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2023 (3) TMI 81 - AT - Income TaxPenalty levied u/s 271B - Turnover of the assessee was beyond the limit prescribed u/s 44AB of the Act and that the assessee has failed to submit the report of the auditors and audited statement of accounts and that the same leads to contravention of provision of section 44AB - Assessee argued CIT(A) has erred in confirming the penalty without considering the guidelines of ICAI in the working of turnover in future and option - HELD THAT - 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 issue involved in the present scenario is the legal sanctity of guidance note issued by ICAI for which we would like to place our reliance on the decision cited by the assessee in the case of Punjab Stainless Industries 2014 (5) TMI 238 - SUPREME COURT and Pact Securities and Financials Ltd 2002 (3) TMI 221 - ITAT HYDERABAD-A wherein it was held that the Hon ble Apex Court has recognized ICAI as an expert body of accountants and the guidance note on tax audit issued by them can be relied upon in the absence of any statutory provision for computation of turnover in such cases. Validity of the ICAI guidance for calculating the turnover in case of derivatives has been reiterated by various judicial precedence. Upon consideration of the said method of calculating the turnover in transactions related to future and options the assessee s case does not fall under the provisions of section 44AB which mandates auditing of books of accounts and furnishing audited statement of accounts. Appeal filed by the assessee is allowed.
Issues Involved:
Challenge to penalty under section 271B for Assessment Year 2015-16 based on turnover calculation guidelines of ICAI. Detailed Analysis: 1. The appeal was filed challenging the penalty under section 271B of the Income Tax Act, 1961, for the Assessment Year 2015-16. The appellant contested the penalty of Rs.1,50,000 levied by the Assessing Officer, arguing that the guidelines of the Institute of Chartered Accountants of India (ICAI) should have been considered in the turnover calculation for future and option trading. 2. The Assessing Officer observed that the appellant had shown a short-term capital loss from trading in future and option as a business loss, not as short-term capital loss. The total turnover from these transactions was declared as Rs.30,94,12,449, leading to the penalty imposition under section 271B for contravening section 44AB of the Act, as audited statements were not submitted. 3. The Commissioner of Income Tax (Appeals) upheld the penalty, stating that the appellant had indeed contravened section 44AB. The appellant then appealed to the Appellate Tribunal. 4. The appellant argued that as per CBDT Circular No. 6 of 2016, there was an option to treat income from trading in shares and derivatives as business income or capital gain for tax computation. Relying on ICAI guidelines, the appellant contended that the turnover calculation did not warrant a tax audit, citing relevant court decisions and a co-ordinate bench ruling. 5. The Departmental Representative opposed the appellant's arguments, emphasizing the turnover exceeding the limit set by section 44AB and the failure to produce audited statements, justifying the penalty under section 271B. 6. The Tribunal analyzed the nature of future and option transactions, highlighting the absence of physical goods or share delivery. Referring to ICAI's Guidance Note on Tax Audit, the Tribunal noted the method for turnover calculation in such transactions, emphasizing the independence of each transaction for turnover computation. 7. The issue revolved around the validity of ICAI's guidance note, supported by judicial precedents recognizing ICAI's expertise in accounting matters. Citing relevant court decisions, the Tribunal concluded that the appellant's case did not fall under section 44AB's auditing mandate based on the method of turnover calculation for derivatives. 8. Considering the judicial precedents and the co-ordinate bench ruling, the Tribunal found no merit in the Commissioner's decision and revoked the penalty under section 271B, allowing the appeal filed by the appellant. 9. The Tribunal's order, delivered on 21.11.2022, concluded in favor of the appellant, overturning the penalty imposed under section 271B.
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