ORDER
H.L. Karwa, Judicial Member.
1. This appeal by the Revenue is directed against the order of the CIT(A), Jalandhar dated 17-1-1997 cancelling penalty of Rs. 42,205 levied by the Assessing Officer under section 271B of the I.T. Act, 1961.
2. The relevant facts of the case are that the assessee filed its return of income on 20-10-1995 declaring total income at Rs. 11,604. On verification of return submitted by the assessee, the Assessing Officer found that the only source of assessee’s income was commission and same was shown at Rs. 3,14,113. The Assessing Officer also noticed that the assessee had credit of the T.D.S. amounting to Rs. 1,12,785. It was further noticed by the Assessing Officer that the assessee had received payments on account of freight from various parties aggregating to Rs. 57,47,422 including the T.D.S. amount of Rs. 1,12,785. The Assessing Officer issued a notice to the assessee to show as to why it had not declared gross freight receipts in the profit and loss account, which was filed alongwith the return of income. In response to said notice, the assessee vide its letter dated 8-2-1996 stated that it is a transport booking agent and commercial vehicles/trucks are being arranged from the market for carrying goods to different places and in lieu of these services, normal commission was being charged from the said truck owners which was shown in the profit and loss account as commission income. In support of above, the assessee furnished a copy of commission account, freight and octroi account and also addresses of those parties for whom such freight work was done. It was further staled that the parties whose goods are mainly handled are M/s. JCT Ltd., Hoshiarpur, M/s. Mahavir Spinning Mills Ltd., Hoshiarpur, M/s. Hawkins Cookers Ltd., Hoshiarpur and M/s. OPT Engg. Consultants Pvt. Ltd., New Delhi. It was also claimed that whatever freight is charged from these parties by the assessee is paid to the individual truck owners who actually carried the goods and they are only charged commission for arranging the booking of their trucks. According to the Assessing Officer, the total freight charges earned by the assessee during the year under consideration was at Rs. 31,26,913 while the gross receipts as per the T.D.S. certificate accompanying the return of income including the amount of T.D.S. were at Rs. 57,47,422. He, therefore, took the view that the gross receipts of the assessee during the year under consideration exceeded a sum of Rs, 40 lacs, therefore, as per the provisions of section 44AB, the assessee was required to get its accounts audited and obtain the report of such audit before me specified time, but the assessee had not audited its accounts. For this failure, the Assessing Officer initiated
penalty proceedings under section 271B of the Act and also issued a show cause notice to the assessee. After taking into consideration the assessee’s reply to the show cause notice, the Assessing Officer levied a penalty of Rs. 42,205 under section 271B of the Act.
3. When the matter was carried in appeal to the CIT(A), it was submitted by the assessee before him that the facts of the case are similar to Kuchha Arhatia and, therefore, even the turnover does not include the sales effected on behalf of the Principals and only the gross commission has to be considered for the purpose of section 44AB. It was also submitted that the assessee had not transferred any goods or property to someone else. Accordingly, it was submitted by the assessee before the CIT(A) that as per the Board’s Circular, the provision of section 44AB of the Income-tax Act, are not applicable to the Kuchha Arhatia. Alternatively, the assessee also contended before the CIT(A) that it was prevented by sufficient cause in not getting its accounts audited under section 44AB of the Act.
4. The learned CIT(A) noticed from the assessment order passed by the Assessing Officer under section 143(3) of the Act that he has accepted the assessee’s declared commission income of Rs. 11,600 and accordingly, the CIT(A) has held that there is no controversy regarding the nature of assessee’s business. The learned CIT(A) has also considered the decision of the Hon’ble Supreme Court relied upon by the assessee in the case of Hindustan Steel Ltd v. State of Orissa [1972] 83 ITR 26 and Motilal Padampat Sugar Mills Co. Ltd, v. State of Uttar Pradesh [1979] 118 ITR326. Thus after considering the entire facts and the circumstances of the case, the CIT(A) took the view that the assessee was prevented by sufficient cause in not furnishing the audit report alongwith its return of income. He accordingly deleted the penalty imposed by the Assessing Officer.
