Mahamud vs ITO, Ward3(2)(3)

PER MANISH AGARWAL, AM :

The present appeal is filed by assessee against the order dated 17.09.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2017-18/10294264 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 25.03.2023 passed u/s 147 r.w.s. 144B of the Act pertaining to Assessment Year 2018-19.

At the time of hearing, no one attended the proceedings on behalf of the assessee. Therefore, this appeal is decided on the basis of material available on record and after hearing Ld. Sr. DR for the Revenue.

Brief facts of the case are that the case of the assessee is re-opened u/s 147 for the reasons that the assessee has made cash deposits of INR 88,910/- and made withdrawals of INR 1,67,12,100/- from the bank account maintained with Axis Bank however, no return of income was filed. Thereafter, notice u/s 148 of the Act was issued on 25.03.2022 followed by various notices from time to time which were duly replied by the assessee. The claim of the assessee was that he was proprietor of M/s Malik Trading Company at Naveen Mandi Sthal, Devband where he is doing business of gur as “Kaccha Aarthia”. The assessee filed copies of the bank accounts and cash flow statement and fund flow statements. The assessee further submits that cash withdrawals have been utilized for making purchases. However, AO has not accepted the claim of the assessee by observing that only meagre profit is shown as against 30% normal profit in the sale of Gur and after considering the overall facts and also considering the fact that assessee has failed to prove the genuineness of cash purchases of INR 1,24,53,380/-, the AO has applied 8% profit rate of total turnover of INR 1,93,93,422/- and after reducing the income of INR 2,49,912/- declared and net income of 13,01,561/-was added in the hands of the assessee. Accordingly, the assessment was completed u/s u/s 147 of the Act at a total income of INR 15,51,472/-. The AO also invoked penalty proceedings u/s 271B of the Act for not getting the books of accounts audited u/s 44AB of the Act and thereafter, the AO proceeded to complete the penalty proceedings so initiated and in terms of the order passed u/s 271B dated 08.09.2023 levied the penalty of INR 96,967/- being 0.50% of the total turnover by holding that the assessee has failed to get his accounts audited though his total turnover exceeds the limits prescribed u/s 44AB of the Act.

Against the said order, the assessee went in appeal before the Ld. CIT(A) who vide impugned order dated 17.09.2025, has enhanced the penalty at INR 1,50,000/- levied u/s 271B of the Act.

Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.

Ld. Sr. DR for the Revenue supported the orders of the lower authorities and submits that since the assessee is having total turnover of 1,93,93,422/-therefore, he is obliged to get his accounts audited as provided u/s 44AB of the Act which was not done therefore, the AO has rightly levied the penalty u/s 271B of the Act which deserves to be upheld.

Heard the contention of Ld. Sr. DR for the Revenue and perused the material available on record. It is an admitted fact that assessee was doing a Adat business of Gur in the capacity of “Kaccha Aarthia” and during the year under appeal, the assessee has consignment turnover of INR 1,93,93,422/- trading from the trading of Gur on which it has declared income as per the return of income filed where commission income was declared. As per Explanation (b) of section 44AB of the Act, the definition of eligible business refers where the turnover or gross receipts does not exceed the amount of INR 2.00 crores. In the instant case, the assessee has been declared his income u/s 44AD of the Act being a “Kaccha Aarthia” and received commission. When there is no doubt on the set of the facts available, that the assessee could not be a “Kaccha Arathia” but was a “Kaccha Arathia” such a doubt in the present transaction itself shows that there is a reasonable cause for failure to get his account audited u/s 44AB of the Act. The gross commission received from the aforesaid business as turnover is much below than the limits prescribed u/s 44AB of the Act, we hold that the provisions of section 44AB of the Act were not attracted in his case. The CBDT Circular No. 452 [F. No. 201/3/85-IT(A- II)], dated 17-3-1986 also supports our view which in cases of “Kaccha Arathia” has advised that the turnover did not include sales effected on behalf of the principals and only gross commission has to be considered for the purpose of section 44AB. The relevant extract of which is reproduced as follows:

The income of a “Kaccha Arathia” is commission ranging between 0.25 % to 2% depending upon the commodity traded. In view of above, we are of the opinion that assessee has “reasonable cause” as provided in section u/s 271B, hence, he cannot be penalized. In the result, we reverse the finding of the lower authorities and direct the AO to delete the penalty levied u/s 271B of the Act.

In the result, the appeal of the assessee is allowed.