Penalty under Section 271B cancelled as commission agent's turnover below audit threshold under Section 44AB

ITAT Delhi quashed penalty u/s 271B for failure to get accounts audited. The tribunal held that the relationship between Mother Dairy and the assessee was principal-agent, not principal-to-principal as claimed. The assessee's turnover consisted only of commission from sales of dairy products, which was below the Rs. 1 crore threshold under section 44AB. The tribunal applied CBDT Circular No. 452 regarding kachha arahati, ruling that only gross commission should be considered for section 44AB purposes, not total sales effected on behalf of principals. The penalty was therefore not applicable.

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Issues:
1. Penalty under section 271B upheld by CIT(A) NFAC
2. Applicability of section 44AB to the assessee
3. Nature of relationship between the assessee and Mother Dairy
4. Interpretation of gross commission as turnover
5. Reliance on CBDT circular No. 452
6. Comparison with similar case laws
7. Quashing of penalty under section 271B

Analysis:
The appeal was filed by the assessee against the order of the NFAC, Delhi, upholding a penalty of Rs. 1,23,313 under section 271B for the assessment year 2017-18. The assessee contended that there was no requirement for tax audit as the relationship with Mother Dairy was that of Principal & Agent, not necessitating tax audit as per Circular No. 452 F.No.201/3/85-IT(A-II) dated 17/03/1986. The assessee, an ex-serviceman, operated a Milk Booth of Mother Dairy on a commission basis under a Self-Employment Scheme. The Assessing Officer considered cash deposits as turnover and levied the penalty under section 271B. The CIT(A) NFAC upheld the order, leading to the appeal before the ITAT. The assessee argued that the turnover was below the prescribed limit of Rs. 1 crore under section 44AB, citing the commission as taxable income rather than total sales.

The ITAT analyzed the relationship between the assessee and Mother Dairy, emphasizing the terms of the arrangement. It was observed that the DGR used the term "commission," indicating a Principal-Agent relationship. The ITAT held that the turnover was only the commission received by the assessee and not the sales proceeds. The ITAT also noted that in previous years, no penalty was imposed on this issue. Additionally, the CBDT Circular No. 452 supported the view that only gross commission should be considered for section 44AB purposes.

The ITAT compared the case with similar judgments where penalties were vacated for Milk booth agents. Relying on the legal position and factual circumstances, the ITAT quashed the penalty under section 271B, directing the Assessing Officer to delete the imposed penalty. The ITAT allowed the appeal of the assessee, emphasizing the similarity of the assessee's position to that of a kachha arahtia, where remuneration consists solely of commission without interest in the principal's profits or losses.

In conclusion, the ITAT ruled in favor of the assessee, highlighting the correct interpretation of turnover, the nature of the relationship with Mother Dairy, and the applicability of section 44AB. The penalty under section 271B was quashed based on the legal position and precedents, ultimately allowing the appeal of the assessee.

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