ITAT affirms method given in ICAI guidance note for calculation of F&O Turnover

ITAT affirms method given in ICAI guidance note for calculation of F&O Turnover The Mumbai Tribunal recently affirmed the method given in the guidance note by the Institute of Chartered Accountants of India (ICAI) for the calculation of Futures and Option Turnover. The bench of Shri Om Prakash Kant, and Ms. Kavitha Rajagopal found validity in the ICAI guidance for calculating the turnover in case of derivatives. The same has been reiterated by various judicial precedence, they added. Brief facts are that the assessee is engaged in the business of trading, financing, reality and commodity etc. The assessee filed his return of income dated 04.04.2016, declaring total income of Rs.72,46,410/- for the impugned year. The assessee’s case was selected for scrutiny and assessment order dated 24.11.2017 was passed u/s.143(3) determining total income at Rs.72,46,410/-. The A.O. observed that the assessee has shown short term capital loss of Rs.3,74,357/- from trading in future and option, which was treated as ‘business loss’ instead of ‘STCL’, as the assessee was trading in future and option and not sale of asset. It is also observed that the assessee has declared total turnover from the impugned transaction in future and option of Rs.30,94,12,449/-. The A.O. levied penalty u/s.271B amounting to Rs.1,50,000/- on the ground that as the 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 of the Act. The ld. AR for the assessee contended that as per the CBDT Circular No. 6 of 2016 dated 29.06.2016, the assessee has got an option to either treat the income arising out of business from trading in shares and derivates as ‘business income’ or as ‘capital gain’ for computing tax. The assessee in this case has treated the same as ‘business loss’ and not ‘STCL’, pertaining to the transaction in future and option. The ld. AR relied on ICAI guidelines in calculating the turnover from future and option and as per the said guideline, the assessee’s case would not fall under the limit for tax audit and that the levy of penalty u/s.271B was erroneous in the present case. The ld. AR relied on the decision of the Hon'ble Apex Court in the case of CIT vs. Punjab Stainless Industries [2014] 364 ITR 144 (SC) and in case of CIT vs. Pact Securities and Financials Ltd. [2003] 86 ITD 115 (Hyd.), which held that the method of accounting, prescribed by ICAI can be relied upon for computing turnover in case of shares and derivates. The ld. AR also relied upon the decision of co-ordinate bench in case of Sachin Maratrao Rangari vs. ACIT [2022] 143 taxmann.com 318 (Rajkot – Trib). Tribunal held that 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 of the Act which mandates auditing of books of accounts and furnishing audited statement of accounts. From the above-cited decisions, and also decisions of the co-ordinate bench in case of Sachin Maratrao Rangari (supra) on identical issue, ITAT found no merit in the order of ld. CIT(A) and the penalty levied u/s. 271B of the Act was deleted. For Official Judgment Download PDF Given Below: