ANIRUDH BAHETI HUF,JAIPUR vs. ITO WARD 3(2), JAIPUR

vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 03/01/2023 [here in after (NFAC)] for assessment year 2013-14 which in turn arise from the order dated 25.08.2021 passed under section 271B of the Income Tax Act, by the ITO, Ward 3 (2), Jaipur.

“1. Imposition of penalty u/s 271B of Rs. 1,50,000/- is bad in law and facts.”

3. The fact as culled out from the records is that as per ITS detail available with the revenue, it was found that the assessee had entered into commodity transactions of Rs. 20,47,47,660/- during the year under consideration. Even though the assessee has made so much of transactions has not filed his return of income for the year under appeal. Therefore, based on the valid reasons the case of the assessee was re-opened after obtaining the necessary approvals. In response to the notice the assessee filed the return on 26.04.2019. The notices were issued from time to time and after considering the submission so made by the assessee the total income of the assessee was determined at Rs. 44,790/- and the assessment was completed on 11.11.2019.

3.1 In the assessment proceeding ld. AO observed that turnover on the account of the commodity transaction are above the prescribed limit and the assessee was liable to get his books of account audited as per the requirement of section 44AB of the Act initiated vide the assessment order dated 11.11.2019.

4. During the penalty proceeding the ld. AO observed that in the assessment proceedings the assessee filed revised computation of total income wherein loss of Rs. 1,94,031/- was returned from commodity transactions. Apart from that the assessee returned Rs. 43,040/- u/s. 44AD. In the penalty proceeding the assessee contended that in the revised computation was accepted and there is no question of levying penalty u/s. 271B. The ld. AO not considered the explanation of the assessee and contended that the assessee is liable for penalty u/s. 271B of the Act and thereby directed to pay a penalty of Rs. 1,50,000/- u/s. 271B of the Act.

5. Aggrieved from the order of the order of the assessing officer for levy of penalty u/s. 271B of the Act, assessee preferred an appeal before the Commissioner of Income Tax, (Appeals) contending that the assessee has not taken delivery of any of the commodities and entire transactions were mark-to-mark speculative transaction in MCX. The ld. Assessing Officer has proceeded on basis that the turnover of derivative more than Rs. 20,47,47,660.00 whereas total difference of positive and negative outcome of speculative transaction result is in negative. 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 Income Tax Act and consequently the penalty provision of section 271B of the Income Tax Act is not attracted. However, the ld. CIT(A) has not considered the arguments and the appeal of the assessee was dismissed vide order dated 03.01.2023.

6. As the assessee did not find any favour from the order of the ld. CIT(A) the assessee has preferred this appeal before the tribunal.

7. The ld. AR appearing on behalf of the assessee has placed their written submission to support the grounds raised in this appeal is extracted in below; “Your honour, the facts with evidence in this case are as under:-

The Grounds of Appeal are as under:-

The imposition of a penalty u/s 271B of Rs, 1,50,000 is bad in law and facts.

2. The ld. CIT Appeal passed the order mentioning detailed facts and the submission of the assessee as appearing in the order from page no. 3 to 16. While confirming the penalty order, the Ld. AO mentioned the provisions on page no. 16 to 18 and finally on the grounds appearing on page no. 19 as under:- a) The Ld. AO had not allowed the carry forward of loss of Rs. 1,94,031/ Hence it is undisputed fact that these transactions are non-delivery based intra day transactions and classified as speculative transaction. b?? However, from the perusal of the statement filed, it is evident that the same mentions purchases and sale transactions done on different dates, indicating delivery and also rebutting the claim of the appellant that these are intra day. Hence, it is not auto-proved that the transaction done by the appellant was speculative in nature. ln this regard, the A.O has also observed that turnover on account of commodities transaction being above the prescribed limit and the assessee was liable to get his books of account audited as per requirement of section 44AB of the Act; but he failed to do so. c) ln the instant case, it is clear that Appellant cannot at this stage state that the transaction is speculative without bringing an iota of evidence on record, when the transaction statement mentions 'sale' and also 'purchases' and that too on different dates. lt is a statutory obligation upon the assessee to get his accounts audited so that correct books, of accounts can be maintained So that correct income for the purposes of filing its return of lncome. Hence, appellant has failed to establish any reasonable cause owing to which appellant failed to discharge its statutory obligation. d) Keeping in view, the overall facts and circumstances of the case as emanating from material on record, I am of the considered view that the AO has rightly invoked the provisions of sectron of 271-B of the Act and imposed the penalty. ln view of the discussion above, the penalty of Rs.1,50,O0O/- imposed under section 271-B

of the Act is upheld. All the grounds of appeal nos. 1 to 5 are dismissed.

