Treating Turnover of Intraday Equity transactions on Net basis allowed by ITAT

Facts and Issue of the case

The brief facts of the case are that the assessee filed its return of income at Rs. 6,64,660/- and it was selected for compulsory limited scrutiny assessment (CASS) and notice u/s 143(2) of the Act was issued to the assessee. Subsequently notice u/s 142(1) of Income Tax was also issued on the assessee, calling various details/documents in support of the accounts furnished along with the return. In response to the same, AR of the assessee appeared on different dates and filed various details and, documents in support of the return. Further the AR submitted the hard copy of return, balance sheet, income statement, profits & loss A/c, loan confirmation, bank statements, ledger of Angel Broking Pvt. Ltd., the broker of the assessee and derivative trading script wise details which were perused and kept on record. The transactions of shares were cross verified on test check basis with the transaction records furnished by the broker of the assessee in response to notice sent u/s 133(6) of the Income Tax Act. However, the AO found during the assessment proceeding that the assessee failed to comply with provisions as laid down in section 44AB of the Act as the assessee was involved in delivery based as well as non-delivery based trading of shares and securities and thus had speculative income/loss non- speculative business income/loss as per the provisions laid down in section 43(5) of the I.T. Act and therefore, provisions of section 44AB are applicable to the assessee. Accordingly a show cause notice dated 27.09.2017 was issued upon the assessee stating that as to why penal provisions of section 271B should not be involved in her case, but AO was not getting any response from the assessee. Accordingly penalty proceedings u/s 271B of the Income Tax Act, 1961 was initiated upon the assessee separately.

That during the penalty proceeding the assessee filed written submissions, submitting therein that he was ignorant of the law about applicability of section 44AB of the I.T. Act. The AO after considering and rejecting the contentions of the assessee imposed a penalty amounting to Rs. 1,50,000/- upon the assessee on 08.06.2018. Being aggrieved by the order dated 08.06.2018, the assessee preferred an appeal before the CIT(A) -3, Kolkata

Observation of the court

Hearing the rival submission and on careful perusal of material available on record, we find that the AO imposed penalty for not getting the accounts audited as according to the AO turnover exceeds the threshold limit as prescribed u/s 44AB of the Act. We note that the assessee is doing non-delivery based transactions and in such case the turnover has to be determined on the basis of the net of sales and purchase of shares. Further the default committed by the assessee is of technical nature and the AO was not handicapped for want of tax audit report while making assessment under appeal. The case of the assessee is squarely covered by the decision of coordinate bench of the Tribunal in the case of The Kalna Town Credit Co-operative Bank Ltd. vs ITO.

Keeping in view all the facts and circumstances of the case and relying on the decision of the coordinate bench of the Tribunal in the case of The Kalna Town Credit Cooperative Bank Ltd. (supra), court is of the view that the default committed by the assessee is a technical or venial nature. Beside that the assessment was selected for limited scrutiny to verify the derivative (future) transaction and securities transactions. The case of the assessee is squarely covered by the decision of coordinate bench of the Tribunal in the case of Shri Dwaraknath Krishnaram vs ITO. Considering the aforesaid facts and the judicial decisions, we are of the view that there is no requirement for getting the accounts audited u/s 44AB of the Act as the turnover is less than the prescribed limit. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the penalty.