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In Speculation trading there is no ‘sale’ or ‘turnover’ effected within the meaning of S. 44AB

IN THE ITAT PUNE BENCH ‘B’

Banwari Sitaram Pasari HUF

Versus

Assistant Commissioner of Income-tax

IT Appeal No. 1489 (PUNE) of 2011

[Assessment year 2006-07]

November 22, 2012

ORDER

G.S. Pannu, Accountant Member 

This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-II Nasik dated 23-9-2011 which, in turn, has arisen from order dated 29-6-2009 passed by the Assessing Officer, under section 271B of the Income-tax Act, 1961 (in short “the Act”), pertaining to the assessment year 2006-07.

2. The solitary issue relates to penalty of Rs. 93,332/- imposed by the Assessing Officer u/s 271B of the Act on failure of the assessee to get his accounts audited by a Chartered Accountant in terms of section 44AB of the Act within the specified date.

3. In brief, the facts are that the assessee is an HUF which is engaged in online trading in commodities. During the year under consideration, the total sauda in the commodities booked with commodity exchange was shown at Rs. 1,86,66,488/- on which gross profit of Rs. 16,44,343/- was declared. As per the Assessing Officer, since the turnover in commodities by way of Sauda booking exceeded Rs. 40.00 lakhs, assessee was liable to get its accounts audited in terms of section 44AB of the Act and furnish report by the specified date. The claim of the assessee before the lower authorities has been that it was under a bonafide impression that the limit of Rs. 40.00 lakhs of turnover is to be applied to the net income from the speculation activity of dealings in commodity exchange and not gross amount of sauda booked. The assessee explained that in its activity of speculation trading in commodities, no delivery of physical goods was given or taken. It was therefore, pointed out that there was no requirement to get the accounts audited u/s 44AB of the Act as the income from speculation activity was below Rs. 40.00 lakhs. It is also noticed that on being confronted, the assessee got his accounts audited and submitted the Audit Report on 12-11-2008 during the course of assessment proceedings. However, in the proceedings initiated u/s 271B of the Act, the Assessing Officer held the assessee guilty for not getting the accounts audited and furnished the report within the prescribed period and levied penalty of Rs. 93,332/- equivalent to ½% of the total turnover of the commodity exchange shown by the assessee at Rs. 1,86,66,488/-. The CIT(A) has also upheld the penalty against which the assessee is in further appeal before us.

4. Before us, the learned counsel for the assessee pointed out that failure to get the accounts audited in terms of section 44AB of the Act was primarily on the bonafide impression entertained by the assessee that trading in commodities being speculation activity, the total amount of sauda booked with the commodity exchange would not constitute turnover for the purpose of section 44AB of the Act. The learned counsel submitted that in terms of the said bonafide impression, the net income accruing to the assessee in the speculative trading in commodities was below Rs. 40.00 lakhs and therefore, the assessee did not get his accounts audited. In support of the aforesaid proposition, reliance was placed on the decision of Bombay Bench of the Tribunal in the case of Growmore Exports Ltd. v. Asstt. CIT [2001] 78 ITD 95 (Mum). Apart therefrom, it is also pointed out that when the assessee was confronted with the situation by the Assessing Officer during the assessment proceedings, the assessee readily got its accounts audited and furnished a report during the assessment proceedings itself, which shows bonafides of the assessee. In this manner, it is sought to be made out that penalty u/s 271B be deleted.

5. On the other hand, the learned DR appearing for the Revenue pointed out that the assessee was getting help of tax practitioner for furnishing return of income and other tax obligations and therefore, it could not be said that the assessee was unaware of the provisions of the Act so as to apply the correct limits for getting the accounts audited u/s 44B of the Act.

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 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.

11. 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.

12. 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.”

7. In the present case also, the transaction of buying and selling of commodities is a speculative activity where no physical delivery is taken or given and in this view of the matter, following the parity of reasoning given in the case of Growmore Exports Ltd. (supra), herein also we are inclined to hold that there was no turnover constituted in the amount of Rs. 1,86,66,488/- for the purposes of considering the liability of assessee to get the accounts audited u/s 44AB of the Act and hence, there was no requirement to get the accounts audited u/s 44AB of the Act. Thus, the penalty u/s 271B imposed by the Assessing Officer is hereby directed to be deleted.

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


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