facie appears to be bona fide belief on his part and Revenue has not brought any material on record to support that the belief of the assessee was not bona fide. Assessing officer has levied penalty under section 271B of the Act for not getting the books audited under section 44AB of the Act. A reading of section 271B makes it clear that the imposition of penalty is not mandatory as the word used is “may” meaning thereby that a discretion is conferred on the assessing officer to impose or not to impose the penalty. Further the provision with respect to imposition of penalty is not mandatory in view of the provision contained in section 273B of the Act which inter alia provides that notwithstanding the provisions of section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the failure. In the present case, the assessee was having a bona fide belief that he was not required to get his books audited under 44AB in view of the decision in Bombay High Court in the case of Heros Publicity Services (supra) and the CBDT Circular (supra). In such a situation, we are of the view that there was a reasonable cause on the part of the assessee for not getting the books audited. Further it is a settled law that when there is a technical or venial breach of the provisions of law, the ends of justice requires that discretion should not be exercised in favour of punishing a minor default and for the aforesaid proposition we get support from the decision of Hon’ble Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) wherein the Hon’ble Apex Court has held as under :–

“Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or were the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

 Considering the totality of the facts and relying on the aforesaid decision of Hon’ble Apex Court, we are of the view that in the present case the levy of penalty under section 271B of the Act was not justified and therefore direct its deletion. Thus the grounds of assessee are allowed.

Full Text of the ITAT Order is as follows:-
This appeal of the assessee is emanating out of the order of Commissioner (Appeals)-II, Pune dated 13-11-2015 for the assessment year 2011-12.

2. The relevant facts as culled out from the material on record are as under :–

2.1 Assessee is an individual stated to be carrying on the business of Advertising Agency. Assessee filed its return of income for assessment year 2011-12 on 23-12-2011 declaring total income of Rs. 4,52,640. The case was selected for scrutiny and thereafter assessment was framed and total income was determined at Rs. 20,05,450. Assessing officer during the course of assessment proceedings inter alia noticed that as per 26AS Statement, the assessee’s total receipts was of Rs. 4,40,25,087 but the same was not considered by assessee while computing the income. On being confronted, it was submitted by the assessee that assessee being in the business of Advertising Agency only commission can be considered as income and not the total receipts of Rs. 4.4 crores. The submissions of assessee was not found acceptable to assessing officer. Assessing officer was of the view that since the receipts of assessee was to the extent of Rs. 4,40,25,087 which was in excess of the limit prescribed by section 44AB of the Act, the assessee was under an obligation to get his books of accounts audited under section 44AB of the Act and file the audit report. Since the assessee has not got the accounts audited, he was of the view that assessee was liable for penalty under section 271B of the Act. He therefore, vide order date 22-8-2014 passed under section 271B, levied penalty of Rs. 1,50,000. Aggrieved by the order of assessing officer, assessee carried the matter before learned Commissioner (Appeals), who upheld the order of assessing officer by holding as under :–

“4.1.1 The submission on behalf of the appellant that it is only earning commission from advertising receipt cannot be accepted. On a perusal of the assessing officer’s order, as well as submission filed, it is observed that bills are being independently raised by the appellant on various clients. Therefore the claim of the appellant that the amount is received only by way of reimbursement is not acceptable. The appellant has booked advertising space in various news papers and the bills are directly raised by these news papers on the appellant. In none of such bills any reference such as that the appellant is acting as an agent on behalf of news papers for procuring advertisement, is mentioned. The space booked by the appellant is specifically given to different clients and for that separate bills are raised by the assessee on such client. It is not a case of reimbursement as is being argued on behalf of the appellant. In fact, provision of section 44AB clearly states that any person carrying on business, if his total sales, turn over, gross receipts as the case may be exceeds the prescribed limit of Rs. 40 lakhs (in the relevant year) then such person has to get his accounts audited. The assessee’s gross receipts contains of all the bills raised by him on different clients which is clearly over and above the limit prescribed under section 44AB of the Income Tax Act and therefore he is liable for penal provision under section 271B of the Income Tax Act, as it has failed to get his accounts audited.

4.2 The appellant in the written submission has placed reliance on the guidance note on tax audit under section 44AB issued by the ICAI. On a perusal of this guidance note in para 5.10(A), it can be clearly seen that it applies only to consignment agent or commission agent. In the said note it has been stated that if the property in which all the significant risks and rewards of ownership of goods continue to belong to the principal then relevant sale price shall not form part of the sales/turnover of the commission agent or the consignment agent as the case may be. In the present case, there is no transfer of goods, therefore the question of transfer of risks and rewards of goods does not arise at all. Therefore this guidance is of no help to the appellant as the same applies on sale of goods and on consignment basis. However, the business of the appellant is that of running advertising agency.

4.2.1 Support has also been drawn by the appellant from CBDT Circular No. 452, date 17-3-1986. On a plain reading of the circular it transpires that the same has been issued in the context of Kachha and pucca Arahtia. The appellant is not a Arhatiya but running an advertising business therefore contents of the circular is not applicable on the appellant.

4.2.2 The appellant has also placed reliance on the decision of Hon’ble Bombay High Court in the case of CIT v. Hero Publicity Services (2001) 248 ITR 256 (Bom.). On reading of this case, it appears that the facts are distinguishable in the case of the assessee. In the cited case, the assessee was acting as an agent between the media and the principal. The media had insisted on contracts being entered into with the assessee (advertising agent) mainly to secure payments. Not only that, in that case the assessee had obtained letter of authority from their advertisers to enter into the contract with the media. Thus in the cited case the role of the assessee was merely commission agent as it was just acting as a link between the media and the advertisers for securing payments on the insistence of the media. However, in the present case, no such facts are available. In fact, the appellant is working independently and booking advertising space himself in various new papers and also raising bills himself on various clients. Therefore the ratio of this decision is not applicable to the present case.

4.2.3 In the light of the aforesaid discussion, on facts of the case, as well a decisions cited, I hold that the appellant was clearly liable for getting his accounts audited under section 44AB of the Income Tax Act. The assessee not only suppressed the receipt in the return but also did not get his accounts audited in spite of its turn over being Rs. 4,40,25,087, which is much more than the prescribed limit of Rs. 40 lakhs in the relevant year. Since, the appellant has failed to get his accounts audited, therefore he was liable for penalty under section 271B of the Income Tax Act. The assessing officer has rightly levied penalty at Rs. 1,50,000 under section 271B of the Income Tax Act. Accordingly, the order of the assessing officer is confirmed and the appeal is dismissed.”

Aggrieved by the order of learned Commissioner (Appeals), assessee is now in appeal before us and has raised the following grounds :–

“1. The learned Commissioner (Appeals) has erred in confirming penalty of Rs. 150000 levied under section 271B by the assessing officer only on the conclusions drawn by him in the Penalty order disregarding the submission given by the appellant.

2. The learned Commissioner (Appeals) while confirming the penalty levied by the assessing officer under section 271B had erred in not appreciating the following important facts :–

(a) The appellant was engaged in the Advt. Agency Business and his commission income from advt. agency business was at Rs. 2971880.00, which is below the turnover as required under section 44AB.

(b) CBDT Circular No. 452, date 17-3-1986, clarifying the question of applicability of section 44AB in the case of commission agent, Arhatias etc is not appreciated.

(c) The appellant has followed the practice of recording the net commission from the Advt., Agency business in earlier years also and the assessing officer in past as well as subsequent years has not initiated the penalty proceedings under section 271B.

(d) The learned assessing officer had accepted the financial assessment and the assessment was completed without Audit Report under section 143(3) of the Act thus there was bona fide belief that the provisions of section 44AB are not applicable to the appellant.

(e) Para 5.6 5.7 and 5.10(a) of Guidance Note on Tax Audit under section 44AB of the Act by ICAI is not appreciated correctly.”

3. Before us, at the outset, learned A.R. submitted that though the assessee has raised various grounds but the solitary issue is with respect to levy of penalty under section 271B of the Act.

4. Before us, learned A.R. reiterated the submissions made before assessing officer and learned Commissioner (Appeals) and submitted that assessee is having the only Advertising Agency Business, which includes providing the services of releasing newspaper and magazine advertisements and creating designs of advertisements, logo, letter head etc. He pointing to the copies of bills placed in paper book submitted that assessee had not reserved the space in newspaper in advance at a particular rate and then allotted the space to individual customers. He submitted that even the bills raised by the assessee states the commission amount. He therefore submitted that the entire receipts cannot be considered as income of the assessee and only the commission earned can be considered as income. He further submitted that if the commission income is considered, then it does not exceed the limit prescribed under section 44AB for getting his accounts audited and therefore assessee is not liable for keeping his accounts audited under section 44AB of the Act. He further submitted that the assessee was under the bona fide belief that assessee is engaged in the Advertising Agency who earned the income from commission, only the commission can be considered as income and not the total receipts and therefore was not required to get his accounts compulsorily audited under section 44AB of the Act and the breach was a technical breach. He placed reliance on the decision of Bombay High Court in the case of CIT v. Heros Publicity Services (2001) 248 ITR 256 (Bom) and also relied upon the Circular No. 452, date 17-3-1986 of Central Board of Direct Taxes (CBDT). He therefore prayed that penalty be deleted. Learned D.R. on the other hand, supported the order of assessing officer and learned Commissioner (Appeals).

5. We have heard the rival submissions and perused the material on record. The issue is with respect to levy of penalty under section 271B of the Act. It is an undisputed fact that assessee is engaged in the business of Advertising Agency and during the year under consideration the commission earned from the Advertising Agency was not in excess of the limits prescribed under section 44AB for the purpose of getting the books audited. Before us, it is assessee’s submission that the entire receipts will not form part of turnover and therefore he had not got the books audited and for which reliance was placed on CBDT Circular and also on the decision of Bombay High Court in the case of Heros Publicity Services (supra). The aforesaid submission of the assessee prima facie appears to be bona fide belief on his part and Revenue has not brought any material on record to support that the belief of the assessee was not bona fide. Assessing officer has levied penalty under section 271B of the Act for not getting the books audited under section 44AB of the Act. A reading of section 271B makes it clear that the imposition of penalty is not mandatory as the word used is “may” meaning thereby that a discretion is conferred on the assessing officer to impose or not to impose the penalty. Further the provision with respect to imposition of penalty is not mandatory in view of the provision contained in section 273B of the Act which inter alia provides that notwithstanding the provisions of section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the failure. In the present case, the assessee was having a bona fide belief that he was not required to get his books audited under 44AB in view of the decision in Bombay High Court in the case of Heros Publicity Services (supra) and the CBDT Circular (supra). In such a situation, we are of the view that there was a reasonable cause on the part of the assessee for not getting the books audited. Further it is a settled law that when there is a technical or venial breach of the provisions of law, the ends of justice requires that discretion should not be exercised in favour of punishing a minor default and for the aforesaid proposition we get support from the decision of Hon’ble Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) wherein the Hon’ble Apex Court has held as under :–

“Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or were the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

6. Considering the totality of the facts and relying on the aforesaid decision of Hon’ble Apex Court, we are of the view that in the present case the levy of penalty under section 271B of the Act was not justified and therefore direct its deletion. Thus the grounds of assessee are allowed.

7. In the result, the appeal of the assessee is allowed.

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