VIKAS AHUJA IN THE CAPACITY OF LEGAL HEIR OF LATE SH. KRISHAN GOPAL AHUJA,NEW DELHI vs. ACIT, NEW DELHI

That the demand of Penalty u/s 271. B of the Income Tax Act 1961 made by the AO is against the law of natural justice, without giving weightage to the material available on record, rather it is wrong on facts and adverse to the material available on record as the turnover considered by the AO in the penalty order for considering the Capital Gain Sale Proceeds as to the Business proceeds has no nexus to Statements, computation chart showing the sale & purchase of Shares, Securities etc. The AO and the CIT Appeals has acted just to pass the order and impose penalty even it is unjustifiable. Hence liable to be deleted.”

Brief fact of the case is that the assessee is an individual employed with RICO Auto Industries Ltd. He filed his return of income on 15.12.2008 declaring total income of Rs. 1461039/-. In the return of income, assessee offered income under the head Salary and interest on Saving Bank Accounts. He has also shown short-term capital loss on sale of shares and trading profit in commodity transactions.. According to the assessment order assessee has sales consideration of Rs 6,52,81,999/- , however assessee has not got his accounts audited u/s 44AB of the act and therefore penalty proceedings u/s 271B of the act were initiated . Before ld. AO assessee submitted reply dated 20.1.2011 but ld. AO rejected the contentions of the assessee and levied the penalty of Rs 1,00,000/- u/s 271B of the act. Assessee carried the matter before ld CIT (A) and reiterated the same submission. Ld. CIT Page 3 of 6 (A) rejected arguments of the assessee and confirmed the penalty. Therefore, assessee is in appeal before us.

Ld. AR of the assessee submitted that para no 8.1 of the order of ld. CIT (A) shows that during the year assessee has sales consideration of Rs 65281999/- and has earned a short term capital loss of Rs 2368162/- as short term capital loss which was not allowed to be carried forward to the assessee. He relied on the circular no 4/2007 dated 15.6.2007. Therefore he submitted that his income was not business income from which the turnover is considered for levy of penalty u/s 271B of the act. Even otherwise, he submitted that he has a belief that in case of shares and commodity trading only the net result considering profit or loss shall be considered as turnover as he believed same are also securities . Therefore, he submitted that even otherwise penalty u/s 271B might not be levied as assessee has reasonable cause for the failure to get accounts audited.

We have carefully considered the rival contentions. Provisions of section 44 AB of the Income tax act provides that every person carrying on the business or profession is required to get his accounts audited if his gross receipt or turnover in business or profession exceeds Rs 40 lakhs. In the present case the income of the assessee from which the turnover of Rs 65281999/- is determined is arising out of the sale of shares taxed as capital gain and commodity profit as business income. The assessee has accounted for the net profit arising from the commodity profit of Rs 2215202/- as income and not the turnover of purchases and sales. This is apparent from para no 8.1 of the order of CIT (A) which is as under :- “8.1 I have considered the observation of the assessing officer and submissions of the appellant. Assessee derives income from salary, house property, capital gain, commodity business trading and income from other sources. During the year, assessee had total sales consideration of Rs. 65281999/- and had claimed a loss of Rs 2368182/- as short-term capital loss which assessing officer did not allow to be carried forward as return of appellant was filed late. It is seen that appellant has shown trading profit from commodity business of Rs 2215202/-. Therefore it is apparent that appellant was doing commodity business and the total sales consideration/ turnover was Rs 61053882/- therefore it is an auditable case u/s 44AB of the act .”

