Tax
Matters: Is audit necessary if net intra-day trading is low but turnover is in
crore of rupees?
The aggregate of the difference amount,
i.e., positive difference (profit) and negative (loss) difference should be
considered as turnover.
Under the Income Tax (IT) Act, 1961, an assessee has to get
his books audited if a specified turnover is crossed.
Under the following
conditions, what is the status of its applicability?
*
The person undertaking share trading activity is an
individual.
*
He does not have any registered company to do this
business. He does it in his individual capacity and without any office premises
and other infrastructure hired for this purpose.
*
Undertakes delivery-based as well as intra-day share trading.
*
In intra-day trading, the net amount (profit or loss) is low but trades run
into crore of rupees on purchase as well as sales.
*
As both sales and purchase runs into crore of rupees, does an assessee have
to maintain a set of account books and get them
audited?
As the net effect is not running into lakh and the
turnover does not cross the limit of Rs 60 lakh, is audit required? Or can the
net effect be shown under, ‘Speculative business'. Is the turnover the total of
purchase or total of sales or net of these two? Is it total profit or total
loss or net of these two? Or is it total of profit and total of loss put
together?
The
assessee does delivery-based as well as intraday share trading. He does share
trading activity in the capacity of an individual without a registered company.
The assessee is engaged in two types of transactions:
intra-day (speculative) and delivery based. Speculative transaction means a
transaction in which a contract for the purchase or sale of any commodity
including stock and shares is periodically or ultimately settled otherwise than
by the actual delivery or transfer of the commodity or scripts.
Therefore,
in such transactions, the aggregate of the difference amount, i.e., positive
difference (profit) and negative (loss) difference should be considered as
turnover for the purpose of determining the liability to audit under Section
44AB of the IT Act.
If
the transaction for the purchase or sale of any commodity including stocks and shares is delivery based, it means the actual
delivery has taken place. Hence, the total value of the sale is to be
considered as turnover for determining the liability to audit under Section
44AB.
One more issue
may arise:
is the purchase or sale of shares undertaken by the assessee is in the course
of business or investment? The answer to this issue
will depend on the facts and nature of transaction.
Books
of accounts have to be maintained to determine the turnover of the business.
The total turnover for intra-day trading in shares will be the aggregate of
both positive and negative differences of all the transactions. For example, if
there is a profit in one transaction and loss in another, the profit and loss
of both the transactions have to be added for determining the turnover.
Therefore,
under Section 44AB, books of accounts have to be audited if the total turnover
as per speculation and delivery-based transaction of the assessee in the course
of business exceeds Rs 60 lakh.
