SHRI SANTOSH KUMAR ,BHARATPUR vs. INCOME TAX OFFICER, WARD-3, BHARATPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1093/JP/2019 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke Shri Santosh Kumar The ITO, Vs. S/o- Shri Hari Shanker Sharma Ward-3, Lahar Mandi, Bayana, Bharatpur. Bharatpur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AVGPK 8502 J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajendra Agarwal (C.A.) jktLo dh vksj ls@ Revenue by : Miss. Chanchal Meena (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 01/07/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 03/07/2020 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 24.06.2019 of ld. CIT(A), Alwar arising from the penalty order passed U/s 271B of the ACT for the assessment year 2010-11. The assessee has raised the following ground:-

“1. The ld. CIT(A) has erred in confirming penalty of Rs. 1,00,000/-“

Shri Santosh Kumar vs. ITO

We note that the Assessing Officer has proceeded on basis that the turnover of derivative more than Rs. 127 Cr. whereas total difference of positive and negative outcome of speculative transactions is only Rs. 22,55,040/-. The details of the speculative transactions carried out by the assessee during the year under consideration have been reproduced by the AO at page 3 as under:- Shri Santosh Kumar vs. ITO Symbols Sale Purchase Diff in Profit/Loss Qty

Qty Amount Qty Amount Copper 410 126596650 410 126510850 0 85800 Crudeoil 80 27252700 80 27214100 0 38600 Gold 31 51116300 31 51421400 0 -305100 Goldm 65 10826480 65 10989610 0 -163130 Lead 111 57909750 111 57706500 0 203250 Natural 1168 336758750 1168 336731375 0 27375 Gas Nickel 535 116574650 535 117306600 0 -731950 Solver 496 392820660 496 393569940 0 -749280 Silverm 1110 147462115 1110 147567695 0 -105580 Zinc 5 2727250 5 2714750 0 12500 4011 1270045305 4011 1271732820 0 -1687515 From the above table it is clear that if the total some of the negative and positive outcome of the speculative transactions is taking into consideration the it would be Rs. 20,55,040/-. 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 U/s 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 vs. ITO in vide order dated 13.01.2020 has considered an identical issue in para 5 as under:-

“We have considered the rival submissions as well as the relevant material on record. The limited dispute in the case in hand is 3 Shri Santosh Kumar vs. ITO whether the provisions of section 44AB are applicable in the case of the assessee when the assessee has done the share trading in intraday segment and some of the transactions are delivery based transactions to the extent of Rs. 53,498/-. There is no dispute regarding the turnover in respect of the transactions of the shares which are delivery based. However, the dispute is regarding the turnover in respect of the intraday transactions carried out by the assessee. The AO has taken the total value of the transactions at Rs. 2,43,62,720/- in the intraday non-delivery based trading segment. There is no quarrel that the transactions carried out by the assessee in intraday non-delivery based segment are speculative transactions as per section 43(5) of the Act. This fact is also accepted by the ld. CIT (A) in his finding in para 2.3 as under :-

“ Ground No. 01 and 02 are being taken up together which are interrelated. I have perused the facts of the case, the penalty order and the submissions of the appellant. It is seen that the Assessing Officer imposed penalty under section 271B for not getting the accounts audited. There is no dispute as to the fact that the turnover of the assessee is more than the limit prescribed under section 44AB and the assessee has not got his accounts audited. Assessee has taken plea that these transactions of stock related to intraday activities/non-delivery based transactions. Therefore, the same did not require audit under section 44AB. 4 Shri Santosh Kumar vs. ITO

Assessee claimed that the transactions are non delivery based and daily difference (by ignoring the signs) be taken as turnover. This plea cannot be accepted as it is applicable for transaction of derivatives whereas assessee transacted in cash securities where non delivery based transactions are classified as speculative transactions as per section 43(5) of the I.T. Act, 1961. Accordingly assessee is liable to get his accounts audited. Looking to these facts, penalty under section 271B imposed by the Assessing Officer is confirmed. These grounds of appeal are dismissed.”

Once these transactions are non-delivery based intraday transactions and classified as speculative transaction as per the provisions of section 43(5) of the IT 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 5 Shri Santosh Kumar vs. ITO 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.”

Shri Santosh Kumar vs. ITO

The turnover has not been defined in the IT 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 out- come of settlement of such contracts during the year. We find that the assessee has produced the details of the speculative transactions as well as delivery based transactions and also given the computation of the turnover as under :- Intraday Positive or favorable 109092.10 differences (sheet enclosed for this)

Intraday Negative or unfavorable 152689.69 differences (sheet enclosed for this)

Sale of delivery based transactions 53498.9

315280.69

There is no dispute regarding the delivery based transactions of shares to the tune of Rs. 53,498.90. We have verified the computation of the turnover in respect of intraday non-delivery based transactions and the positive and negative differences of these speculative transactions given in the above table. 7 Shri Santosh Kumar vs. ITO

Therefore, by taking the aggregate of the positive and negative differences as well as the turnover of the delivery based transactions, the total turnover of the assessee comes to Rs. 3,15,280.69. Hence, when the turnover of the assessee is less than the threshold limit provided under section 44AB, then the assessee is not required to get its books of account audited in terms of section 44AB of the IT Act and consequently the penalty provision of section 271B of the IT Act is not attracted. Even otherwise, when this issue of ‘turnover’ is a debatable issue and the assessee has claimed this turnover as Rs. 3,15,280.69 if computed in terms of the Guidance Note of ICAI, then the said explanation of the assessee would be regarded as reasonable and bonafide as per the provisions of section 273B of the IT Act and consequently no penalty under section 271B is leviable. Accordingly, the penalty levied under section 271B is deleted.”

Thus, in the above case on identical issue the Tribunal has considered the guidance note of ICAI in respect of the tax audit U/s 44AB of the Act wherein the turnover or gross receipt in respect of speculative transactions has been considered as some total of positive and negative outcome of the speculative transactions. This Tribunal in a subsequent decision dated 17.02.2020 in case of Shri Sanjay Prakash vs. ITO in to 1054/JP/2019 has again considered the said this issue and by following the earlier decision accepted the contention of the 8 Shri Santosh Kumar vs. ITO assessee that turnover in respect of the speculative transactions shall be positive and negative differences of the transactions and not volume of the speculative transactions. Accordingly in view of the consist view taken by this Tribunal the turnover of the assessee would not exceed the limit as provided U/s 44AB, the penalty levied U/s 271B is deleted. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 03/07/2020. Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 03/07/2020. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Santosh Kumar, Bharatpur. 2. izR;FkhZ@ The Respondent- ITO,Ward-3, Bharatpur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 1093/JP/2019} vkns'kkuqlkj@ By order,

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