VIJAY KUMAR NARSHI, F-1, 101, NEMI NAGAR, VAISHALI NAGAR, JAIPUR,JAIPUR vs. ITO WARD-7(3), JAIPUR, WARD-7(3), JAIPUR

Briefly stated, the facts of the case are that the assessee is a salaried employee and during the year under consideration, he has made transactions of sale and purchase of shares on BSE/NSE without taking delivery except in few scripts and has recorded total turnover of Rs. 3,15,64,474/- on which the assessee has incurred net loss of Rs. 2,69,556/-. During the course of assessment proceedings, the assessee was asked to furnish complete details such as copy of the Demat account, copy of the Ledger with Broker, settlement summary report, script wise summary report, Bank statement etc. with explanation. In response, the assessee filed the details and documents so called for by the Assessing Officer which were examined by the Assessing Vijay Kumar Narshi, Jaipur Vs. ITO, Ward 7(3), Jaipur officer. Given that the assessee has not complied with provision of section 44AB of the Act, the loss worked out on the share trading was however not accepted and allowed by the Assessing officer and penalty proceedings u/s 271A were initiated for non-maintenance of books of accounts by way of show- cause notice dated 29.09.2017.

During the course of penalty proceedings, the assessee submitted that he has been engaged in the investment activity and all the documents in relation to investment made in the shares and securities has been maintained and provided during the course of assessment proceedings. As per section 44AA of the Act, the assessee should keep and maintain such books of accounts and other documents as may enable the Assessing officer to compute his total income. Since all the documents for these transactions had already been produced and assessment had also been completed, relevant record and details had been kept by the assessee and no penalty should be imposed on the assessee. However, the submission so filed by the assessee was not found acceptable to the Assessing Officer for the reason that the assessee was liable to maintain books of accounts as per provision of section 44AA of the Act and he failed to do so and therefore, penalty of Rs 25,000 u/s 271A of the Act was levied on the assessee.

During the course of appellate proceedings before the ld. CIT(A), the assessee submitted that his transactions in shares were not for business purpose but were undertaken only for investment purposes. Further, the assessee has neither applied for membership of any stock exchange, nor obtained any franchise rights of any of the big dealers. He has also not opted for terminals. All these demonstrate that at no point of time, the assessee had an intention of doing business in shares. On the other hand, like an investor, the assessee solely relied on the advice of the brokers, although subsequently 2 Vijay Kumar Narshi, Jaipur Vs. ITO, Ward 7(3), Jaipur it resulted into loss. It was accordingly submitted that where the transactions were in nature of investments, there is no requirement to maintain books of accounts as per the provisions of section 44AA of the Act. However, the submission so filed were not found acceptable to the ld. CIT(A) for the reasons that the assessee had failed to maintain the books of account without any genuine cause and penalty so levied u/s 271A was confirmed. Against the said finding, the assessee is now in appeal before us.

During the course of hearing, the ld. AR reiterated the submissions made before the lower authorities. He submitted that the assessee is a salaried individual and he had carried out the activities as pure investments activities and not as trading activities and therefore, the assessee was under the bonafide belief that there was no requirement to maintain books of accounts. It was further submitted that the assessee once came to know of the legal position that he is required to maintain books of accounts, in the subsequent years, he has started maintaining books of accounts and getting the same audited and in support, the Audit report in Form 3CB for subsequent financial years were placed on the record. It was accordingly submitted that the assessee was under the bonafide belief that he was not required to maintain books of accounts and in view of the provision of section 273 of the Act, the penalty so levied by the AO may be directed to be deleted.

Per contra, the ld. DR submitted that finding of the lower authorities. He submitted that it is a clear case of non maintenance of books of accounts which is required to be maintained u/s 44AA of the Act as the turnover of the assesssee from share trading transactions exceeds the prescribed threshold. He accordingly submitted that the penalty provisions which are basically deterrent provisions should be applied strictly in the present case and no relaxation should be provided to the assessee. 3 Vijay Kumar Narshi, Jaipur Vs. ITO, Ward 7(3), Jaipur 7. We have heard the rival contentions and perused the material available on record. We find that during the course of assessment proceedings, the assessee was asked to furnish complete details such as copy of the Demat account, copy of the Ledger with Broker, settlement summary report, script wise summary report, Bank statement etc. with explanation. In response, the assessee filed the details and documents so called for by the Assessing Officer which were duly examined by the Assessing officer. Further, we find that there are no specified books of accounts which have been prescribed in respect of share transactions so undertaken by the assessee. Given that the assessee has in substance complied with the requirements of production of documents in support of its share transactions and given that no adverse finding has been recorded by the Assessing officer in terms of any specific documentation not so produced by the assessee and the returned income has been accepted, we find that given the peculiar fact and circumstances of the case, it is not a fit case for levy of penalty u/s 271A and the same is directed to be deleted.