Q : When the assessee is a licensed stamp vendor who is selling stamp received from treasury after deducting commission and therefore amount received against stamp is not a part of his sales and thus penalty imposed Under Section 271B should be deleted ?
The sale of stamp papers by licensed vendors is a Government assigned function to facilitate the stamp sales at various locations. The Government appoints licensed agents which are remunerated at a prescribed fee scale/commission, which is mentioned in the written submissions and the stamp rules. The stamps are sold by the assessee on behalf of the Government, which was further reflected by the fact that if the license was cancelled for any reason, all the unsold stamp, stamp papers, seals, etc., were to be returned to the treasury which are reimbursed and, thus, the Government retained over all control over the stamps. The CBDT Circular No. 452 and ICAI guidelines further corroborated the stand taken by the assessee. It cannot be denied that the assessee was under bona fide belief that his case was not liable to audit of the books as the value of stamp was not his turnover and he has a role of commission agent. Under these facts and circumstances, it was held that the assessee was under a bona fide belief of being not liable for audit of accounts under section 44AB, therefore, the penalty imposed under section 271B was deleted. [Para 7]
IN THE ITAT JAIPUR BENCH ‘SMC’
Prem Prakash Gupta
Income-tax Officer, Ward 6(2), Jaipur
IT APPEAL NO. 287 (JP.) OF 2014
[ASSESSMENT YEAR 2008-09]
JANUARY 29, 2015
Rajendra Kr. Gupta, CA for the Appellant. Mrs. Neena Jeph, Jt. CIT for the Respondent.
1. This is an appeal filed by the assessee against the order dated 17/12/2013 by the learned CIT(A)-II, Jaipur for A.Y. 2008-09. The sole ground of appeal raised is as under:—
“1. That the learned Commissioner of Income Tax (Appeal-II), Jaipur has erred in law as well as on the facts and circumstances of the case by sustaining imposition of penalty U/s 271B of Rs. 1,00,000/- for non conducting of tax audit U/s 44AB without considering the fact that the assessee is a licensed stamp vendor who is selling stamp received from treasury after deducting commission and therefore amount received against stamp is not a part of his sales and thus the said penalty imposed U/s 271B should be deleted.”
2. Learned counsel for the assessee contends that the assessee is a government appointed licensed vendor for sale of stamps. As per the Stamp Act, the assessee is eligible only to commission on the rates specified by the I.G. Stamps, which are mentioned in the written submissions. The relationship between the assessee and the government is not of seller and purchaser, which is evident from the provisions of Indian Stamp Act. Since the assessee’s commission did not exceed the prescribed limit provided by Section 44AB, the assessee did not get the accounts audited. The assessment also is framed U/s 143(3) merely making an addition of Rs. 27,000/-. The Assessing Officer, however, was of the view that total value of the stamps was assessee’s turnover and was liable for audit u/s 44AB, consequently issued notice for penalty U/s 271B. The assessee replied that it was eligible only to commission, the value of stamps was not his turnover, consequently the case was not covered by the provisions of Section 44AB as per Stamp Act as well as the CBDT circular No. 452 dated 17/03/1986. The Assessing Officer, however, held that the assessee is not a commission agent and was liable for audit u/s 44AB, penalty was imposed.
3. Aggrieved, the assessee preferred first appeal where penalty was confirmed by the learned CIT(A) by holding as under:—
“I have considered the facts of the case; penalty order and appellant’s written submission. Assessing Officer levied penalty under section 271B on the ground that appellant had turnover exceeding Rs. 40 lakhs but did not get accounts audited. Appellant submitted that he was working as stamp vendor on commission. He submitted that commission on stamp sale is fixed and has interest only to the extent of commission. He also referred CBDT circular on this issue which was also referred by Assessing Officer. As per the circular, if assessee is acting as Kachha arahtia, then his turnover will be restricted to commission income only but if he is acting as Pacca arahtia then the gross sale will be is his turnover. The appellant submitted that he was not taking any risk and selling stamp papers as per rate fixed by government therefore he was acting as Kachha arahtia only. As against this, A.O. mentioned that appellant was purchasing stamp papers and selling the same by realizing the full value. In case of spoilage of stamp papers, the money is not reimbursed by the government department and the loss on account of this is borne by the appellant. Considering this, appellant was acting as Pacca arahtia. I find substance in A.O’s argument. Although appellant was mainly earning commission income but he was also taking risk in the business and he was not holding stamp papers on behalf of government. Therefore, nature of his business appears to be of Pacca arahtia. Accordingly, he was supposed to get accounts audited under section 44AB. Violation of the same results in levy of penalty. Accordingly, Assessing Officer is justified in levy of penalty and the same is confirmed.”
