Taxpublishers.in - Monday Corner Answer to the Quiz for the week (07 Apr 2025)

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Quiz for the week (07 Apr 2025): Dinakar engaged in running a departmental store, for the financial year 2024-25 has business loss of Rs. 15 lakhs on a turnover of Rs.3.50 crores. During the financial year 2024-25, he commenced trade in futures and options (F&O) and earned profit of Rs.30 lakhs (turnover Rs.6 crores). He wants to furnish the ITR for the assessment year 2025-26, by availing the proviso to section 44AB(a) which he is eligible in respect of both the businesses. How much is his total income for the assessment year 2025-26? Best Answer : Section 44AB is applicable in the case of every person carrying on business if his total sales, turnover or gross receipt exceeds Rs.1 crore in any previous year. The proviso to the section says that where the aggregate of all amounts received including amount received for sales, turnover etc in cash does not exceed 5% of the said amount and aggregate of all payments made including amounts incurred for expenditure in cash, during the previous year does not exceed 5% of the said amount, the limit for tax audit requirement shall be construed as Rs.10 crore instead of Rs.1 crore. The query clearly says that the assessee wants to furnish the ITR by availing the proviso to section 44AB(a) which means his aggregate of receipt and payment by cash is less than 5%. As regards loss from departmental store run by the assessee, the issue is whether such loss can be set off against profit from trade in futures and options. One would be inclined to refer to section 43(5)(d) which says that an ‘eligible transaction’ in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. Thus, the income from futures and options of the assessee of Rs.30 lakhs is to be regarded as regular business income and not as speculation business income. The aggregate turnover is also given in the query i.e. Rs.3.50 crore in the case of departmental store and Rs.6 crore by way of trade in futures and options. Thus, the aggregate turnover has not exceeded Rs.10 crores. The assessee hence need not get the books of account audited and the net income after intra head set off would be Rs.15 lakhs (i.e. Rs.30 lakhs profit from futures and options less Rs.15 lakhs being loss from running a departmental store). The two issues embedded in the query hence to be answered as under: (i) As the aggregate turnover is less than Rs.10 crores in respect of both the businesses and the receipts / payments in cash being less than 5% of such receipts / payments the accounts need not be audited under section 44AB; and (ii) The income from futures and options is non speculative business income against which loss from departmental store is eligible for set off. The resultant net income is Rs.15 lakhs. One would be tempted to say that income from speculation business could be scaled down by set off of loss from non-speculative business. Therefore, even if the assessee is engaged in intra-day trade and made profit of Rs.30 lakhs (being speculation business income) the loss from running of departmental store (being non-speculative) would still be eligible for set off.

Quiz for the week (07 Apr 2025):

Dinakar engaged in running a departmental store, for the financial year 2024-25 has business loss of Rs. 15 lakhs on a turnover of Rs.3.50 crores. During the financial year 2024-25, he commenced trade in futures and options (F&O) and earned profit of Rs.30 lakhs (turnover Rs.6 crores). He wants to furnish the ITR for the assessment year 2025-26, by availing the proviso to section 44AB(a) which he is eligible in respect of both the businesses. How much is his total income for the assessment year 2025-26?

Best Answer :

Section 44AB is applicable in the case of every person carrying on business if his total sales, turnover or gross receipt exceeds Rs.1 crore in any previous year. The proviso to the section says that where the aggregate of all amounts received including amount received for sales, turnover etc in cash does not exceed 5% of the said amount and aggregate of all payments made including amounts incurred for expenditure in cash, during the previous year does not exceed 5% of the said amount, the limit for tax audit requirement shall be construed as Rs.10 crore instead of Rs.1 crore.

The query clearly says that the assessee wants to furnish the ITR by availing the proviso to section 44AB(a) which means his aggregate of receipt and payment by cash is less than 5%. As regards loss from departmental store run by the assessee, the issue is whether such loss can be set off against profit from trade in futures and options.

One would be inclined to refer to section 43(5)(d) which says that an ‘eligible transaction’ in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. Thus, the income from futures and options of the assessee of Rs.30 lakhs is to be regarded as regular business income and not as speculation business income.

The aggregate turnover is also given in the query i.e. Rs.3.50 crore in the case of departmental store and Rs.6 crore by way of trade in futures and options. Thus, the aggregate turnover has not exceeded Rs.10 crores.

The assessee hence need not get the books of account audited and the net income after intra head set off would be Rs.15 lakhs (i.e. Rs.30 lakhs profit from futures and options less Rs.15 lakhs being loss from running a departmental store).

The two issues embedded in the query hence to be answered as under:

(i) As the aggregate turnover is less than Rs.10 crores in respect of both the businesses and the receipts / payments in cash being less than 5% of such receipts / payments the accounts need not be audited under section 44AB; and

(ii) The income from futures and options is non speculative business income against which loss from departmental store is eligible for set off. The resultant net income is Rs.15 lakhs.

One would be tempted to say that income from speculation business could be scaled down by set off of loss from non-speculative business. Therefore, even if the assessee is engaged in intra-day trade and made profit of Rs.30 lakhs (being speculation business income) the loss from running of departmental store (being non-speculative) would still be eligible for set off.