The difference in non-delivery derivative Transactions be taken for determining Turnover for Tax Audit u/s 44AB of IT Act: ITAT deletes Penalty u/s 271B

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted the penalty under Section 271B of the Income Tax Act, 1961 holding that the difference in non-delivery derivative transactions should be taken for determining turnover for the purpose of tax audit under Section 44AB of the Income Tax Act.

The assessee Parag Jain who was engaged in non-delivery-based derivative transactions filed an appeal against the imposition of penalty under Section 271B of the Income Tax Act alleging that the assessee had not filed a tax audit report in terms of provisions of Section 44AB of the Income Tax Act despite the total value of transactions made in multi commodity exchange which exceeded the limit prescribed for audit of the books of account under Section 44AB of the Income Tax Act.

Priyansh Jain, on behalf of the assessee, relied upon the ‘Guidance Note of Tax Audit under Section 44AB of the Income Tax Act’ issued by the Institution of Chartered Accountants of India (ICAI) and submitted that for the expression ‘sale, turnover, gross receipts used in Section 44AB of the Income Tax Act, only represented the sum total of favourable and unfavourable differences arising from such transactions in derivatives, futures and options segment.

Since such transactions are completed without delivery of shares or securities or the transaction was squared up by the payment of differences and therefore, only such differences be it profit or loss had to be summed up for the purposes of determination of turnover etc.

He further submitted that the revenue had taken the full value of transactions instead of resultant differences.

Atiq Ahemad, appeared on behalf of the revenue.

The Division Bench of Kul Bharat, (Judicial Member) and Pradip Kumar Kedia, (Accountant Member) allowed the appeal filed by the revenue holding that as per the Guidance Note issued by the ICAI for the purposes of tax audit under Section 44AB of the Income Tax Act, the turnover in the case of derivative and speculative transactions (which are non-delivery-based transactions), only the resultant difference arising to the assessee from such transaction had to be taken for the purposes of turnover instead of the gross amount.

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