Where assessee had failed to get his account audited under section 271B, imposition of penalty under section 271B was justified and the assessee was precluded from contending that his case was akin to a share brokers and only the net income, i.e., commission receipt was required to be considered to compute the ceiling prescribed under section 44AB because he was providing accommodation entries to entry seekers on principal-to-principal basis and therefore could not be treated as a stock broker.

Assessee was engaged in providing accommodation entries to entry seekers against the receipt of commission from them. AO alleged that the assessee had not filed audit report during the relevant years and imposed penalty under section 271B. The assessee assailed imposition of penalty contending that he was not required to get his account audited because his case was akin to the share brokers and therefore only the commission should be considered as receipts of the assessee and not the purchase/sale value of shares, as done by AO to compute the ceiling prescribed under section 44AB. Held: Contention of the assessee was unacceptable because a share broker only facilitates the share transaction of the clients through the stock exchanges and the dealings in shares are made through the stock exchanges, whereas the assessee had himself received the money through the entry seekers in his control and in exchange thereof had issued cheques. Since the transactions were principal to principal basis and not as an agent, therefore, the gross amounts received in connection with entry business were rightly considered by AO to compute the prescribed ceiling limit required to get the accounts audited in terms of section 44AB.

Decision: Against the assessee.

Distinguished: R. Wadiwala & Co. v. Asstt. CIT (2001) 72 TTJ 34 (Ahd-Trib).

IN THE ITAT, MUMBAI BENCH

D.K. AGARWAL, J.M. & RAJENDRA SINGH, A.M.

Mukesh Choksi v. ACIT

ITA Nos. 2299 to 2301/M/2010

11 February, 2011

Referred:

R.Wadiwala & Co. v. ACIT (2001) 72 TTJ 34 (Ahd-Trib)

Appellant by: Darmesh D. Shah

Respondent by: R.S. Srivastav

Rajendra Singh, A.M.

These appeals by the assessee are directed against common order dated 8-2-2010 of Commissioner (Appeals) for the assessment years 2002-03, 2006-07 and 2007-08. The common dispute raised in all these appeals is regarding levy of penalty of Rs. 1 lac by the assessing officer in each of the years involved which has been confirmed by the Commissioner (Appeals).

2. Briefly stated facts of the case are that there was a search conducted in case of one Shri Hitesh M. Bagthariya on 28-6-2006 during the course of which in his statement recorded under section 132(4) he had stated that he was an entry operator and he used to arrange cheques of M/s. Mahasagar Securities Pvt. Ltd. and M/s. Goldstar Finvest Pvt. Ltd. It was also stated by him that Mr. Mukesh Chowkshi, the assessee in this appeal, had floated various companies including his personal capacity for providing accommodation entries to the entry seekers. A survey under section 133A was also carried out on the same day at the business premises of Mr. Mukesh Chowkshi and his concern M/s. Mahasagar Securities Pvt. Ltd. Shri Chowkshi at the time of survey admitted that the following companies had been operating at the address and they were engaged in providing accommodation entries :–

(i) M/s. Goldstar Finvest (P) Ltd.

(ii) M/s. Richmond Securities (P) Ltd.

(iii) M/s. Alliance Intermediateries (P) Ltd.

(iv) M/s. Mahasagar Securities (P) Ltd. (formerly known as Richmond Securities (P) Ltd.

(v) M/s. Alpha Chemie Trade Agency (P) Ltd.

(vi) M/s. Mihir Agencies (P) Ltd.

(vii) M/s. Talent Infoway (P) Ltd.

(viii) M/s. Buniyad Chemicals Ltd.

