YASHWANT HIRALAL THAKAR,MUMBAI vs. INCOME TAX OFFICER- 22(3)(1), MUMBAI

PER OM PRAKASH KANT, AM

This appeal has been preferred by the assessee against the order dated 20.11.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter "the Ld. CIT(A)"], for Assessment Year 2012-13, arising out of penalty of Rs. 1,50,000/- levied under Section 271B

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of the Income Tax Act, 1961 [hereinafter "the Act"] for failure to get the books of account audited as required under Section 44AB of the Act. The grounds raised by the assessee are reproduced as under:

i. The penalty order passed by the Ld. National Faceless Assessment Centre u/s. 271B of the Act, dated 25.06.2025 is invalid, non-est and bad in law.

ii. The Ld. National Faceless Appeal Centre (hereinafter referred to as "the Ld. NFAC") erred in law & facts in confirming the penalty u/s 271B of the Act of Rs.1,50,000/-without appreciating the provisions of Section 93 of the Finance Act, 2024 which grants immunity from imposition of any penalty on satisfying the provisions of Section 92 of the said Act.

iii. The Ld. NFAC erred in law & facts in upholding the penalty u/s 271B of the Act, thereby computing the turnover of futures & options transaction at Rs.3,08,77,448/- without considering the method prescribed in the guidance note on tax audit provided by the Institute of Chartered Accountant of India.

iv. Your appellant prays that- (a) The penalty order passed u/s.271B of the Act be treated as invalid and bad-in-law;

(b) The penalty of Rs. 1,50,000/- u/s 271B of the Act be deleted;

(c) Any other relief as may be deemed fit in the matter, be granted.

v. All the above grounds of appeal are independent and without prejudice to each other.

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vi. The appellant craves its right to add, amend, alter or drop any or all the aforesaid grounds of appeal.

“ 5.3 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:- The AO held that as per the CBDT guidelines circulated vide circular no. 19 of 2024 which contains Guidance Note 2/2024 on provisions of the Direct Tax Vivad se Vishwas Scheme, it has been clearly mentioned that immunity can only be allowed under VSVS on the issue for which the assessee has availed the scheme and is covered in the scheme. As the the issue of imposition of penalty u/s

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271B is not covered in the scheme, as per the application made under DTVSVS scheme opted by the assessee, the assessee's contention of non-imposition of penalty u/s 271B is not sustainable. The appellant has reiterated the arguments taken before the AO. It is observed that the conclusion drawn by the AO is as per the guidelines of scheme. The penalty u/s 271B is independent of the addition made during assessment proceedings. Hence, the issue of imposition of penalty u/s 271B is not covered in the scheme. The contention of the assessee is rightly rejected by the AO. The appellant failed to furnish any argument or evidence to establish that the conclusion drawn by the AO is not correct. The penalty levied by the AO is found to be justified and upheld. This ground no. 2 & 3 of appeal is treated as dismissed.”

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thereof, the assessee relied upon the decision of the Coordinate bench of the Tribunal in the case of Sanjay Marotrao Modak v/s Dy. CIT [2023] 147 taxmann.com 221 (Mumbai-Trib). The Tribunal in said case observed that the concept of "turnover" applicable to ordinary trading cannot be mechanically applied to F&O transactions because: (i) there is ordinarily no delivery of shares or securities; (ii) the books of account record only the net differences arising on settlement; and (iii) therefore, the method prescribed by the ICAI Guidance Note is the appropriate basis for determining turnover. The Tribunal further accepted the ICAI method, namely (i) Aggregate of favourable and unfavourable differences (i.e., absolute profit and absolute loss on each completed transaction) constitutes turnover; (ii) Premium received on sale of options is to be included in turnover; (iii) Difference arising on reverse trades is also to be included; (iv) Each buy-sell pair is to be treated as an independent transaction, and the turnover of all such transactions is aggregated for the year. The relevant part of decision is reproduced as under:

