First of All, I want to suggest Kingsley that please dont reply to any query in case u r not certain on any issue. Even if you think that have information on certain matter please substantiate it with any case law, section or circular. If you cant help someone then atleast don,t create confusion. and please don't take it seriously its just a humble request to you because CACLUBINDIA should be a plateform to help eachother not creating confusion.
For understanding purpose I have made my reply in a layman language, Use of statute language is minimal. I hope it will clear your confusion, in case of any doubt do reply back.
There is no definition is given to the term ‘turnover’ for the purpose of tax audit under section 44AD. For that purpose Institute of Chartered Accountants of India has issued guidelines which are being followed and also being accepted by the Income tax Deptt. For the purpose of Share transactions the guidelines are being reproduced as follows (Extracts only relating to your case)
Section 43(5) Speculative Transation :- "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.
Tax audit applies to every person whose total sales, turnover or gross receipts in business exceeds Rs 40 lakh. Intraday trading is considered as speculative business. . As per the guidelines issued by the Insititute of Institute of Chartered Accountants of India(ICAI), a speculative contract is settled by paying out the difference, which may be positive or negative .Thus, the aggregate of both positive and negative differences, i.e., profit or loss from transactions is considered as the turnover for determining the liability to audit vide Section 44AB of the Income Tax Act, 1991.
As you are engaged in intra-day trading, the aggregate of profit and loss and not purchase and sale will be considered for determining the liability to audit.
Delivery based transactions:Where the transaction for the purchase of sale of any commodity including stocks and share is delivery based whether intended or by default, the value of the sales is to be considered as turnover.
The above guidelines in your case would be applicable as follows
1) You have to calculate profit or loss for each transation relating to Intra day trading
2) Sum up all the transaction Where you earn profit
3) Sum up all the transaction where you earn loss
4) Aggregate (1) and (2), Which will be considered as turnover relating to Intra day trading for the purpose of tax audit.
5) Now sum up Sales of Rs.17.72 lacs (i.e. Delivery Transaction) with (4) above.
Now if amount calculated under (5) above is more than Rs. 40 lacs than you are liable to Tax Audit Otherwise not. I guess after calulating as above you wont be liable to tax audit.
E.g.
You have made 200 intra day transaction during the previous year & you made profitof Rs. 5,00,000 in 100 transactions and loss of Rs. 5,00,000 in other 100 transations, then turnover to be included for tax audit purpose is 10,00,000.
Thanks & Regards
CA. Hitesh Kumar
CAclubindia
