Case Law Details
Parag Jain Vs ITO (ITAT Delhi)
In an appeal filed by Parag Jain against the ITO, the Income Tax Appellate Tribunal (ITAT) Delhi has ruled that only the difference in non-delivery derivative transactions should be taken into account when determining turnover for a tax audit under Section 44AB of the Income Tax Act. The case revolved around the imposition of a penalty under Section 271B of the Act.
The tribunal agreed with the argument made by the assessee’s counsel, which referred to the ICAI’s Guidance Note on Tax Audit under Section 44AB. According to this note, only the resultant difference from derivative and speculative transactions should be counted towards turnover, not the gross amount. The ITAT found that the Assessing Officer had incorrectly adopted the gross amount, leading to an inflated turnover. Despite the assessee’s lack of cooperation with the lower authorities, the tribunal noted that the total turnover according to the Guidance Note was significantly lower than the threshold limit prescribed under Section 44AB. This led to the deletion of the penalty as the assessee had shown a reasonable cause for non-compliance with Section 44AB provisions.
This judgment by the ITAT Delhi brings much-needed clarity to the interpretation of turnover for tax audit under Section 44AB, particularly for non-delivery derivative transactions.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals), NFAC Delhi (‘CIT(A)’ in short) dated 14.12.2021 arising from the penalty order dated 28.06.2019 passed by the Assessing Officer (AO) under Section 271B of the Income Tax Act, 1961 (the Act) concerning Assessment Year 2011-12.
2. The captioned appeal has been filed by the assessee against the imposition of penalty of Rs.1,50,000/- under Section 271B of the Act alleging that assessee has not filed tax audit report in terms of provisions of Section 44AB of the Act despite the total value of transactions made in multi commodity exchange of Rs.4,41,30,475/- which exceeds the limit prescribed for audit of the books of account under Section 44AB of the Act.
3. When the matter was called for hearing, the ld. counsel for the assessee relied upon the ‘Guidance Note of Tax Audit under Section 44AB of the Act’ issued by ICAI and submitted that for the expression ‘sale, turnover, gross receipts’ used in Section 44AB of the Act, the guidance note has observed that such expressions only represents the sum total of favourable and unfavourable differences arising from such transactions in derivatives, futures and options segment. Since such transactions are completed without delivery of shares or securities or the transaction are squared up by payment of differences and therefore, only such differences be it profit or loss has to be summed up for the purposes of determination of turnover etc. The ld. counsel submitted that the assessee is engaged in non-delivery based derivative transactions of business nature and therefore, the turnover has been wrongly adopted by the Revenue for full value of transactions instead of only resultant differences arising at the time of square up. The ld. counsel submitted that where the turnover is taken on net difference, both favourable and unfavourable turnover, the turnover to be reckoned for the purpose of Section 44AB of the Act would be far lower than the threshold limit applicable to the Assessment Year 2010-11.
4. The ld. DR for the Revenue, on the other hand, relied upon the penalty order as well as the first appellate order and submitted that the assessee has not attended the proceedings before the lower authorities at all which has put constraint on the revenue to pass ex-parte
5. We have carefully considered the rival submissions and straightway find ourselves in agreement with the plea raised on behalf of the assessee on first principles. As per the Guidance Note issued by the ICAI for the purposes of tax audit under Section 44AB of the Act, the turnover in the case of derivative and speculative transactions (which are non delivery based transactions), only the resultant difference arising to the assessee from such transaction has to be taken for the purposes of turnover instead of gross amount. The Assessing Officer has wrongly adopted the gross amount instead of the differences. While the approach of the assessee towards non-attendance and noncooperation before the lower authorities is highly improper and cannot be countenanced but however in the same vein, we notice that the total turnover as per the Guidance Note stands at Rs.4,59,321/- only, as per the material placed before the Revenue Authorities in the course of the assessment proceedings. Such turnover arising from derivative / speculative transactions are far lower than the threshold limit prescribed under Section 44AB of the Act. Consequently, a reasonable cause has been shown by the assessee for non compliance of provisions of Section 44AB of the Act. The issue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench in the case of Sachin Marotrao Rangari vs. ACIT (2022), 143 taxmann.com 318 (Rajkot) (Trib.)
6. While holding in favour of Assessee, we also advert to the contention of the Revenue that no material has been placed apparently placed in the penalty proceedings. We simultaneously observe that the relevant material was made available in the course of the assessment proceedings itself and therefore, application of Section 44AB was out of a contention in the assessment proceedings itself. In such a situation, instead of remitting the matter back to the file of the Assessing Officer, we consider it expedient to adjudicate the issue on merits without encouraging the protracted litigation on such small issue.
7. In the light of the delineations, the penalty imposed under Section 271B is reversed and cancelled.
8. In the result, the appeal of the asses see is allowed.
Order pronounced in the open Court on 23/05/2023
