SHRI RAJJAK AHMED KHAN, JAIPUR V. ITO, WARD-4(4), JAIPUR

ITA 1181/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4533 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 10-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C GUPTA JCIT DHK
• Assessee Lawyers: C L YADAV
• Keywords: Non passing of speaking order; Speculative transactions
• Section: 44AD; 273B; 43(5); 271B; 44AB; 147; 148; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH B, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,O A JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1181/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2010-11. SHRI RAJJAK AHMED KHAN P.NO. C-663, C-BLOCK, SANJAY NAGAR, BHATTA BASTI, JAIPUR. CUKE VS. THE INCOME TAX OFFICER, WARD 4(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AXNPK 1156 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI C.L. YADAV (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI K.C. GUPTA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 09.01.2020. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 13/01/2020. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 22.08.2019 OF LD. CIT (A) ARISING FROM PENALTY ORDER PASSED UNDER SECTION 271B OF THE I.T. ACT FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS RAIS ED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON F ACTS IN DISMISSING THE APPEAL OF THE APPELLANT IN LIMINE BY PASSING A NON SPEAKING ORDER. 2. THAT THE OBSERVATION MADE BY THE LD. CIT (A) IN THE APPELLATE ORDER IS INCORRECT AND LEGALLY UNTENABLE. SHE HAS F AILED TO CONSIDER THE MEANING OF TURNOVER AS PER THE GUIDANC E NOTES ISSUED BY ICAI. 2 ITA NO. 1181/JP/2019 SHRI RAJJAK AHMED KHAN, JAIPUR. 3. THAT LD. CIT (A) FAILED TO OBSERVE THAT ASSESSEE WAS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT AND IN CASE O F NON MAINTENANCE OF BOOKS OF ACCOUNTS ASSESSEE CANNOT BE PENALIZED FOR FAILURE TO GET ACCOUNTS AUDITED AND THEREFORE P ENALTY U/S 271B WAS NOT IMPOSABLE. 4. THAT THE LD. CIT (A) FAILED TO APPRECIATE THAT T HE BUSINESS WAS NOT COVERED U/S 44AD AND WAS THUS NOT SUBJECT TO AU DIT U/S 44AB R.W.S. 44AD AS HELD BY THE AO. (FOR AY 2010-11 , SEC. 44AD WAS APPLICABLE ONLY FOR BUSINESS OF CIVIL CONS TRUCTION OR SUPPLY OF LABOUR FOR CIVIL CONSTRUCTION) 5. THAT THE APPELLANT RESERVES HIS RIGHT TO ADD, AM END/MODIFY THE GROUNDS OF APPEAL. 2. THE ASSESSEE IS AN INDIVIDUAL AND DOING SHARE TR ADING TRANSACTIONS IN THE NATIONAL STOCK EXCHANGE, MUMBAI. THE AO ISSUED A N OTICE UNDER SECTION 148 ON 28 TH MARCH, 2017 TO ASSESS THE INCOME ARISING FROM THE ACTIVITY OF SHARE TRADING CARRIED OUT BY THE ASSESSEE. THE ASSESSMENT WAS CO MPLETED UNDER SECTION 147 /144 OF THE IT ACT VIDE UNDATED ASSESSMENT ORDER, THOUGH THE AO HAS STATED IN THE PENALTY ORDER PASSED UNDER SECTION 271B THAT THE AS SESSMENT WAS COMPLETED ON 19 TH DECEMBER, 2017. IN THE COURSE OF ASSESSMENT PROCEE DINGS IT WAS FOUND THAT THE ASSESSEES TURNOVER IN SHARE TRANSACTIONS IS RS. 2, 43,62,720/- AND, THEREFORE, THE ASSESSEE WAS REQUIRED TO GET ITS ACCOUNTS AUDITED U NDER SECTION 44AB OF THE IT ACT. THE AO FINALLY ASSESSED THE INCOME OF THE ASSESSEE BEING LOSS OF RS. 1,09,427/-. SUBSEQUENTLY, THE AO INITIATED THE PROCEEDINGS FOR LEVY OF PENALTY UNDER SECTION 271B OF THE ACT FOR NOT GETTING THE BOOKS OF ACCOUN T AUDITED AND LEVIED THE PENALTY OF RS. 1,00,000/- VIDE ORDER DATED 21/22.06.2018. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) AND CONTEND ED THAT THE TURNOVER OF THE ASSESSEE IS ONLY RS. 3,15,280/- AND, THEREFORE, IT DOES NOT REQUIRE ACCOUNTS OF THE 3 ITA NO. 1181/JP/2019 SHRI RAJJAK AHMED KHAN, JAIPUR. ASSESSEE TO BE AUDITED UNDER SECTION 44AB OF THE AC T. THE LD. CIT (A) WAS NOT IMPRESSED WITH THE CONTENTION OF THE ASSESSEE AND C ONFIRMED THE LEVY OF PENALTY UNDER SECTION 271B OF THE IT ACT. 3. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE AO HAS TAKEN THE TURNOVER OF THE ASSESSEE AT RS. 2,43,62,720/- I N SHARE TRANSACTIONS. HOWEVER, THE MAJORITY OF THESE TRANSACTIONS ARE SPECULATIVE TRANSACTIONS BEING INTRADAY TRADING IN THE SHARES WITHOUT ACTUAL DELIVERY AND, THEREFOR E, THE VALUE OF THESE TRANSACTIONS CANNOT BE TAKEN AS TURNOVER WHEN THERE WAS NO ACTUA L DELIVERY OF THE SHARES BUT THESE ARE ONLY SPECULATIVE TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN THE CATEGORY OF INTRADAY TRADING. THUS THE TURNOVER FOR THE PURPOS E OF SECTION 44AB IN RESPECT OF SPECULATIVE TRANSACTIONS IS ONLY THE AGGREGATE OF B OTH POSITIVE AND NEGATIVE DIFFERENCES ARISING FROM THESE TRANSACTIONS. IN SU PPORT OF HIS CONTENTION, HE HAS STRONGLY PLACED RELIANCE ON THE GUIDANCE NOTE ON AU DIT UNDER SECTION 44AB OF THE I.T. ACT ISSUED BY THE INSTITUTE OF CHARTERED ACCOU NTANTS OF INDIA (ICAI) AND SUBMITTED THAT AS PER THE SAID GUIDANCE NOTE, THE T URNOVER OR GROSS RECEIPTS IN RESPECT OF SPECULATIVE TRANSACTIONS OF SHARES AND S ECURITIES HAS TO BE DETERMINED IN THE MANNER PRESCRIBED THEREIN. THUS THE LD. A/R HAS SUBMITTED THAT IN CASE OF SPECULATIVE TRANSACTIONS IN THE SHARES ONLY THE AGG REGATE OF BOTH POSITIVE AND NEGATIVE DIFFERENCES ARISING BY SETTLEMENT OF VARIO US SUCH CONTRACTS DURING THE YEAR HAS TO BE TAKEN AS TURNOVER FOR THE PURPOSE OF AUDI T UNDER SECTION 44AB OF THE ACT. THE LD. A/R HAS REFERRED TO THE DETAILS OF THE TURN OVER IN THREE SEGMENTS OF SHARE TRADING CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. HE HAS SUBMITTED THAT AS FAR AS THE INTRADAY NON-DELIVERY BASED TRANSACTIONS ARE CONCERNED, 4 ITA NO. 1181/JP/2019 SHRI RAJJAK AHMED KHAN, JAIPUR. THERE IS A POSITIVE DIFFERENCE OF RS. 1,09,092.10 A ND NEGATIVE DIFFERENCE OF RS. 1,52,689.69 WHEREAS THE TURNOVER IN RESPECT OF DELI VERY BASED SALE TRANSACTIONS OF SHARE IS ONLY RS. 53,498.90. THE TOTAL TURNOVER CO MES TO RS. 3,15,280.69. THUS THE TURNOVER OF THE ASSESSEE IS LESS THAN RS. 40 LACS W HICH IS THE THRESHOLD LIMIT FOR APPLICATION OF THE PROVISIONS OF SECTION 44AB FASTE NING THE LIABILITY ON THE ASSESSEE FOR GETTING THE ACCOUNTS AUDITED. ONCE THE TURNOVE R OF THE ASSESSEE IS LESS THAN THE LIMIT PROVIDED UNDER SECTION 44AB, THEN THERE IS NO VIOLATION BY THE ASSESSEE AND CONSEQUENTLY NO PENALTY CAN BE LEVIED UNDER SECTION 271B OF THE IT ACT. THE LD. A/R HAS SUBMITTED THAT THE AO HAS TAKEN THE TOTAL VALUE OF THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN THE INTRADAY SPECULATIVE SEGMENT WHEREAS ONLY THE AGGREGATE OF POSITIVE AND NEGATIVE DIFFERENCES IS TO BE TAKEN AS TURNOVER. 4. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T IT IS NOT A DERIVATIVE TRANSACTION IN THE F & O SEGMENT BUT THE TRANSACTIO NS ARE CASH SECURITY THOUGH NON- DELIVERY BASED, THEREFORE, THE TOTAL VALUE OF THE T RANSACTIONS HAS TO BE CONSIDERED AS TURNOVER FOR THE PURPOSE OF SECTION 44AB OF THE ACT . HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. 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 WHE N THE ASSESSEE HAS DONE THE SHARE TRADING IN INTRADAY SEGMENT AND SOME OF THE T RANSACTIONS 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 SHAR ES WHICH ARE DELIVERY BASED. HOWEVER, THE DISPUTE IS REGARDING THE TURNOVER IN R ESPECT OF THE INTRADAY 5 ITA NO. 1181/JP/2019 SHRI RAJJAK AHMED KHAN, JAIPUR. TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THE AO H AS TAKEN THE TOTAL VALUE OF THE TRANSACTIONS AT RS. 2,43,62,720/- IN THE INTRADAY N ON-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 TH E LD. CIT (A) 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 TH AT THE ASSESSING OFFICER IMPOSED PENALTY UNDER SECTION 271B FOR NOT GETTING THE ACCOUNTS AUDITED. THERE IS NO DISPUTE AS TO THE FAC T THAT THE TURNOVER OF THE ASSESSEE IS MORE THAN THE LIMIT PRESCRIBED U NDER SECTION 44AB AND THE ASSESSEE HAS NOT GOT HIS ACCOUNTS AUDITED. ASSESSEE HAS TAKEN PLEA THAT THESE TRANSACTIONS OF STOCK RELATED TO IN TRADAY ACTIVITIES/NON- DELIVERY BASED TRANSACTIONS. THEREFORE, THE SAME DI D NOT REQUIRE AUDIT UNDER SECTION 44AB. ASSESSEE CLAIMED THAT THE TRANSACTIONS ARE NON DELI VERY BASED AND DAILY DIFFERENCE (BY IGNORING THE SIGNS) BE TAKEN A S TURNOVER. THIS PLEA CANNOT BE ACCEPTED AS IT IS APPLICABLE FOR TRANSACT ION OF DERIVATIVES WHEREAS ASSESSEE TRANSACTED IN CASH SECURITIES WHER E NON DELIVERY BASED TRANSACTIONS ARE CLASSIFIED AS SPECULATIVE TR ANSACTIONS AS PER SECTION 43(5) OF THE I.T. ACT, 1961. ACCORDINGLY AS SESSEE IS LIABLE TO GET HIS ACCOUNTS AUDITED. LOOKING TO THESE FACTS, PENAL TY UNDER SECTION 271B IMPOSED BY THE ASSESSING OFFICER IS CONFIRMED. THESE GROUNDS OF APPEAL ARE DISMISSED. ONCE THESE TRANSACTIONS ARE NON-DELIVERY BASED INTR ADAY TRANSACTIONS AND CLASSIFIED AS SPECULATIVE TRANSACTION AS PER THE PROVISIONS OF SECTION 43(5) OF THE IT ACT, THEN 6 ITA NO. 1181/JP/2019 SHRI RAJJAK AHMED KHAN, JAIPUR. THE