(ix) Mukesh Chowkshi, Individual

3. The assessing officer noted that the modus operandi adopted by the assessee was that he first received cash from entry seekers which were deposited in the bank account of one of the group companies and after depositing the cash in the bank accounts, a cheque was issued and the equal amount in favour of entry seekers. The assessee thus returned the cash of the entry seekers in the guise of cheque after retaining commission. The assessee had filed returns of income for the assessment years 2002-03, 2006-07 and 2007-08 on 14-7-2008, 16-4-2008 and 17-4-2008 respectively. From perusal of the said returns the assessing officer noted that the said returns filed in Form No. 2D did not contain the audited accounts and audit report in Form No. 3CD. During the assessment proceedings however the assessee had filed copy of profit and loss account for all the years and the sundry receipts declared in these returns were Rs. 2,01,84,742, Rs. 2,89,74,988 and Rs. 1,68,51,132 respectively for the three years under reference. The assessing officer observed that under the provisions of section 44AB the assessee was required to get the accounts audited by the accountant and furnish the copy of the same to the assessing officer within the specified date which was the due date of filing the return of income under section 139(1), i.e., 31st day of October of the relevant assessment year. Since the assessee had failed to get its accounts audited and furnish a copy of the same before the specified date the assessing officer initiated penalty proceedings under section 271B of the Income Tax Act by issuing the show-cause notice dated 25-5-2009. In response to the show cause notice the Authorized Representative of the assessee filed a reply dated 9-6-2009 stating that all the tax audit reports and other relevant documents were filed along with return of income and therefore no penalty should be levied. The Authorized Representative who appeared before the assessing officer was confronted with the returns filed by the assessee to point out that the returns were not accompanied with tax audit report. The Authorized Representatives however did not offer any comments in the matter. The assessing officer also observed had the accounts been audited the assessee would have produced a copy of the same during the course of penalty proceedings or even the Chartered Accountant could have produced the record to show that the accounts were actually audited which was not done in this case. The assessing officer therefore concluded that the accounts were not audited and the audit report had not been furnished within due date. He therefore levied the penalty of Rs. 1 lac in each year under section 271B of the Income Tax Act.

4. In appeal the assessee submitted that he was engaged only in the business of providing accommodation entries to the entry seekers and was earning commission there from @ 0.15%. The commission earned was therefore much less the limit of Rs. 40 lacs for compulsory audit of accounts. It was also submitted that the amount received by the assessee belonged to the entry seekers and hence the same could not be regarded as the receipt of the assessee. His position was identical to that of share broker who earned commission on share transactions. The assessee referred to the decision of Ahmedabad Bench of the tribunal in case of R.Wadiwala & Co. v. ACIT (2001) 72 TTJ 34 (Ahd-Trib)  in which the tribunal had held that turnover of dealing in shares made on behalf of the various buyers and sellers of shares was not includable in the turnover for the purpose of section 44AB. It was pointed out that the assessing officer himself had not initiated penalty proceedings in the earlier years and that the assessing officer had not issued defect memo under section 139(9) of the Income Tax Act for defect in the return. The assessee also referred to the CBDT Circular No. 452, dt. 17-3-1986 in which the Board had clarified that in case of Kaccha Arathia only the commission was to be considered for the purpose of determining the applicability of section 44AB. Commissioner (Appeals) however did not accept the contentions raised. It was noted by him the assessee had taken conflicting stands. During the penalty proceedings the assessee had admitted his liability to get the accounts audited but during the appellate proceedings a different stand was taken that he was not liable to get the accounts audited. It was observed by him that the provisions of section 44AB were very clear which referred to total sale, turnover or gross receipts for the purpose of ceiling of Rs. 40 lacs. Thus the essence of section 44AB was gross receipts and not the element of income. He distinguished the decision of tribunal in case of R.Wadiwala & Co. v. ACIT (supra) on the ground that the same related to share transactions which were completely different from issuing accommodation bills. Moreover in that case genuineness of share transactions was not in doubt whereas in the present case the transaction was not genuine. The tribunal in that case had also held that the assessee was under bonafide belief that the provisions of section 44AB was not applicable which was not so in the present case. Referring to the CBDT Circular No. 452Commissioner (Appeals) observed that it did not lay down any general principle regarding the ceiling of Rs. 40 lacs and that the same was restricted to only Kaccha Arathia. Further the circular also stated that each transaction was required to be examined with reference to the terms and conditions of that case and no hard and fast rules would be laid down as to whether a person was acting only an agent or principal. There was therefore violation of provisions of section 44AB in this case and Commissioner (Appeals) accordingly confirmed the penalties levied by the assessing officer. Aggrieved by the said decision the assessee is in appeal in all the three years.

5. Before us the learned AR for the assessee reiterated the submissions made before lower authorities that audit had been conducted and audited accounts had been filed with the return of income. It was also pointed out that in other years audited accounts had been filed and no penalty had been imposed. The learned AR also filed affidavit dated 7-2-2011 both from the assessee and the CA Shri S.M. Bhatt and requested that the same may be admitted. In that affidavit the assessee has stated that the Chartered Accountant Mr. Bhatt had informed him that audit reports were filed along with returns of income and that he had carried out the audits for all the years. Shri S.M. Bhatt the CA in the affidavit has stated that he had issued the audit reports within the specified time and the same were filed with return of income for all the years. It has also been stated that when he was informed that the audit reports were not available on record he had requested the assessing officer to verify the records pertaining to the original return of income or other reports where report may have been kept and had volunteered to file the report during the penalty proceedings. It was requested that the additional evidence should be admitted and the matter may be referred to assessing officer for verification and fresh orders.

