Notice u/s 139(9)of income tax act, 1961

To add more information, my Total Gross receipts (in intra-day trading) are Rs.36000 (Profit + Loss). For the audit elibility, what would the income mean? Is it the total income (salary+FD interest+ STCG etc..). If so, then audit is not required as per the resolution provided. Please confirm.

For intra day stock trading the total turn over is considered. 

suppose you buy Nifty fut   @ 8000 - you may be paying only around 10% for that.

But turn over of trade is  CP 8000 x  no of lots + SP . Same is the case of Calls and PUT

If you buy  Tata steel  200 call @  20  say  N lots then  total  trade is 220 x n lots.+ SP in same manner.

I hope i am correct on this.

@ CHANDRAPRAKASH

The income derived from intra day trading is assessable as speculative income and hence loss incurred on it is speculative business loss

The aggregate  of both  positive and  negative  differences  is to  be  considered  as the  turnover of  such transactions for  determining the  liability  to  audit  vide section  44AB. Hence in your case, it does not result in tax audit.

Your decision of filing itr4 form is correct. How have you filled your bp schedule is not known. Have you showed the loss under speculative business. If not then, itr filled is defective u/s 139(9). In such case, just file your return in response to sec 139(9) by rectifying the same.

@ ashish, in this case, what would be my income? Of all the shares I have traded (only intra day), I made a profit of Rs.1000 and loss of Rs.35000 ( net loss of Rs.34000.)

@ Rinkal, I have filled the following to reflect the business income (apart from other income).

Part A - General: Audit Information - (a) & (b) - selected as NO.

Nature Of Business - 0202-Retailers.

Balance Sheet - Nothing (I believe this need to filled up now as per notice)

P&L - No accounts case - 53(a) - Gross receipts - 35000, 53(b) - Gross Profit - (-34000)

BP: A-2(a) - (-34000)

@ Shiroor, It is equity trading and not F&O. Is the same logic applicable for equity as well. I mean, if I buy 100 Shares of Tata Steel @ 100 (Total of 10000 - but paying only a small margin amount) and sell them @ 110 (Total of 11000). What would be the turn over (1000 or 21000)?

@ Chandra Prakash:

Answer to Ashish's question :

Your income will be net loss of Rs 34000/-. However your turnover will be 36000/-

Answer to questions asked to me:

Nature of Business should be 0204  - Others

Balancesheet - Not required 

P&l - Gross Receipts should be 36000

Answer to S.Shiroor's question :

No, same logic will not work. Only the differences are to be calculated for turnover u/s 44AB in case of intraday and futures. While in case of Options, derivatives, commodity derivatives, differences + premium, if any are to be considered for turnover calculations

Clarifications: 

Did you set-off the loss against your other incomes?

Thanks Rinkal.

I did not set off losses against other income. Only STCG vs STCG. Nothing else. The intra day losses are just put in to carry forward to future years.

If the Balance Sheet is not required, then what would be the resolution here? Please refer my question for the possible resolution provided in the notice.

If my income is -34000 which is less than 8% of gross receipts (turn over), then I am eligible for audit. Is it so?

Sorry. Actually I need to correct myself and you as well. Since you have declared loss which is well within 44AD. Hence books of accounts are required and audit is also mandatory. 

Earlier I was of the perception that speculation business is not covered by 44AD. But on reading the clauses of Sec 44AD, I have come to the conclusion that even speculative business is covered by this section.

Truely very sorry for not providing you with a correct solution.

That means, I need to get it done through a CA right? any other option? Can I simply ignore the intra day losses and file ITR-2?. I am not so sure because, the notice says that I should retain everything in the ITR with rectifications.

No not possible. You cannot ignore your intraday losses at all. 

Now tell me ether your total income excluding speculative loss (since speculative loss cannot be setoff against any other heads of income) exceeds the basic exemption limit of 250000/-

If no, then audit and maintainence of books is not required.

If yes, then both has to be done. You just cannot ignore any of it

If it is a delivery based transaction then you can either consider as cg if held as invt, or business income if held as stock. But where there is no delivery, it is speculative. Intraday trading is without delivery and hence speculative. 

Speculative loss cannot be set off against any other head or source. Hence it is carried forward. And which case law tells that you cannot carry forward the loss? What point of view are you talking about?

@ Rinkal, I wish to add that it is NOT mandatory for him to claim the loss.

If assessee so desires, he may pay tax as per presumptive income even actually he is having loss.

Tax audit would apply only if he wants to claim the loss, this would be on his discretion considerig the audit fees and maintainance of the proper records.

As per S.44AB

Every person

(d) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person u/s 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed 

S.44AD(5)

Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB..

[You may disclaim the loss and declare profit]

@ Ashish 

If the purchase and sale is of securities derivatives/ F&O  (w/o delivery) then it is a normal business income [not a speculative]

Same goes for commodities deravative in future market (other than aggricultural)

S43(5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips:

Provided that for the purposes of this clause—

 (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or

 (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or

 (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or

 (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;[or]

[(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association , which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]]

shall not be deemed to be a speculative transaction.

[Explanation 1].—For the purposes of clause (d)], the expressions— [That is for deravatives]

(i) "eligible transaction" means any transaction,—

(A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and

(B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act;

(i) "commodity derivative" shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013;

(ii) "eligible transaction" means any transaction,—

(A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognised association; and

(B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act;

Thanks Z. What is my best bet here? How should I proceed further.