F&O loss and Profit from Professional Income - Tax audit applicability

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A doctor with professional income of £6 lakh and a turnover of £10 lakh also incurred a £2 lakh loss from F&O trading on a £5 lakh turnover. While filing their ITR, they received a warning about tax audit applicability because the combined net profit (£4 lakh) fell below 50% of the professional turnover. Despite declaring F&O under business and professional receipts separately with distinct codes, the ITR software combined the figures, triggering the warning. Experts advised that the tax audit is likely not applicable given the individual turnovers are below the threshold and suggested ignoring the warning if confident in the separate declarations.

Priyanka

Priyanka (Querist)
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07 July 2023 Dear Experts
Client has profit from his professional income being a doctor 6 lakh. Turnover is 10 lakh so profit from profession is more than 50%
He has loss in F&O trading around 2 lakh. F&O turnover is 5 lakh
However, while filing ITR, getting an error that net profit from profession is below 50% and you are liable to tax audit.
as when we file combined P&L in ITR, Net profit is 4 lakh ( 6 profession and 2 F&O loss )
Turnover from Profession 10 lakh and F&O 5.
ITR is considering Profession turnover of 10 lakh and giving a warning for tax audit as profit falls below 50% in P&L account
Kindly guide with your opinions. Whether the tax audit is required ? But respective turnovers are below the applicable limit

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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07 July 2023 F&O transactions should be declared under business activity, while that of medical profession under professional activity. Don't combine both.
Select respective codes of business and profession separately. The warning will go off.

Priyanka

Priyanka (Querist)
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07 July 2023 Yes Sir F&O Turnover declared under Other services of Business head and Professional receipts differently in P&L account. Respective heads selected under business activity still warning continues. but combined profit falls below 50% of professional receipts and warning is given. Legally i feel we are not liable to tax audit.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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07 July 2023 Tax audit is not at all applicable as business TO is 5 lakhs and professional receipts are just 10 lakhs. Have you chosen different business codes for both these activities?
Have you filled the TOs separately? have you declared profit in profession as 6 lakhs?

Priyanka

Priyanka (Querist)
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08 July 2023 Yes sir,....TOs are filled separately...different business code chosen...however, net profit got combined due to single P&L in ITR 3 - we cannot show bifercation how much is profit from profession and how much is F&O loss.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 July 2023 In that case ignore the warning, as it is not applicable & validate ITR.

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