6. We have to first deal with the admissibility of the additional evidence. The provisions for admitting additional evidence are contained in rule 29 of ITAT rules. As per the said rule the parties are not entitled to produce additional evidence which can be admitted only if the tribunal requires any document to be produced or witness to be examined or an affidavit to be filed to enable it to pass order or for any other substantial cause or if the Income Tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them. In this case there is no case made out that sufficient opportunity had not been given by the authorities below to adduce any evidence. The assessing officer had issued show cause notice as to why penalty should not be imposed for non-compliance of provisions of section 44AB. The assessee had also been confronted with the original returns filed which showed that no audited accounts had been filed. The assessee had also opportunity to file any additional evidence or any affidavit before the Commissioner (Appeals) which had also not been done. We have also no difficulty in deciding the issue on the basis of material available on record because filing of audited accounts could be easily verified from the records which have already been gone into by the authorities below and the assessee has not produced any acknowledgment receipt etc even at this stage. Even if these affidavits are admitted in our view these are not going to serve any purpose other than delaying the proceedings as these only contain the points made before the lower authorities. The additional evidences are therefore not admitted.

7. We have therefore to decide the appeals on the basis of material available on record. Under the provisions of section 44AB in case the total sales/turnover/gross receipts of the business exceeds Rs. 40 lacs the assessees are required to get the accounts audited compulsorily and furnish the same to the assessing officer within the due date of filing the return of income under section 139(1). In this case the assessee had filed returns of income but no audited accounts or audit report had been enclosed with the return. The assessing officer had therefore initiated penalty proceedings under section 271B. The assessee had been given opportunity to explain the matter. The assessing officer had shown the original returns to the assessee to explain as to how the audit reports were contained there in but the AR of the assessee could not offer any comments. The learned DR has rightly pointed out that in the return of income there is column for mentioning the documents enclosed with the returns and had the audit reports been enclosed with the returns, the learned AR for the assessee could have easily pointed out the same. Moreover the assessee could have also produced records of the auditor to show that accounts were actually audited which has also not done. It is interesting to note that the auditors were also the Authorized Representative of the assessee in the penalty proceedings. But they did not even file the copy of the audited accounts and audit reports even during the penalty proceedings. Considering the entirety of facts and circumstances we have to hold that the authorities below had rightly concluded that no audited accounts and audit reports had been filed by the assessee. We also note that under section 44AB the audited accounts were required to be furnished to the assessing officer within 31st October of the relevant assessment year and even if the assessee’s conversion was to be accepted for the sake of arguments that the audit reports had been filed with the return of income these had been filed much after the due date, i.e., 31st October of the relevant assessment year. Therefore in our view the assessee had committed default for which penalty was leviable.

8. The assessee had also raised some legal issues before Commissioner (Appeals) that the assessee was not liable for audit. It was submitted that the case of the assessee was akin to the share brokers and therefore only the commission should be considered as receipts of the assessee and not the purchase/sale value of shares. In our view the claim had been rightly rejected by the Commissioner (Appeals). A share broker only facilitates the share transaction of the clients through the stock exchanges and the payment/receipts for purchase/sale of shares are made through the stock exchanges. In case of the assessee he had himself received the money through the concerns in his control and in exchange thereof had issued cheques. Therefore the transaction was principle to principle basis and not as agent. Therefore in our view in case of the assessee gross amounts received in connection with entry business have to be considered for the purposes of ceiling of Rs. 40 lacs under section 44AB. The Circular No. 452 of the CBDT relied upon by the assessee is also distinguishable as the same related to kachha arithia. The decision of the tribunal in case of R.Wadiwala & Co. v. ACIT (supra) is obviously distinguishable as the same related to share transactions and not accommodation bills. It may also be pointed out that the assessee has not raised any ground that he was not liable for audit under section 44AB. The arguments advanced are therefore rejected.

9. In view of the foregoing discussion and for the reasons given earlier we agree with the findings of the authorities below that the case of the assessee was covered under section 44AB and the accounts were required to be audited and audit reports were required to furnished within the prescribed date which had not been done. Penalties were therefore leviable and the same had been rightly levied by the authorities below. The order of Commissioner (Appeals) is accordingly upheld.

10. In the result all the appeals of the assessee stand dismissed.