4. Aggrieved, the assessee is in appeal before me.
5. The learned counsel for the assessee contends that never in the past or subsequent assessments sec. 44AB has been held to be applicable, it is further pleaded that:—
|(i)||The stamp and stamp papers are sold at all the treasuries in the state as per rule 14A & 14H of Stamp Act and by licensed vendors. In case where stamps are return by the licensee on his application for leave to restore any other stamps the value of stamps return shall be paid; if treasury officer is satisfied that the stamps returned are not spoiled or damaged and are in a fit condition for being reused.|
|(ii)||The CBDT by circular No. 452 dated 17/03/1986 has clarified that the above distinction between a kachha arahtia and a pacca arahtia may also be relevant for the determination the applicability of section 44AB in the case of other type of agents. In the case of agents whose position is similar to that of kachha arahtia, the turnover is only the commission and does not include sale value on behalf of the principal.|
|(iii)||The guidance note on Tax audit by ICAI is as under:|
|“The question may also arise as to whether the sales by a commission agent or by a person on consignment basis forms part of turnover of the commission agent and/or consignee as the case may be, in such a case it will be necessary to find out whether the property in the goods or all significant risks, reward of ownership of goods belongs to the commission agent or the consignee immediately before the transfer by him to third person. If the property in the goods or all significant risks and reward or ownership of goods continue to be belong to the principal, the relevant sale price shall not form part of sales/turnover of the commission agent and/or the consignee as the case may be. If, however, the property in the goods, significant risk and rewards of ownership belongs to the commission agent and/or the consignee as the case may be, the sale price received/receivable by him shall form part of his sales/turnover.”|
The guidance note on tax audit by ICAI also clarifies that from the legal status of the assessee, it never retains profits over the goods as the sale of stamps is a treasury function and merely a license is given to the assessee to facilitate to the sale of stamps on behalf of the government at agreed commission. Therefore, the assessee’s case is not covered u/s 44AB alternatively he was under bonafide belief that audit u/s 44AB was not required; the penalty may be deleted.
6. The learned Sr.D.R. supported the order of the lower authorities and contends that in case of stamp papers being damaged or spoiled, the corresponding amount is not reimbursed by the government, which is to be borne out by the assessee. This indicates that the property in goods i.e. stamps stood transferred to the assessee as contemplated by the Sale of Goods Act. The learned CIT(A) has rightly held that the assessee acting as a Pucca Arahtia.
7. I have heard the rival submissions of both the parties and perused the material available on the record. The sale of stamp papers by licensed vendors is a government assigned function to facilitate the stamp sales at various locations. The government appoints licensed agents which are remunerated at a prescribed fee scale/commission, which is mentioned in the written submissions and the stamp rules. The stamps are sold by the assessee on behalf of the government, which is further reflected by the fact that if the license is cancelled for any reason, all the unsold stamp, stamp papers, seals etc. are to be returned to the treasury which are reimbursed, thus the government retains over all control over the stamps. The CBDT circular and ICAI guidelines further corroborate the stand taken by the assessee. In any case, it cannot be denied that the assessee was any bona fide belief that his case is not liable to audit of the books as the value of stamp is not his turnover and has a role of commission agent. Under these facts and circumstances, I hold that the assessee was under a bona fide belief of being not liable for audit of accounts u/s 44AB; therefore, the penalty imposed u/s 271B is deleted.
8. In the result, the assessee’s appeal is allowed.