2020 (2) TMI 1629 - AT - Income Tax

Tribunal rules Futures & Options not speculative, penalties revoked.

Shri. Dwaraknath Krishnaram Versus Income Tax Officer, Chennai

The Tribunal ruled in favor of the Assessee, holding that the treatment of Futures and Options Transactions as speculative transactions was valid. ... Levy of penalty u/s.271B - turnover of the assessee required the assessee to get his accounts audited as provided u/s.44AB - assessee is an individual who was doing Speculative Transactions in Derivatives and Securities Transactions - HELD THAT:- In the present case, it is clear from the assessment order which shows that the assessment was selected for limited scrutiny to verify the derivatives, (Futures Transactions and Securities Transactions). The assessee has disclosed the loss against the Futures and Options as a speculative loss. However, the Assessing Officer treated the same as a business transaction. A perusal of the decision in the case of Banwari Sitaram Pasari [HUF] [2013 (1) TMI 234 - ITAT PUNE] has held that when no physical delivery is taken or given, the transaction of buying and selling of commodities is to be considered as speculative transaction and consequently there is no turnover constituted for the purpose of the assessee to get his accounts audited u/s.44AB. As the facts in this assessee’s case are identical it is held that the assessee’s accounts is not liable for audit u/s.44AB. Consequently, the penalty levied u/s.271B of the Income Tax Act, 1961 as levied by the Assessing Officer and as confirmed by the learned Commissioner of Income Tax (Appeals) stands deleted. - Decided in favour of assessee. Issues:Appeal against penalty u/s.271B of the Income Tax Act, 1961 for Assessment Year 2015-16 based on treatment of loss in speculative transactions as business transactions.Analysis:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the penalty u/s.271B of the Income Tax Act, 1961. The Assessee, an individual engaged in Speculative Transactions in Derivatives and Securities Transactions, claimed the loss in 'Futures and Options Transactions' as speculative transactions. However, the Assessing Officer treated it as a business transaction, requiring the assessee to get accounts audited under u/s.44AB. The Assessee argued that no outflow of funds occurred, and thus, turnover should not include these transactions. The Assessee relied on a decision by the Pune Bench of the Tribunal in a similar case to support their contention.During the proceedings, the Authorized Representative for the Assessee and the Departmental Representative presented their arguments. The Tribunal examined the assessment order, which revealed that the assessment was selected for limited scrutiny to verify derivatives transactions. The Assessing Officer's treatment of the loss as a business transaction conflicted with the Assessee's claim of it being a speculative loss. Referring to the Pune Bench's decision, the Tribunal concluded that transactions without physical delivery constitute speculative transactions, and no turnover is formed for audit under u/s.44AB. Therefore, following the precedent, the penalty u/s.271B was deemed unjustified, and the appeal of the Assessee was allowed.In summary, the Tribunal ruled in favor of the Assessee, holding that the treatment of Futures and Options Transactions as speculative transactions was valid. The decision emphasized that transactions without physical delivery are speculative and do not contribute to turnover for audit purposes under u/s.44AB. Consequently, the penalty imposed by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) was revoked, and the appeal was allowed.