Opinion Of Eminent Legal Luminaries On Controversial Issues

Audit of accounts – Business – Profession – Limit of F & O transactions for tax audit

QUERY: A is having salary of about Rs. 30 lakhs. He has also done F & O transactions in shares. As per guidance note on tax audit of ICAI total of favourable and unfavourable differences shall be taken as turnover in F & O transaction. For A.Y. 2013-14 favourable difference is 80 lakhs and unfavourable difference is 10 lakhs, hence, A has paid income tax on Rs. 70 lakhs. Whether A is required to maintain books of account and get tax audit or can A claim that he does not maintain books of account, and offer business income @ 8% of Rs. 70 lakhs as per section 44AD?
ANSWER: The Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961 states that in case of Derivatives, Futurer and options the difference between total favourable and unfavorable is to be considered as turnover for the purpose of deciding the limit under section 44AB of the Act.
However, the Income tax Appellate Tribunal has held in Growmore Exports Ltd. v. ACIT [78 ITD 95 (Mum.)] and Banwari Sitaram Pasari HUF v. ACIT [140 ITD 320 (Pune)] that in the case of speculative transactions, no delivery takes place and accounts are settled only crediting / debiting the difference which are reflected in profit and loss account. Hence, no turnover has been effected and therefore the assessee is not liable to get the accounts audited under section 44AB. So in the extant case Rs. 70/- lakhs can not be considered as turnover and therefore A will not have benefit of section 44AD.


Posted in Income-tax
One comment on “Audit of accounts – Business – Profession – Limit of F & O transactions for tax audit
  1. Anushka says:

    Derivative Turnover is Rs 1.82 crores,F&O Trading loss is Rs 9 lakhs.
    Is Tax Audit applicable?

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