Applicability of Tax Audit

[ASHISH DESAI]

A person is a salaried professional having taxable salary of Rs.15,00,000/-. He also deals in shares, whereby his Capital gain is Rs.7,00,000/-(S.T.C.G.) & Speculation Profit is 5,00,000/. His cost/Sale Price of total shares purchased/sold during the year exceeds 40,00,000/-( say SP-42 lacs & cost 30 lacs plus cost of shares in stock worth Rs.4 lacs purchased during the year). Is provisions of  Section 44AB, Tax Audit applicable? If yes, under which criteria he is covered for Tax Audit? kindly advise.

[Markesh Antony]

There can not be two things at once. On the one side, you are stating that income from sale and purchase of shares is short term capital gain on the other side you discuss about section 44AB. Section 44AB is applicable on for business turnover. Once the sale and purchase activity is falling within the category of capital gains, the monetary limit of tax audit u/s 44AB can not apply. Now, therefore, you should ascertain the nature of your activity. Indeed, it is true that determination of correct category may be difficult. But given certain principles by the CBDT or case laws, you may determine the same and decide accordingly.

AI Summary

Tax audit applicability hinges on whether share dealings are business (turnover-based audit) or capital gains, removing the turnover test. Whether a taxpayer with salaried income and share transactions is subject to a tax audit depends on whether the securities activity is characterised as business (bringing turnover-based audit criteria into play) or as capital gains, in which case the turnover test for audit does not apply; the determination turns on indicia such as frequency, motive, holding period, volume and accounting treatment and must follow administrative guidance and case law.