5. Before us, Shri S.C. Pahwa, the learned D.R. strongly supported the order of the Assessing Officer and he further submitted that the learned CIT(A) was not justified in relying upon the decision of the Hon’ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. (supra). According to him, the assessee cannot take this plea that he does not know the law of the land. He, therefore, submitted that considering the assessee’s nature of business and the gross freight receipts earned during the year under consideration, the assessee was required to get its accounts audited as provided in section 44AB. The net contention of the learned D.R. was that in this case the assessee has miserably failed to prove that there was reasonable cause for the said failure. He, therefore, submitted that the Assessing Officer was fully justified in imposing the penalty under section 271B of the Act. He accordingly urged that the order of the learned CIT(A) may be set aside and that of the Assessing Officer may be restored.
6. Shri V.K. Malhotra, Advocate, while appearing for the assessee, supported the order of the learned CIT{A) and he further submitted that the
question as to whether the freight charged by the assessee from different parties and paid by it to the individual truck owners is assessee’s own receipt of not is a question subject to debate and hence the assessee could be said to be under a bona fide belief that such receipts were not its own receipts and, it was not liable to get its accounts audited. He, therefore, submitted that there was reasonable cause for the assessee in not getting its accounts audited under section 44AB. While relying on the decision of the Gujarat High Court in the case of Rajkot Engg. Association v. Union of India [1986] 162 ITR 28, the learned counsel submitted that the expression “reasonable cause” should be interpreted in a liberal manner so as to advance the cause of justice.
6.1 Without prejudice to the above submissions, as an alternative submission, the learned counsel for the assessee submitted that there are various trade practices prevalent in the country in regard to agency business and no uniform pattern is followed by the commission agents, consignment agents, brokers’ Kuchha Arhatias and Pucca Arhatias dealing in different commodities in different parts of the country. While relying on the CBDT Circular No. 452 dated March 17, 1986, the learned counsel for the assessee submitted that as per the said Circular, so far as Kuchha Arhatias are concerned, the turnover does not include the sales effected on behalf of the Principals and all the gross income has to be considered for the purpose of section 44AB. He accordingly submitted that in the instant case the provisions of section 44AB are not attracted. Reliance was also placed on the decision of the ITAT, Pune Bench in the case of ITO v. Shantilal Chunital & Co. [1993] 46 TTJ 650.
6.2 The alternative contention of the learned counsel for the assessee was also that when there is no difference between the income filed as per the return and the income assessed, the default under section 271B should be considered as technical in nature. He further pointed out that the different Benches of the ITAT has held that penalty under section 271B is not automatic or mandatory and cannot be mechanically levied.
In view of the above submissions, the learned counsel for the assessee submitted that the learned CIT(A) was fully justified in deleting the penalty.
7. We have carefully considered the rival submissions and have also gone through the orders of the authorities below. The decisions cited at the time of hearing of the appeal were also duly considered by us. We find that the CBDT vide its Circular No. 452 dated 17-3-1986 regarding the applicability of section 44AB in the cases of commission agents, arhatias etc. provided certain clarifications, which are as follows :–
“4.(i) A kuchha arhatia acts only as an agent of his constituent and never acts as a principal. A pucca arhatia, on the other hand, is
entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his personal account and, thus, he acts as a principal as regards his constituent;
(ii) A kuchha arhatia brings a privity contract between his constituent and the third party so that each becomes liable to the other. The pucca arhatia, on the other hand, makes himself liable upon the contract not only to the third party but also to his constituent;
(III) Though the kuchha arhatia does not communicate the name of his constituent to the third party, he does communicate the name of the third party to the constituent. In other words, he is an agent for an unnamed principal. The pucca arhatia, on the other hand, does not inform his constituent as to the third party with whom he has entered into a contract on his behalf;
(iv) The remuneration of a kuchha arhatia consists solely of commission and he is not interested in the profits and losses made by his constituent as is not the case with the pucca arhatia;
(v) The kachha arhatia unlike the pucca arhatia does not have any dominion over the goods;
(vi) The kuchha arhatia has no personal interest of his own when he enters into a transaction and his interest is limited to the commission agent’s charges and certain out of pocket expenses whereas a pucca arhatia has a personal interest of his own when he enters into a transaction;
(vii) In the event of any loss, the kuchha arhatia is entitled to be indemnified by his principal as is not the case with pucca arhatia.”
