2025 (8) TMI 1187 - AT - Income Tax

Penalty under section 271B quashed where assessee acted as authorized dealer selling principal's milk products for fixed commission

Ankit Chauhan Versus ITO Ward 36 (1), New Delhi

Ankit Chauhan Versus ITO Ward 36 (1), New Delhi - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271B for failure to get accounts audited under section 44AB can be sustained where the assessee contends that he acted as an authorized dealer/commission agent of a principal and only earned fixed commission. 2. Whether the assessee's bona fide belief (first year of business and lack of awareness of applicability of section 44AB) and confirmation from the principal amount to 'reasonable cause' within the meaning of section 273B, thereby precluding penalty under section 271B. 3. Whether the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals)/NFAC were vitiated by failure to appreciate material facts and evidence placed on record (including communication from the principal) and whether such failure affects the sustainability of penalty. 4. Whether allegations that proceedings violated principles of natural justice were raised and determinative in the disposition of the penalty appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 44AB and sustainment of penalty under section 271B where assessee acted as authorized dealer/commission agent Legal framework: Section 44AB prescribes mandatory audit of accounts for persons carrying on business subject to specified thresholds; section 271B imposes penalty for failure to get accounts audited as required under section 44AB. Precedent treatment: The Tribunal relied on a co-ordinate bench decision rendered in similar factual matrix, which treated the explanation that the taxpayer was a commission agent/authorized dealer and thus not subject to section 44AB (or giving reasonable cause) as attracting protection under section 273B. Other recent Tribunal decisions dealing with similar factual claims were also cited by the assessee before the Tribunal. Interpretation and reasoning: The Tribunal examined the assessment record and the assessee's explanation of the business modus operandi: daily receipts were deposited in the assessee's bank account and transferred to the principal on the same day; the assessee acted in an assigned area for the principal and earned fixed commission; communication from the principal corroborated the relationship. The Tribunal found that these facts, taken together, indicated that the assessee was providing services on behalf of the principal rather than carrying on an independent business necessitating audit under section 44AB. The Tribunal further observed that the lower authorities did not appreciate these material facts in proper perspective and discarded the explanation without cogent reasons. Ratio vs. Obiter: The Tribunal's conclusion that, on the facts, the assessee's status as an authorized dealer/commission agent and the corroborative evidence negatived the applicability of a penalty under section 271B is treated as the ratio for the present appeal; the reliance on co-ordinate bench authority as persuasive support forms part of the reasoning but is not treated as binding beyond the factual parity. Conclusion: Penalty under section 271B upheld by the lower authority was quashed because the assessee's factual position (authorized dealer/commission agent relationship, corroborated by principal) demonstrated that the accounts audit requirement either did not properly apply or that the explanation undermined the basis for imposing penalty. Issue 2 - 'Reasonable cause' under section 273B: first year of business and bona fide belief as grounds to negate penalty Legal framework: Section 273B empowers the tax authorities to refrain from imposing penalty where the person proves that there was reasonable cause for failure to comply with provisions attracting penalty; the provision is a statutory protection to be considered in penalty proceedings. Precedent treatment: The Tribunal invoked a co-ordinate bench decision which accepted the assessee's explanation of first year of business and bona fide belief regarding non-applicability of section 44AB as constituting reasonable cause under section 273B. Other cited Tribunal decisions addressing analogous facts were used to bolster the conclusion. Interpretation and reasoning: The Tribunal accepted that the assessee embarked on business in the relevant year, was not aware that section 44AB applied, and acted under a bona fide belief that, as a commission agent/authorized dealer, audit requirements did not apply. The Tribunal treated these circumstances, coupled with corroborative evidence from the principal and the operational modus operandi, as establishing reasonable cause. The Tribunal also emphasized that the lower authority failed to give cogent reasons for rejecting this explanation. Ratio vs. Obiter: The determination that the explanation constituted reasonable cause under section 273B and thereby precluded imposition of penalty is central to the Tribunal's decision and constitutes part of the operative ratio. Conclusion: The assessee's first-year status and bona fide belief, supported by evidence of the principal-agent relationship, amount to reasonable cause under section 273B; therefore, penalty under section 271B could not be sustained. Issue 3 - Appreciation of material evidence (confirmation from principal) and adequacy of reasons by lower authorities Legal framework: Administrative decisions imposing penalty must be founded on proper appreciation of relevant material and must give cogent reasons for rejecting explanations relied upon by the assessee; failure to do so can render the order unsustainable. Precedent treatment: The Tribunal relied on co-ordinate decisions where similar factual matrices led to deletion of penalty because the factual position was accepted as reasonable cause or demonstrated non-applicability of audit provisions. Interpretation and reasoning: The Tribunal found that the assessee produced a confirmation from the principal (GCMMF) and explained the daily receipt/deposit/transfer pattern showing the assessee acted for the principal. The Tribunal held that the Assessing Officer and the CIT(A) did not appreciate these facts in the right perspective and discarded the explanation without valid and cogent reasons. The Tribunal treated that absence of reasoned rejection as fatal to sustaining the penalty. Ratio vs. Obiter: The finding that the lower authorities failed to appreciate documentary evidence and thus gave inadequate reasons for sustaining the penalty is part of the operative reasoning (ratio) for quashing the penalty in this factual setting. Conclusion: The inadequate appreciation of material evidence and lack of cogent reasons by the lower authorities justified interference and deletion of the penalty. Issue 4 - Allegation of breach of principles of natural justice in the proceedings Legal framework: Principles of natural justice require that adjudicatory proceedings afford fair opportunity to the affected party; where breaches occur, orders can be vitiated. Precedent treatment: The appeal raised a ground alleging violation of natural justice; however, the Tribunal's decision is premised on factual appraisal and reasonable cause analysis rather than any explicit finding on procedural fairness. Interpretation and reasoning: Although the assessee pleaded breach of natural justice before lower authorities and reiterated it in grounds of appeal, the Tribunal's order does not record a separate adjudication or specific finding on whether principles of natural justice were violated. The Tribunal resolved the appeal on merits by quashing the penalty for the reasons stated in Issues 1-3. Ratio vs. Obiter: The absence of a distinct ruling on natural justice means no ratio is established on that procedural point in this decision; the point remains unadjudicated in substance (obiter with respect to the decision's outcome). Conclusion: The Tribunal did not decide the natural justice contention separately; the penalty was quashed on substantive grounds (agent status, reasonable cause, inadequate appreciation of evidence) without reliance upon a finding of procedural infirmity. Overall Disposition The Tribunal allowed the appeal, quashed the penalty imposed under section 271B, and directed deletion of the penalty on the basis that the assessee's factual position (authorized dealer/commission agent relationship corroborated by the principal), first-year status and bona fide belief constituted reasonable cause under section 273B and that the lower authorities failed to appreciate material evidence or give cogent reasons for rejecting the explanation. The Tribunal relied upon co-ordinate bench precedent of similar factual matrix as persuasive support for its decision.