SUBMISSION OF THE ASSESSEE FACTS IN BRIEF

1. The Ld. AO while passing the scrutiny assessment under section 147 r.w.s 143(3) of the IT Act has given the finding that the turnover of the assessee in respect of Commodities transactions are more than prescribed limit and the assessee was liable to get his books of account audited as per requirement of Section 44AB of the Act but he failed to do so. Hence initiated proceeding for levy of penalty under section 271B of the Act.

as speculative transaction. The details of the speculative transactions carried out by the assessee during the year under consideration is as under :--

Account Code:- R1730003 Account Name:- Anirudh Baheti HUF S.No. Scrip Name Profit/Loss Profit Loss 1 ZINC F 301112 -7769.00 -7769.00 2 SYOREFIDR F 200912 -3220.60 -3220.60 3 SYOREFIDR F 191012 -17181.30 -17181.30 4 SYOREFIDR F 170812 2415.60 2415.60 5 SYBEANIDR F 191012 3584.09 3584.09 6 SILVERMIC F 310812 -3418.61 -3418.61 7 SILVERMIC F 301112 -7719.03 -7719.03 8 SILVERMIC F 300612 -4689.33 -4689.33 9 SILVERMIC F 300413 -1134.03 -1134.03 10 SILVERMIC F 28022013 810.32 810.32 11 SILVERM F 310812 31557.30 31557.30 12 SILVERM F 301112 28141.46 28141.46 13 SILVERM F 300612 -7660.03 -7660.03 14 SILVERM F 280213 3462.09 3462.09 15 SILVER F 051212 728.38 728.38 16 SILVER F 050912 -14987.82 -14987.82 17 SILVER F 050712 277.56 277.56 18 NICKELM F 310812 -3017.02 -3017.02 19 NICKELM F 310712 -163.22 -163.22 20 NICKELM F 290612 79.06 79.06 21 NICKEL F 310812 -2226.85 -2226.85 22 NICKEL F 290612 -3335.78 -3335.78 23 NICK F 280912 477.50 477.50 24 MENTHAOIL F 311012 1625.11 1625.11 25 MENTHAOIL F 310812 575.39 575.39 26 MAIZE F 200912 3263.98 3263.98 27 MAIZE F 170812 -1838.79 -1838.79 28 LEADMINI F 310712 368.70 368.70 29 LEAD F 301112 -16627.00 -16627.00 30 KAPASSRNR -50960.50 -50960.50 31 KAPASSRNR F 300413 11672.76 11672.76 32 KAPAS F 300413 -533.52 -533.52 33 JEERAUNJHA F 200912 609.08 609.08 34 JEERAUNJHA F 170812 1806.38 1806.38 35 GOLDM F 051212 836.79 836.79 36 GOLDM F 051012 266.55 266.55 37 GOLDM F 050912 -2587.53 -2587.53

38 GOLDM F 050712 -574.46 -574.46 39 GOLDM F 040812 -2726.72 -2726.72 40 GOLD F 051212 -3640.13 -3640.13 41 CRUDEOIL F 200812 4923.84 4923.84 42 CRUDEOIL F 191012 -3730.47 -3730.47 43 CRUDEOIL F 190912 -5266.30 -5266.30 44 CRUDEOIL F 190712 -65394.32 -65394.32 45 CRUDEOIL F 190612 20445.68 20445.68 46 CRUDEOIL F 181212 -16143.01 -16143.01 47 CRUDEOIL F 151112 -11401.94 -11401.94 48 COPPERM F 310812 -12371.73 -12371.73 49 COPPERM F 301112 5415.63 5415.63 50 COPPERM F 290612 13973.35 13973.35 51 COPPER F 310812 -7802.60 -7802.60 52 COPPER F 301112 17199.60 17199.60 53 COPPER F 290612 -14865.40 -14865.40 54 COPPER F 280213 -12345.40 -12345.40 55 COCUDAKL F 200912 -16749.77 -16749.77 56 COCUDAKL F 200712 2694.32 2694.32 57 COCUDAKL F 200612 -11366.67 -11366.67 58 COCUDAKL F 170812 8887.52 8887.52 59 CHARJDDEL F 1910102 -832.71 -832.71 60 CARDAMOM F 151012 -1840.78 -1840.78 61 CARDAMOM F 150912 5887.14 5887.14 62 {SERVICE TAX} -11234.76 -11234.76 63 *Trunover* -16755.28 -16755.28 64 *Stamp* -1903.59 -1903.59 TOTAL -194030.82 171985.18 -366016.00 538001.18 Sum of Total Profit / Loss Total Loss 171985.18 Total Profit 366016.00 Sum of Total Profit / Loss 538001.18

'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 assessing officer 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 learned Commissioner (Appeals) 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.

