No Income Tax Penalty u/s 44A and 44B if the Commission receipt falls below Threshold Limit: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi Bench recently in an appeal held that penalty would not be imposed under Section 44A and 44B Income Tax Act, 1961 if the commission receipt of assessee were below the threshold limit of the relevant assessment year.

Assessee Devki Nandan Bindal is a small taxpayer and was engaged in cheque/ draft discounting activity on a commission basis. He filed the appeal against the order passed by the CIT (A) by confirming the order of the Assessing officer. While passing the assessment order relevant to Assessment Year 2005-06, AO found Fifty Three crore turnover of the assessee and which exceeds the threshold provided by Section 44AA of the Income Tax Act and he required the details of the accounts under Section 44AB and imposed a penalty.

The contention of the assessee is that he was engaged in cheque/draft discounting activity on a commission basis and he gets a commission from rendering such services so according to Negotiable Instrument Act 1886, he acted as a payee in favour of another person. Hence it was always maintained in his books of accounts.

R.S. Yadav, for revenue, relied upon the decision of the CIT (A) that the penalty imposed by the AO by invoking under section 271A and  271B of the Income Tax Act were correct.

As per the circular issued by the CBDT on 17th March, 1986 which addresses the question of applicability of Section 44AB in the case of commission agents/arhatias. The board has clarified that the turnover does not include the sales affected on behalf of the principals and only the gross commission has to be considered for Section 44AB of the Income Tax Act. Hence assesse’s  case does not come under this purview.

The Division bench of ITAT Delhi comprising Pradip Kumar Kedia, Accountant Member, and Diva Singh, Judicial Member allowed the appeal and held that “The commission being turnover/receipt for 44AA and 44AB, which is far below the threshold limit prescribed for the relevant assessment year, the assessee cannot be treated as assessee in default in terms of S. 271A and S. 271B of the Act”.

To Read the full text of the Order CLICK HERE

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