Vide para 5 of the said Circular, the Board has further clarified that in the case of agent, whose position is similar to that of kuchha arhatia, the turnover is only the commission and does not include the sales on behalf of the Principals. In the instant case, it is clear that the assessee’s business is of a transport booking agent. It is also an admitted position that trucks and other commercial vehicles are arranged from the market for carrying the goods to different places and in lieu of these services, the assessee was charging nominal commission from such truck owners. Such commission earned by the assessee has been shown in the Profit & Loss Account. It is also notable that the parties whose goods are mainly handled are M/s. JCT Ltd., Hoshiarpur, M/s. Mahavir Spinning Mills Ltd., Hoshiarpur and M/s. Hawkins Cookers Ltd., Hoshiarpur and whatever freight is charged from these parties by the assessee the same is paid to the individual truck owners, who actually carried the goods and they are only charged the commission for arranging the booking of their trucks. It is also an admitted fact that during the year under consideration, the assessee had declared an income of Rs. 11,600 and the Assessing Officer has accepted the assessee’s declared commission income. It is also not the case of the Revenue that the assessee was engaged in other trading activities. It is also not the case of the Revenue that the assessee was doing
the transport business or was having its own commercial vehicles. As we have already noted that the Board has clarified that in the case of agents, whose position is similar to that of kuchha Arhatia, the turnover is only the commission and does not include the sales on behalf of the principals. From the facts of the present case it is clear that the assesses is a transport booking agent and the turnover is only the commission received from truck owners and suppliers of goods and, therefore, it can be safely held that the assessee’s position is similar to that of Kuchha Arhatia. In the instant case, the Assessing Officer without appreciating the facts of the case has held that the provisions of section 44AB of the Act are applicable. In fact, he has not properly appreciated the facts of the case as well as the relevant provisions of law. Thus, in view of the Board’s Circular referred to above, the assessee was not required to audit its accounts under section 44AB of the Act. There is also force in this contention of the learned counsel for the assessee that whether the freight charged by the assessee from different parties and paid by it to the individual truck owners is assessee’s own receipt or not is a debatable issue and, therefore, the assessee was under a bona fide belief that such receipts were not its own receipts and it was not liable to get its accounts audited. In this view of the matter also, no penalty under section 271B can be levied.
8. It is also relevant to point out that in this case there is no difference between the returned income and the finally assessed income. The Assessing Officer has accepted the commission income declared by the assessee. Admittedly, there was no loss of revenue to the Government. As far as the levy of penalty under section 271B is concerned, the provisions are very clear, the Assessing Officer is vested with discretion either to impose or not to impose penalty depending upon the facts and the circumstances of the case. No doubt, it is true that the said discretion should be exercised judicially and not arbitrarily. It is well settled law that when there is a 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. Taking into consideration the relevant facts of the case, the Assessing Officer should not have imposed a penalty of Rs. 42,205 under section 271B of the Act. The Hon’ble Supreme Court in the case of Hindustan Steel Ltd. (supra) has held that:
“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.”
In view of the above also, no penalty under section 271B of the Act can be imposed in this case.
9. The result, therefore, is that there is no merit in this appeal and the same is accordingly dismissed.