Case Law Details
Sanjay Marotrao Modak Vs DCIT (ITAT Mumbai)
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 derivatives. 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 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:
(i) The total of favourable and unfavourable differences;
(ii) Premium received on sale of options;
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