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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 1052 to 1054/JP/2019
per bank account assessee has made total cash deposit of Rs. 1,94,093/-.During the assessment proceeding assessee was asked to furnish source of cash deposit in the bank account and explain why proceedings u/s 271A and 271B should not be initiated as turnover of the business exceeding the limit prescribed under the relevant provision of the Act. In response thereto the assessee has furnished written submission as under:-
"In FY. 2009-10, assessee was aged about 22 years old and he was engaged in independent accounting work of various small traders. This was his main source of income. Rather than this he has made some speculative transaction in online commodity market (NCDEX/MCX). Other than these he has not any other business of procession income. Copy of 1TR and computation attached herewith.
Assessee has made transaction in NCDEX/MCX via broker named Nirmal Bang Securities, Mumbai. We attached herewith copy of statement showing transactions during F.Y. 2009-10.
We also attached herewith copy of bank pass book (account no. -11880110002063) having transaction in F.Y. 2009-10.
During the year assessee has invested money from its own saving and income. Other than these he took Rs. 1,25,000/- from M/s Mutha Trading Co. by cheque no. 24453 of SBBJ pipar city Branch. Dear Sir as you aware that in commodity market in very
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less money one can make big transaction here is same case and assessee made many transactions in whole year."
The reply furnished by the assessee has been considered and not found satisfactory. Total cash deposit of Rs. 1,94,093/- made by the assessee during the year. Besides this interest of Rs. 9,510/. from parties received by the assessee. Thus total cash deposit/receipts of the year comes to Rs.2,03,603/-but assessee has shown income of Rs. 1,33,603/- which is received from account writing receipts, interest from parties and interest from bank. Assessee has not furnished and source of its own saving which is invested during the year. In these circumstances, difference of Rs. 70,000/- (2,03,603-1,33,603) is added to the total income of the assessee. Therefore the total income of the assessee is assessed at Rs. 2,03,603/-. Penalty proceeding u/s 271(1)(b), 271A, 271B and u/s 271(1)(c) are hereby initiated.”
The undisputed facts which are, therefore, emerging from the records are that the assessee has made speculative transactions on NCDEX/MCX commodity exchange through Nirmal Bang Securities, Mumbai wherein the assessee has made purchases of Rs. 27,30,46,865.5/- and sales of Rs.27,26,87,233/- and has thus incurred a loss of Rs. 3,59,632/-. In case of speculative transactions, in absence of term “turnover” defined in the Act, as per the guidance note issued by ICAI, the turnover has to be
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determined by taking the aggregate of both positive and negative differences arising from such speculative transactions and as an outcome of settlement of such contracts during the year which in the instant case comes to Rs 3,59,632/-. Similar view has been taken recently by this Bench in case of Shri Rajjak Ahmed Khan vs. ITO (ITA no. 11181/JP/2019 dated 13.01.2020) wherein the relevant findings read as under:-
“5. We have considered the rival submissions as well as the relevant material on record. The limited dispute in the case in hand is 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
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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. 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.
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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.”
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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 differences 109092.10 (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. 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
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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, where turnover is less than the threshold provided under section 44AA of the Act, the assessee was not required to maintain his books of accounts in respect of such transactions. On same analogy, where the books of accounts are not required to be maintained, the question of getting the same audited doesn’t arise for consideration and in any case, the turnover is less than the prescribed threshold under section 44AB of the Act. In such a scenario, there is no basis to hold that there was any violation of provisions of section 44AA and section 44AB of the Act and consequently, the penalty levied u/s 271A and 271B is hereby deleted and the orders of the lower authorities are set-aside.
Regarding levy of penalty U/s 271(1)(b) of the Act for non compliance to the notice issued U/s 142(1) dated 13.10.2017, we find that there is nothing on record in terms of any explanation furnished by the assessee for non-compliance to the said notice. Therefore, levy of
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penalty U/s 271(1)(b) of the Act in absence of any reasonable cause shown by the assessee is hereby confirmed.
In the result, the appeal of the assessee in ITA No. 1052/JP/19 and 1053/JP/19 are allowed and appeal in ITA No. 1054/JP/19 is dismissed.
Order pronounced in the open Court on 17/02/2020. Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 17/02/2020. *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Sanjay Parkash, Jodhpur. 2. izR;FkhZ@ The Respondent- ITO, Ward-1, Alwar. 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. 1052 to 1054/JP/2019} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत.