SAHIL GUPTA,DELHI V. CIT(A), DELHI

ITA 1739/DEL/2025

AI Insights

The case involves Shri Sahil Gupta, who appealed against the penalty levied by the Assessing Officer under section 271B of the Income Tax Act, 1961, for not auditing his books as required under section 44AB due to his F&O trading activities. The Assessing Officer had considered the total transaction value of Rs. 55.64 crore as turnover, which led to the penalty. However, the assessee argued that the actual turnover, considering only the net profit/loss from these transactions, was Rs. 29,28,652, well below the Rs. 10 crore threshold for mandatory audit. The Tribunal agreed with the assessee's computation method, referencing the ICAI's guidance on how to calculate turnover for tax audit purposes in the context of F&O trading.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 716652 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2022-2023
• Appeal Filed On: 21-03-2025
• Other Referred Cases: Sachin Marotrao Rangari v ACIT, CIT vs. Punjab Stainless Industries, CIT vs. Pact Securities and Financials Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: SAHIL GUPTA; ASSESSEE HIMSELF
• Keywords: Business income; Reasonable cause; Bonafide belief; Capital Gains; Transactions in derivatives; Futures and options; Speculative transactions
• Section: 273B

Judgement Text

"Page 1 of 10 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘G’ BENCH, NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Vs. The C.I.T(A) D-304, Vivek Vihar, Delhi New Delhi PAN – AOIPG 4087 K (Applicant) (Respondent) Assessee By : Shri Sahil Gupta, [Assessee himself] Department By : Shri Manish Gupta, Sr. DR Date of Hearing : 14.08.2025 Date of Pronouncement : 22.08.2025 ORDER PER NAVEEN CHANDRA, A.M:- This appeal by the assessee is preferred against the order of ld. CIT(A), New Delhi dated 18.01.2025 for A.Y 2019-20. 2. The only substantive ground raised by the assessee is that the Assessing Officer erred in levying penalty levied u/s 271B of the Income- tax Act, 1961 [the Act, for short]. Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 2 of 10 3. Briefly stated, the facts of the case are that the assessee is an individual and filed his return of income declaring Rs 4,92,310/- for the A.Y.2022-23 on 27.02.2022. During the assessment proceedings, the Assessing Officer completed the assessment u/s143(3) r.w.s. 144 of the Act assessing the total income at Rs.30,31,456/-. Further, the Assessing Officer found that the assessee is also trading in shares and was also conducting transactions under the F&O segment where the total transaction was of Rs 55.64 crore. Considering the same as turnover of the assessee, the AO initiated penalty proceedings for non-audit of the books of account as per section 44AB of the Act and levied penalty of Rs 1,50,000/- u/s 271B of the Act. The same was confirmed by the CIT(A) and hence the assessee is before us. 4. At the very outset, the ld. counsel for the assessee submitted that Assessing Officer has erred in levying penalty u/s 271B of the Act by considering F&O turnover Rs.55,64,95,179/- as against actual F&O turnover of Rs. 29,28,652/- and Speculation turnover Rs.2,87,421/-. The assessee submitted that Section 44AB of the Act specifies the conditions for a tax audit section 44AB(a) which states that : “ If the total turnover from F&O trading exceeds Rs 10 crore, an F&O trading tax audit is mandatory. Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 3 of 10 5. The ld. counsel for the assessee vehemently stated that since the cumulative turnover from F&O and speculation transactions are below the threshold limit, there is no liability of Tax Audit and his only income was under the head “Income from Business” in trading in F&O segment and speculative transactions. All other equity transactions were considered under the head income from Capital Gain. 6. The ld AR relied on the Guidance Note issued by ICAI regarding turnover in case of derivatives, futures and options and stated that 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. The ld. counsel for the assessee relied on the following judicial pronouncements: • Sachin Marotrao Rangari v ACIT 2022 TaxPub(DT) 6494 (Rkt Trib) • CIT vs. Punjab Stainless Industries (2014) 364 ITR 144 (SC) • CIT vs. Pact Securities and Financials Ltd. (2003) 86 ITD 115 (Hyd.), Wherein it has been held that the method of accounting, prescribed by ICAI can be relied upon for computing turnover in case of shares and derivatives. Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 4 of 10 7. Per contra, the ld. DR relied on the orders of the authorities below. 8. We have heard the rival submissions and have perused the relevant material on record. We find that the Section 44AB mandates the assessee to get accounts audited or furnish a report of Tax audit if sales, turnover or gross receipts exceeds Rs.1 crore in the FY. It further provides that where the cash transactions, for sales, turnover or gross receipts, are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to Rs. 10 crores. Since in F&O transactions, the trading is done through digital means only, the enhanced limit of Rs. 10 crore shall apply to determine the applicability of tax audit. 9. We further find that the Guidance Note of ICAI on tax audit, explains that the transactions in derivatives, futures and options are completed without actual delivery of shares or securities or commodities etc. These are squared up by receipts/payments of differences. The contract notes are issued for the full value of the underlined shares or securities or commodities etc. purchased or sold but entries in the books of account are made only for the differences. The turnover in case of Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 5 of 10 derivatives, futures and options shall be calculated as the sum of the following: (i) The total of favourable and unfavourable differences in case of squared off transactions shall be taken as turnover. (ii) Premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, then such net profit should not be separately included. (iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover. (iv) In case of an open position as at the end of the financial year (i.e., trades which are not squared off during the same financial year), the turnover arising from the said transaction should be considered in the financial year when the transaction has been actually squared off. (v) In case of delivery based settlement in a derivatives transaction, the difference between the trade price and the settlement price shall be considered as turnover. Further, in the hands of the transferor of underlying asset, the entire sale value shall also be considered as business turnover where the underlying asset is held as stock in trade. 10. Thus we find that tax Audit Requirements for F&O trading is determined based on the turnover involved. In the case of transactions that have been squared off, the aggregate of the favorable and unfavorable differences (i.e. profits + losses), is used to determine the resulting turnover of the transaction. The losses are not to be subtracted from the profits, rather their numerical values are to be summed up to Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 6 of 10 calculate the absolute turnover. Hence the calculation of turnover is the cumulative total of only the net profit/loss embedded in the sales and purchase of futures. 11. In the instant case, the assessee has submitted details working of his F&O turnover, as per the ICAI guidance note, which works out to Rs 29,28,651/- whereas the AO has computed the turnover in traditional sense by taking the entire sales/purchase consideration of Rs 55.64 crore. We also note that the legality of adopting the Guidance Note of ICAI was sanctioned by the hon’ble Supreme Court in the case of CIT vs. Punjab Stainless Industries and CIT vs. Pact Securities and Financials Ltd.(supra) by holding that the guidance note by ICAI on tax audit issued by them can be relied upon in the absence of any statutory provision for computation of turnover in such cases. 12. In view of the judicial dictate, we are of the view that the turnover of the assessee in transactions related to future and options, as per ICAI note, being below the prescribed limit of Rs 10 crore, and hence the assessee's case does not fall under the provisions of section 44AB of the Act requiring audit of books of accounts. We are therefore, of the considered view that penalty under section 271B is not warranted and accordingly we direct the AO to delete the penalty levied u/s. 271B of the Act. We are fortified in our view from the decision of Coordinate Bench of ITAT in the case of Sanjay Marotrao Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 7 of 10 Modak in ITA 2041/Mum/2021 and that of Sachin Maratrao Rangari (supra) on identical issue. 13. We further are of the opinion, from another legal angle as provided under section 273B of the Act, that the assessee is not exigible to penalty u/s 271B as his explanation that he has computed his F&O turnover on the basis of ICAI guidance was neither considered by the AO nor the CIT(A). We find that the assessee explanation for failure to get his books audited stems from a ‘reasonable cause’ as provided u/s 273B of the Act and the Assessing Officer and the CIT(A) ought to have considered the same before levying penalty as the levy of penalty u/s 271B is discretionary and not automatic. We find support from the ITAT, Rajkot Bench in the case of Sachin Marotrao Rangari [supra] which has taken the following view: “7. We have heard both sides arguments and perused the materials available on record including the Paper Book and Case Laws filed by the assessee. The assessee vide its reply letter dated 08.12.2018 brought to the attention of the A.O., CBDT Circular No. 6/2016 which clarified the tax payers to choose whether the gains or losses from sale of listed shares/securities either should be treated as Business Income or Capital Gains. Further the assessee is of the bonafide belief that the net result in the trading of shares, cash and commodity shall be considered as \"turnover\" as per the Guidance Note issued by the Institute of Chartered Accountants of India (ICAI). Thus the total turnover from Derivatives, Equity Shares and Mutual Fund is Rs. 48,43,374/- which does not exceed Rs. 1 crore specified u/s. 44AB of the Act for the present Assessment Year 2016-17. Therefore the assessee is not liable to Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 8 of 10 get his books audited and furnish audited report u/s. 44AB of the Act and consequently penalty cannot be levied u/s. 271B of the Act. The imposition of penalty under section 271B of the Act is not mandatory, rather it is discretionary, because if the assessee proves that there was a \"reasonable cause\" for the said failure, then the Assessing Officer ought to have considered the same and then proceed with levying penalty. For better understanding, Section 271B is extracted as follows: 271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or [furnish a report of such audit as required under section 44AB], [Assessing] Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of [one hundred fifty thousand rupees], whichever is less.] 7.1. A perusal of the above provision shows that the Parliament has used the words \"may\" and not \"shall\", thereby making their intention clear in as much as that levy of penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act namely \"penalty not to be imposed in certain cases\". A careful reading of Section 273B encompasses that certain penalties \"shall\" be imposed in cases where \"reasonable cause\" is successfully pleaded. It is seen that penalty imposable u/s 271B is also included therein. By the said provisions, the Parliament has unambiguously made it clear that no penalty \"shall be\" imposed, if the assessee \"proves that there was a reasonable cause for the said failure\". As noticed, if the statutory provision shows that the word \"shall\" has been used in Section 271B, then the imposition of penalty would have been mandatory. Section 271B as extracted above further throws light on the legislative intent as it specifically provides that no penalty \"shall' be imposed if the assessee proves \"that there was reasonable cause for the said failure\". Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 9 of 10 7.2. Further the Hon'ble Supreme Court in the case of Punjab Stainless Steel Industries (cited supra) recognize the Guidance Note issued by ICAI. The Jurisdictional High Court in the case of Sachinam Trust (cited supra) also held that the appropriate expression to be considered for deciding the applicability of the provisions of section 44AB would be the term 'gross receipts', the assessee, carrying on the business of financing, bona fidely believed that gross receipts of interest, and not gross amount of advances, would constitute the basis for ascertaining the limit of Rs. 40 lakhs so as to attract section 44AB, the assessee could be said to have a reasonable cause for not getting its accounts audited under section 44AB, and as such no penalty could be imposed on the assessee. 7.3. In the facts of the present case, it is seen that the explanations offered by the assessee have been ignored by the Assessing Officer as well as Ld. CIT(A) on the ground that the Guidance Note issued by the ICAI is not binding on the Income Tax Authorities whereas the Hon'ble Supreme Court and Co- ordinate Bench of the Tribunal recognizes the same and applicable in the case of the assessee. 7.4. For the above reasons, we have no hesitation in deleting the penalty levied u/s. 271B of the Act.” 14. In the result, the appeal of the assessee in ITA No. 1739/DEL/2025 is allowed. The order is pronounced in the open court on 22.08.2025. Sd/- Sd/- [MADHUMITA ROY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22nd AUGUST, 2025. Printed from counselvise.com ITA No. 1739/DEL/2025 [A.Y. 2022-23] Shri Sahil Gupta Page 10 of 10 VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order . 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the typed draft Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes for xerox 12. The date on which the file goes for endorsement 13. The date on which the file goes to the Superintendent for checking 14. The date on which the file goes to the Assistant Registrar for signature on the Tribunal order 15. Date on which the file goes to the dispatch section 16. Date of Dispatch of the Order Printed from counselvise.com "