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 Income Tax 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 Income Tax 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 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.'

The turnover has not been defined in the Income Tax 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 outcome 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 (sheet enclosed for this) 109092.10 Intraday Negative or unfavorable differences (sheet enclosed for this) 152689.69 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 not required to get its books of account audited in terms of section 44AB of the Income Tax Act and consequently the penalty provision of section 271B of the Income Tax 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 bona fide as per the provisions of section 273B of the Income Tax 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 under section 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 17-2-2020 in case of Shri Sanjay Prakash v. ITO in to 1054/JP/2019 :2020 TaxPub(DT) 1418 (Jp- Trib) has again considered the said this issue and by following the earlier decision accepted the contention of the 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 under section 44AB, the penalty levied under section 271B is deleted.

In the result, the appeal of the assessee is allowed.”

Banwari Sitaram Pasari HUF Vs ACIT 29 Taxmann 137 (Pune-ITAT) Growmore Exports Ltd. Vs ACIT 72 TTJ 691 (Mum-ITAT) CIT Vs Growmore Exports Ltd. Appeal No. 18 to 20 of 2001 (Mombay- HC)

So your honor is requested kindly to allow the appeal and delete the penalty.”

9. Per contra, the ld. Sr. DR relied on order of the authority below and vehemently argued that in the details furnished by the assessee, the transactions of purchase sales of commodity such as zinc, silver, gold, crude, copper etc. is already reflected and the assessee is indulged into purchase and sale of these commodity.

Based on these facts she supported the order of the authority below and submitted that the assessee failed to get the books of accounts audited for which the ld. CIT(A) has confirmed the finding of the Assessing Officer and thereby support the finding of ld. CIT(A) and reiterated, and relied upon the following finding of ld. CIT(A).

“7.1. "The assessee suffered loss in the above MCX commodity transactions as appearing in the PB page no 3of the paper book which was confirmed by the Ld.AO in the assessment order. Kindly see page no. 7-8 of the paper book point no. 2.1 wherein the Ld. AO had not allowed the carry forward of loss of Rs. 1,94,031/ Hence it is undisputed fact that these transactions are non-delivery based intra day transactions and classified as speculative transaction" 7.2 However, from the perusal of the statement filed, it is evident that the same mentions purchases and sale transaction done on different dates, indicating delivery and also rebutting the claim of the appellant that these are intra day. Hence, it is not auto-proved that the transaction done by the appellant are speculative in nature. In this regard, the A.O has also observed that turnover on account of the commodities transaction being above the prescribed limit and the assessee was liable to get his books of account audited as per requirement of section 44AB of the Act, but he failed to do so.

8. In the instant case, it is clear that Appellant cannot at this stage state that the transaction is speculative without bringing an iota of evidence on record, when the transaction statement mentions sale and also purchases and that too on different dates. It is a statutory obligation upon the assessee to get his accounts audited so that correct books of accounts can be maintained so as to disclose correct income for the purposes of filing its return of Income, Hence, appellant has failed to establish any reasonable cause owing to which appellant failed to discharge its statutory obligation.

“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:

(i) 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 in the case of Punjab Stainless Industries and Pact Securities and Financials Ltd. 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 in the absence of any statutory provision for computation of turnover in such cases. In light of facts and circumstances of the case that the assessee has entered into the transaction of purchase and sale of commodity on the exchange without taking any delivery of the items being the crude, zinc etc.

Thus, based on these set of facts and after considering the guidance note of the Institute of Chartered Accountant of India we are of the considered view that the levy of penalty in this case is not correct and assessee has correctly offered the profit/loss while filing the return of income ( which is not in dispute by the either assessee turnover is to be computed net of purchase and sales of such commodity transactions and considering the fact that this transactions are not exceeding the limit as prescribed u/s 44AAB of the Act. Based on these observation we are of the view that the assessee is not required to get his books of audited and consequently not liable for penalty u/s. 271B of the Act and therefore, the penalty levied by lower authorities is hereby quashed.

In the result, appeal of the assessee is allowed.