Share broker's commission income below audit threshold, section 271B penalty deleted for non-audit

ITAT Rajkot held that penalty u/s 271B for failure to get accounts audited u/s 44AB was not sustainable. The tribunal determined that for a share broker, only commission income constitutes turnover, not the sale consideration of shares sold. Following precedent in Hasmukh M. Shah case, the assessee's commission income of Rs. 1,55,614 fell below the audit threshold limit prescribed under section 44AB. The tribunal rejected the revenue's contention regarding proviso interpretation and directed deletion of the penalty, ruling in favor of the assessee.

---

---

Issues Involved:
1. Legality of the penalty order under section 271B of the Income Tax Act, 1961.
2. Legality of the order passed by the National Faceless Appeal Centre (NAFC).
3. Justification for the penalty levied by the Assessing Officer (AO) under section 271B of the Act amounting to Rs. 1,50,000.

Summary:

1. Legality of the Penalty Order under Section 271B:
The core issue in the appeal was the confirmation of the penalty levied under section 271B of the Income Tax Act, 1961, for the assessee's failure to get accounts audited as required under section 44AB. The assessee's turnover from the sale of shares exceeded Rs. 1 crore, specifically Rs. 6,06,87,030, leading to a penalty of Rs. 1.50 lacs being imposed by the AO.

2. Legality of the NAFC Order:
The assessee argued that the penalty order by the NAFC was flawed both in law and facts. The primary contention was that the turnover considered for the purpose of audit under section 44AB should only include the commission income from sub-brokerage activities, not the total sale consideration of shares.

3. Justification of the Penalty Levied:
The assessee contended that the commission income, which was Rs. 1.5 lacs, was the only relevant turnover for audit purposes under section 44AB. The assessee relied on the Guidance Note of the ICAI and the ITAT Ahmedabad Bench decision in ACIT Vs. Hasmukh M. Shah, which supported that for agents earning commission, only the commission income should be treated as turnover.

The Tribunal noted that the assessee's argument was supported by the ITAT Ahmedabad Bench decision, which clarified that the sale consideration of shares by a broker does not constitute turnover. The Tribunal found that the assessee's commission income of Rs. 1,55,614 was below the threshold limit for mandatory audit under section 44AB, thus negating the need for an audit and the subsequent penalty.

The Tribunal also addressed the ld.DR's contention regarding the proviso to section 44AB, clarifying that the proviso only raises the audit threshold from Rs. 1 crore to Rs. 5 crores for non-cash transactions and does not alter the basic requirement of turnover exceeding Rs. 1 crore for audit applicability.

Conclusion:
The Tribunal concluded that the penalty under section 271B was not justified as the assessee's turnover, being only the commission income, did not exceed the limit prescribed for mandatory audit. The Tribunal directed the deletion of the penalty of Rs. 1.5 lacs and allowed the appeal of the assessee. The order of the ld.CIT(A) was set aside for not considering the assessee's submissions adequately.

Result:
The appeal of the assessee was allowed, and the penalty imposed was deleted.

---