Tax Audit u/s 44AB Not Applicable When Turnover is Below ₹60 Lakh: ITAT Deletes Addition [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition for business loss claim from derivative trading observing that tax audit under section 44AB was not applicable when turnover was below ₹60 lakh which is the threshold limit.

Nirmal Kumar Dugar (assessee) for the Assessment Year 2016-17 the assessment included two additions which was ₹12,59,537/- as income from house property and ₹1,04,155/- as income from other sources.

The AO made these additions after concluding that the assessee's claimed business loss of ₹18,39,385/- from shares and securities transactions (derivatives) was speculative in nature under Section 43(5) of the Income Tax Act, 1961. The AO treated the set-off of this loss against income from house property and other sources as unsustainable.

Aggrieved by the AO’s order, the assessee had challenged the order of the commissioner of Income Tax (appeals) [CIT(A)]. The CIT(A)'s primary objection was that since the case involved a loss from derivative trading which was less than 8% of the turnover, the provisions of Section 44AB read with Section 44AD relating to Tax Audit were attracted.

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The CIT(A) held that the assessee was not eligible to claim the business loss because he had not got his books of account audited. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The two-member bench comprising Gagan Goyal (Accountant Member), and Narinder Kumar, (Judicial Member) noted that the relevant limit for the audit requirement under Section 44AB and the threshold for 'eligible business' under Section 44AD (prior to the amendment w.e.f. 1.4.2017) was a total turnover or gross receipts not exceeding ₹60,00,000.

The tribunal observed that the CIT(A) had mentioned in the impugned order that the trading turnover of the assessee was less than ₹1 Crore. The Tribunal observed that the department did not claim that the trading turnover exceeded ₹60,00,000.

The Tribunal held that the requirement of auditing of account books was not applicable in the case of the appellant. Since the only objection by the CIT(A) to the eligibility of the business loss was the non-auditing of account books, the Tribunal found that the claim of the assessee deserved to be allowed. In the result, the appeal filed by the assessee was allowed

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