TURNOVER IN RESPECT OF THESE TRANSACTIONS HAS T O 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 GU IDANCE 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 DETERMINE D 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 PERIODIC ALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPS. THUS, IN A SPECULATIVE TRANSA CTION, 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 OTH ERWISE AND SQUARED UP BY PAYING OUT THE DIFFERENCE WHICH MAY B E POSITIVE OR NEGATIVE. AS SUCH, IN SUCH TRANSACTION THE DIFFEREN CE AMOUNT IS TURNOVER. IN THE CASE OF AN ASSESSEE UNDERTAKING SPECULATIVE TRANSACTIONS THERE CAN BE BOTH POSITIVE AND NEGATIV E DIFFERENCES ARISING BY SETTLEMENT OF VARIOUS SUCH CONTRACTS DUR ING 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 A RE MADE ONLY FOR THE DIFFERENCES. ACCORDINGLY, THE AGGREGATE OF BOT H POSITIVE AND NEGATIVE DIFFERENCES IS TO BE CONSIDERED AS THE TUR NOVER OF SUCH TRANSACTIONS FOR DETERMINING THE LIABILITY TO AUDIT VIDE SECTION 44AB. THE TURNOVER HAS NOT BEEN DEFINED IN THE IT 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 DETERMIN ING THE TURNOVER IN RESPECT OF SUCH SPECULATIVE TRANSACTIONS. AS IT IS CLEAR FROM THE GUIDANCE NOTE ISSUED BY THE 7 ITA NO. 1181/JP/2019 SHRI RAJJAK AHMED KHAN, JAIPUR. ICAI THAT THE TURNOVER IN RESPECT OF NON-DELIVERY B ASED 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 OUT-COME OF SETTLEMENT OF SUCH CONTRACTS DURING THE YEAR. W E FIND THAT THE ASSESSEE HAS PRODUCED THE DETAILS OF THE SPECULATIVE TRANSACTION S 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 TR ANSACTIONS 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 PO SITIVE AND NEGATIVE DIFFERENCES OF THESE SPECULATIVE TRANSACTIONS GIVEN IN THE ABOVE T ABLE. 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 ASSES SEE IS LESS THAN THE THRESHOLD LIMIT PROVIDED UNDER SECTION 44AB, THEN THE ASSESSE E IS NOT REQUIRED TO GET ITS BOOKS OF ACCOUNT AUDITED IN TERMS OF SECTION 44AB OF THE IT ACT AND CONSEQUENTLY THE PENALTY PROVISION OF SECTION 271B OF THE IT 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 O F THE GUIDANCE NOTE OF ICAI, THEN THE SAID EXPLANATION OF THE ASSESSEE WOULD BE REGARDED AS REASONABLE AND 8 ITA NO. 1181/JP/2019 SHRI RAJJAK AHMED KHAN, JAIPUR. BONAFIDE AS PER THE PROVISIONS OF SECTION 273B OF T HE IT ACT AND CONSEQUENTLY NO PENALTY UNDER SECTION 271B IS LEVIABLE. ACCORDINGL Y, THE PENALTY LEVIED UNDER SECTION 271B IS DELETED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 13/01/2020. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKWO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 13/01/2020. DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-SHRI RAJJAK AHMED KHAN, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT-THE ITO WARD 4(4), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1181/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR