2014 (5) TMI 693 - AT - Income Tax

Appellate Tribunal allows appeal, cancels penalty under Income Tax Act due to genuine belief

The Appellate Tribunal allowed the Assessee's appeal, directing the deletion of the penalty imposed under section 271B of the Income Tax Act. The Tribunal ... Failure to audit accounts u/s 44AB – Payment received exceeded monetary limit – Held that:- Assessee contended that he was acting as an agent and had arranged the trucks owned by others on hire for his principal and the receipts which was received by him was received in a fiduciary capacity which did not belong to him and were paid by him and he had only retained his commission – the contentions of the assessee, prima facie, appears of be bonafide and the Revenue has not brought any material on record to support that the belief of the Assessee was not bonafide - CBDT vide Circular No 452 dated 17.3.1986 regarding the applicability of section 44AB in the cases of commission agents, arhatias etc has clarified that in the case of agent whose position is similar to that of Kuccha Arhatia, the turnover is only the commission and does not include the sales on behalf of the Principals. Penalty u/s 271B of the Act – Held that:- The AO is vested with discretion to levy the penalty - when there is technical or venial breach of the provisions of law, the ends of justice require that discretion should not be exercised in favour of punishing a minor default – Relying Hindustan Steel Ltd. Vs State of Orissa [1969 (8) TMI 31 - SUPREME Court] - no penalty u/s 271B of the Act was imposable - Decided in favour of Assessee. Issues:1. Assessment of penalty under section 271B of the Income Tax Act for failure to comply with audit requirements under section 44AB.Analysis:The appeal was filed by the Assessee against the order of CIT(A)-IV, Baroda for the assessment year 2006-07. The Assessee, engaged in the business of plying trucks, had filed a return of income declaring total income. The Assessing Officer (AO) noticed that the Assessee had received payments exceeding the limit prescribed under section 44AB of the Act for audit requirements. The AO imposed a penalty under section 271B for non-compliance. The CIT(A) confirmed the penalty, emphasizing that the Assessee's activities as a contractee exceeded the monetary limit for audit, thus justifying the penalty.The Assessee argued that he acted as an agent arranging trucks for a principal, receiving payments in a fiduciary capacity, and retaining only his commission. The Assessee believed that his activities were akin to a Kacha Aratia and, therefore, not subject to audit requirements under section 44AB. The Assessee contended that the penalty should be deleted due to his genuine belief. The Appellate Tribunal considered the arguments and the circular issued by CBDT clarifying the turnover for agents similar to Kacha Aratias. The Tribunal found the Assessee's belief to be genuine and in line with the circular, thus ruling that no penalty under section 271B should be imposed.In conclusion, the Appellate Tribunal allowed the Assessee's appeal, directing the deletion of the penalty imposed under section 271B. The Tribunal emphasized the need to consider the genuineness of the Assessee's belief and the technical nature of the breach in deciding on penalties. The decision was based on the principle that penalties should not be imposed for minor or technical breaches when there is a bona fide belief that the actions were in compliance with the law.This judgment highlights the importance of assessing the genuineness of an Assessee's belief in determining penalties for non-compliance with tax audit requirements. It also underscores the discretion of authorities in imposing penalties, especially in cases of technical or venial breaches where the Assessee's belief is found to be bona fide.