Assessee has sales of Rs 61053882/- from commodity trading but assessee believed that turnover in fact is the net profit and loss as only profit or loss in commodity business is settled. On that belief, the assessee was under the impression that his accounts are not Page 4 of 6 auditable u/s 44AB of the act. According to us in commodity transactions as carried on by the assessee they are speculative transactions and hence total sales and purchase values are not paid or received but the transaction is settled by way of profit and loss on that derivative and assessee is eligible only to income or loss and delivery of the commodities is not exchanged. These facts as mentioned above are not controverted. Therefore only issue which remains to be decided is whether the belief of the assessee is bona fide in presuming that his transaction in commodity business are mere speculative profit and only profit/ loss value and not the entire transaction value can be treated as ‘turnover’ of the assessee. In fact, it is also not known whether assessee marinated the books of accounts or not. As there is no definition of word ‘ turnover’ in the act , clarity is not available that when the actual transaction is not settled by way of delivery whether the gross turnover would be profit or loss of transaction or the notional sales or purchase value embedded there in which is neither paid nor received. According to us in absence of such clarity, belief of the assessee cannot be brushed aside and it cannot be said that there is no reasonable cause. We also draw support from several decision of coordinate benches where in penalty under similar circumstances is deleted. We quote decision of Banwari Sitaram Pasari HUF Versus Assistant Commissioner of Income-tax IT Appeal No. 1489 (PUNE) of 2011 [Assessment year 2006-07] dated November 22, 2012 which has considered important aspects and other decision on the issue. “6. We have carefully considered the rival submissions. The crux of the controversy revolves around as to whether the assessee was indeed liable to get his accounts audited u/s 44AB of the Act on the ground that its turnover from the commodities by booking of sauda with commodity exchange stood at Rs. 1,86,66,488/-? In this connection, it is noted that the assessee is engaged in the business of on-line trading of commodities and in this speculation activity, there is no physical delivery of commodities given or taken. Whether there was any element of „turnover‟ in such activity is the bone of contention between the assessee and the Revenue. In somewhat similar situation, our co-ordinate Bench of Mumbai Tribunal in the case of Growmore Exports Ltd. (supra) has dealt with requirement to get the accounts audited u/s 44AB of the Act. In the case before the Mumbai Bench, the assessee was engaged in the speculation transaction of sale and purchase of units without taking delivery and the account was settled by crediting the difference. The Tribunal after considering section 18 of the Sale of Goods Act 1930 observed that no property in the said units passed on to the assessee inasmuch as the assessee never acquired the property in the units as the units contracted to be bought were future unascertained goods. Similarly, it could not pass on the property to the party to whom the units were contracted and therefore, there was no „sale‟ or „turnover‟ effected by the assessee in the legal sense for the purposes of getting the accounts audited u/s 44AB of the Act. The relevant observations of the Tribunal in this regard are as under: “10. However, we may legally also examine the issue. For that we may turn to the meaning of the term „goods‟. The said term is not defined in the Act. But Sale of Goods Act specifically includes stocks and shares in the meaning of the term „goods‟. Therefore, other provisions of Sale of Goods Act Page 5 of 6 automatically would apply. As per Section 6(3) of the said Act, where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods. In the instant case, the contract through which assessee sought to buy the units was certainly a contract to buy future goods. At this juncture we may clarify that the assessee never took delivery of the units as observed by the CIT(A). The contract note clearly specifies the date of delivery as 30-9-1989. Even otherwise there is no evidence to show that assessee in fact obtained delivery thereof. Thus the units contracted to be bought were future goods and were unascertained. As per Section 18 of the Sale of Goods Act, no property in the goods is transferred to the buyer unless and until the goods are ascertained. Therefore, when the assessee had contracted to buy the units, no property in the said units had passed to the assessee. As a result, it cannot be said that actual purchase as contemplated under the Sale of Goods Act was ever effected. And if the assessee never acquired property in the units, it could not pass on the property to the party to whom the units were contracted to be sold by the assessee. In the ultimate result, therefore, there was no sale by the assessee and when there was no sale, there was no question of receiving any sale proceeds by the assessee, which in commercial sense would be described as either sales or turnover. Thus, even in legal sense there was no turnover effected by the assessee.

The Mumbai Bench of the Tribunal, in the case of Babulal Enterprises [IT Appeal No. 6031 (Mum.) of 1996 dated 12-2-1997] has on similar facts held that the amount of transactions as noted in the contract notes cannot be taken as turnover of the assessee. The Tribunal also relied on the decision of the Tribunal in the case of Royal Cushion Vinyl Products Ltd. (supra) and observed that though the said decision was rendered in the context of Section 80HHC, the principle laid down in that case would equally apply to the facts obtaining to the case in hand.

In the present case, the transaction of buying and selling the units was a speculative transaction. No delivery has taken place. The account has been settled only by crediting the difference which is duly reflected in the profit and loss account. No other activity has been carried out by the assessee. In view of the foregoing discussion and also respectfully following the decisions of the Tribunal cited supra, we hold that no turnover was effected at all by the assessee and hence was not liable to get the accounts audited under Section 44AB of the Act and hence the penalty confirmed by the CIT(A) is deleted.”

In view of the above facts and drawing support from decision cited above, we hold that assessee has reasonable cause in holding a belief that in case of commodity transactions the amount of turnover for the purposes of section 44AB of the act shall be only net profit and loss and not the whole turnover embedded there in. In view of this we reverse the finding of