Santosh Kumar v. ITO [ITA No. 1093/JP/2019, dt.
3-7-2020] : 2020 TaxPub(DT) 2728 (Jp.-Trib.)
Reckoning of turnover, how to be applied in case of intra
day trade for section 44AB -- Levy of penalty under section 271B thereof
Facts:
Assessee was in the business of speculation business in
metals doing both delivery and non-delivery transactions. Assessing officer
alleged that the total of the non-delivery speculative transactions exceeded
tax audit limits under section 44AB that since no books and audit was obtained
penalty was imposed under section 271A and 271B. On higher appeal Commissioner
(Appeals) annulled the penalty of section 271A but sustained penalty under
section 271B. On higher appeal --
Held in favour of the assessee that the turnover in the
case of intra-day trade or speculative transactions is to be taken at net basis
as no physical delivery of goods/shares happens in such business. For delivery
based business the turnover to be reckoned in a normal business for its money
value of risks and rewards transferred. For non-delivery speculative business
it is only settlement of the difference which forms the turnover for reckoning
limits under section 44AB. Penalty under section 271B was thus quashed.
Though the turnover in case of speculative transactions is
not defined in the income tax Act for the purpose of section 44AA and 44AB of
the Act and however, the guidance note on tax audit under section 44AB of the
IT Act issued by the Institute of chartered Accountant of India (ICAI) would be
relevant on this point. We find that this Tribunal in case of Shri Rajjak
Ahmed Khan v. ITO in ITA No. 1181/JP/2019 vide Order, dated 13-1-2020
: 2020 TaxPub(DT) 1410 (Jp-Trib) has considered the same.
Once these transactions are non-delivery based intra-day
transactions and classified as speculative transaction as per the provisions of
section 43(5) of the Income Tax Act, then the turnover in respect of these
transactions has to be determined as per the Guidance Note issued by the
Institute of Chartered Accounts of India. For ready reference, we reproduce the
relevant part of the Guidance Note in para 5.14 as under :--
"Guidance Note on Tax Audit
under section 44AB of the Income Tax Act, 1961.
5.14. The turnover or gross
receipts in respect of transactions in shares, securities and derivatives may
be determined in the following manner :--
(a) Speculative transaction :
A speculative transaction means a transaction in which a contract for the
purchase or sale of any commodity, including stocks and shares, is periodically
or ultimately settled otherwise than by the actual delivery or transfer of the
commodity or scrips. Thus, in a speculative transaction, the contract for sale
or purchase which is entered into is not completed by giving or receiving
delivery so as to result in the sale as per value of contract note. The
contract is settled otherwise and squared up by paying out the difference which
may be positive or negative. As such, in such transaction the difference amount
is 'turnover'.
In the case of an assessee
undertaking speculative transactions there can be both positive and negative
differences arising by settlement of various such contracts during the year.
Each transaction resulting into whether a positive or negative difference is an
independent transaction. Further, amount paid on account of negative difference
paid is not related to the amount received on account of positive difference.
In such transactions though the contract notes are issued for full value of the
purchased or sold asset the entries in the books of account are made only for
the differences. Accordingly, the aggregate of both positive and negative
differences is to be considered as the turnover of such transactions for
determining the liability to audit vide section 44AB."
The turnover has not been defined in the Income Tax Act and
particularly in respect of the speculative transactions in shares and
securities. Therefore, the Guidance Note of ICAI is a relevant and proper
guidance for determining the turnover in respect of such speculative transactions.
As it is clear from the Guidance Note issued by the ICAI that the turnover in
respect of non-delivery based speculative transactions including stock and
shares has to be determined by taking the aggregate of both positive and
negative differences arising from such transactions and as an outcome of
settlement of such contracts during the year.