“Having heard the rival submissions and perused the materials on record, it is observed that the assessee has shown STCL of Rs. 3,74,357/-, from trading in future and option, which transacts from business of trading in shares and derivates. The A.O. has determined the total turnover from the said transaction as Rs. 30,94,12,449/-, which according to the A.O. was beyond the limit prescribed in section 44AB of the Act which stipulates turnover above Rs. 1,00,00,000/- for the impugned year (now enhanced to Rs.2,00,00,000/-applicable from A.Y. 2021-22). It is pertinent to analyze the nature of transaction involving shares and

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derivatives. The most commonly prevalent derivative transaction is future and options commonly known as F & O and in case of calculation of tax for such transaction, the total turnover or gross receipts in the previous year are to be taken into consideration. Section 44AD of the Act prescribes a percentage of such total turnover as gross receipts to be calculated for levying tax. In the common parlance turnover as per Companies Act, 2013 means that aggregate value of the realization amount made from sale, supply or distribution of goods or on account of services rendered or both, by a company during the financial year. This interpretation does not hold good in case of F & O transactions where there are neither physical goods involved nor any delivery of shares or securities involved in the said transaction. The entries in the books of accounts of such transactions are not made on the contracted notes issued, but are made only of the differences. For the said purpose, the Institute of Chartered Accountant of India has prescribed the method of computing the turnover in such cases through 'Guidance Note on Tax Audit'. The following is the relevant extract for the said purpose: Keeping in view the distinct features of an F and O transaction, the ICAI has prescribed that the turnover in such transactions should be computed as the sum of the following: (1) The total of favourable and unfavourable differences; (ii) Premium received on sale of options; (iii) Difference in respect of any reverse trades entered into Each transaction comprising "buy" and "sell" is to be considered as an independent transaction and the turnover in respect of each such transaction must be computed separately. The total turnover during a financial year would be the turnover of all such independent transactions for that financial year. 11. The issue involved in the present scenario is the legal sanctity of guidance note issued by ICAI, for which we would like to place our reliance on the decision cited by the assessee in the case of Punjab Stainless Steel Industries (supra) and Pact Securities & Financial Ltd. (supra), wherein it was held that the Hon'ble Apex Court has recognized ICAI as an expert body of accountants and the guidance note on tax audit issued by them can be relied upon

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in the absence of any statutory provision for computation of turnover in such cases. 12. From the above observation, we find that the validity of the ICAI guidance for calculating the turnover in case of derivatives has been reiterated by various judicial precedence. Upon consideration of the said method of calculating the turnover in transactions related to future and options, the assessee's case does not fall under the provisions of section 44AB of the Act which mandates auditing of books of accounts and furnishing audited statement of accounts. From the above cited decisions, and also decisions of the co-ordinate bench in case of Sachin Maratrao Rangari (supra) on identical issue, we find no merit in the order of Id. CIT(A) and we hereby delete the penalty levied u/s. 271B of the Act. 13. In the result, the appeal filed by the assessee is allowed.” 5. From the record, however, it is evident that the assessee neither furnished the requisite details of his turnover of Future & options during the assessment proceedings nor placed any material before the Assessing Officer or the learned CIT(A) to demonstrate the nature of the transactions or the correct method of computing turnover. The assessment itself came to be completed ex-parte under section 144 owing to repeated non-compliance by the assessee. Even during the penalty proceedings, no factual details were furnished to substantiate the plea that the turnover consisted of futures and options transactions requiring computation in the manner now canvassed.

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regular delivery-based transactions in equity or commodities, it is not possible for us to render a conclusive finding on the applicability of Section 44AB, and consequently the issue of levy of the penalty under Section 271B cannot be adjudicated conclusively at the appellate stage. Since the assessee has specifically raised the plea regarding the computation of turnover from futures and options transactions, the matter requires factual verification. We, therefore, deem it appropriate to restore this limited issue to the file of the Assessing Officer for fresh examination in accordance with law, after affording the assessee adequate opportunity to furnish the relevant particulars and supporting material. The Assessing Officer shall thereafter decide the applicability of section 44AB and the consequential levy of penalty under section 271B in accordance with law.

Order pronounced in the open Court on 30/07/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

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Mumbai; Dated: 30/07/2026 Z.U., P.S.

Copy of the Order forwarded to :

BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai